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Tax Law and Your Chapter

In 2009, your chapter may have received a postcard from the Internal Revenue Service explaining a change that will affect your chapter or colony. Board members or other Fraters may have also read very confusing language about this change in who needs to file tax forms. Below you will find a simple explanation of what the changes are, who they apply to and what the future holds for this new tax law.

Prior to the passage of the Pension Protection Act of 2006 ("PPA"), smaller organizations like our chapters and colonies, (those normally having no more than $25,000 of gross receipts each year), did not have to file annual information returns. The PPA requires all such organizations to electronically provide certain information annually (on a calendar year basis), including name of an officer and "evidence of its continued exemption" from filing the annual return. This information will be subject to the exempt organization disclosure requirements, so that all such organizations will have to make this information publicly available upon request. An organization that fails to file this information for three consecutive years loses its tax exemption. This provision applies to annual periods beginning after 2006.
 
In July 2007, the Internal Revenue Service began mailing educational letters to more than 650,000 small tax-exempt organizations that may be required to submit the annual notice required under the PPA. The annual notice has been designated "Form 990-N Electronic Notice (e-Postcard) for Tax-Exempt Organizations Not Required to File Form 990 or 990-EZ." 
 
Those with gross receipts of less than $25,000 have not previously been required to file forms, but beginning in tax year 2007, they had  to file a Form 990-N, or e-Postcard. By 2010, the e-Postcard threshold will be raised to $50,000 in gross receipts. By 2010, nonprofits with gross receipts between $50,000 and $200,000 in gross receipts, and less than $500,000 in total assets, will be permitted to file a Form 990 EZ. In the meantime, organizations with gross receipts of more than $100,000 or total assets of at least $250,000 must file the Form 990 for the 2009 tax year. 
 
According to its news release, the IRS calls the new form an "e-Postcard" because "it is short, easy, and electronic." Organizations will be able to submit it free of charge. The e-Postcard requires small organizations to provide a legal name and mailing address, any other names used, a Web address if one exists, the name and address of a principal officer and a statement confirming that the organization’s annual gross receipts are normally $25,000 or less.
 
The IRS continues to develop a free reporting system for the e-postcard and an application to make the information available to the public on IRS.gov
 
There are many small fraternity organizations that have not been previously required to file Form 990. This includes TKE chapters, colonies, alumni associations, and even some house corporations. The first e-Postcards were due in 2008 for tax years ending on or after December 31, 2007. The e-Postcard is due every year by the 15th day of the 5th month after the close of your tax year. For example, if your tax year ended on May 31, 2009, the e-Postcard is due October 15, 2010.   
 
For additional questions or inquiries, read the IRS story.

Adapted from Fraternal Law Publication, IRS.gov and Crowe Horwrath.

CAUTION Do Not Lose your Tax Exempt Status. File your IRS Form 990 

October 15 - IRS Form 990 due (if June 1 to May 31 Fiscal Year).

IRS Deadline October 15


Two types of relief are available for small exempt organizations — a filing extension for the smallest organizations required to file Form 990-N, Electronic Notice(e-Postcard) , and a voluntary compliance program (VCP) for small organizations eligible to file Form 990-EZ, Short Form Return of Organization Exempt From Income Tax.

Small organizations required to file Form 990-N should go to the IRS Web site, supply the eight information items called for on the form, and electronically file the form by Oct. 15. That will bring them back into compliance. Under the VCP, tax-exempt organizations eligible to file Form 990-EZ must file their delinquent annual information returns by Oct. 15 and pay a compliance fee. Details about the VCP are on the IRS website, along with frequently asked questions.

This relief is not available to larger organizations required to file the Form 990 or to private foundations that file the Form 990-PF.

The Pension Protection Act of 2006 made two important changes affecting tax-exempt organizations, effective the beginning of 2007. First, the law mandated that all tax-exempt organizations, other than churches and church-related organizations, must file an annual return with the IRS. The Form 990-N was created for small tax-exempt organizations that had not previously had a filing requirement. Second, the law also required that any tax-exempt organization that fails to file for three consecutive years automatically loses its federal tax-exempt status. The IRS conducted an extensive outreach effort about this new legal requirement but, even so, many organizations have not filed returns on time.

If an organization loses its exemption, it will have to reapply with the IRS to regain its tax-exempt status. Any income received between the revocation date and renewed exemption may be taxable.