LITTLE ROCK — More than 3,000 small nonprofit organizations in Arkansas are in danger of losing their tax-exempt status because they failed to file required tax returns for the past three years, the Internal Revenue Service said Monday.
But the IRS is giving the organizations the chance to retain their tax-exempt status by filing returns by Oct. 15.
“We are doing everything we can to help organizations comply with the law and keep their valuable tax exemption,” IRS Commissioner Doug Shulman said Monday in a prepared statement. “So if you do not have your filings up to date, now’s the time to take action and get back on track.”
The list of affected organizations in Arkansas includes more than 120 ministry associations, more than 100 American Legion posts, 40 sororities and fraternities, about 20 Knights of Columbus groups and several Amateur Athletic Union teams. In Little Rock, there are about 500 affected groups that have not filed returns for the past three years.
Many of the charities “didn’t even know they have to file this tax return,” said Heather Larkin, president and chief executive of the Arkansas Community Foundation, which is fueled by donors who use the group to establish their own small foundations.
“This did catch a lot of these small nonprofits - and Arkansas is full of them - off guard,” Larkin said. “This is not a move to close these nonprofits or be punitive. I do not think that a lack of response by any nonprofit is an attempt to try to ignore the law or the IRS. They are small nonprofits, some with no expertise in the regulatory, IRS, legal arena. They have never done this in the past so why should they think of it.”
Many of the 3,009 organizations in Arkansas and the 325,000 nationally that have not filed tax returns for the past three years “may no longer be operating or in existence,” said David Stell, a spokesman for the IRS in Oklahoma City.
The Pension Protection Act of 2006 created the need for the organizations to file tax returns. It mandated that all charities except churches and church-related groups file returns with the IRS beginning in 2007, Shulman said.
“This meant that very small organizations that had never filed before would have to start doing so,” Shulman said.
The law also said that nonprofits that failed to file returns for three straight years would automatically lose their federal tax-exempt status, the IRS said.
Charities losing their tax exempt status would no longer be eligible to receive tax deductible donations. The IRS plans to publish a list of organizations losing their tax-exempt status in early 2011.
The IRS sent more than 1 million letters to nonprofits informing them of the filing requirement, Shulman said. But even with that effort, when the original deadline of May 17 passed, many charities still had not filed their returns, Shulman said.
After the law passed, the IRS created the Form 990-N(also known as an electronic postcard) for small charities with annual receipts of less than $25,000 a year. These small organizations can go to the IRS’ website, www.irs. gov, and fill in eight information items by Oct. 15 to bring themselves back into compliance, the IRS said.
“It’s really important for small charities to pay attention to this announcement,” Shulman said. “The last thing we at the IRS want to do is to have these groups lose their tax-exempt status because they haven’t filed a short simple form.”
Larger charities with 2009 receipts up to $500,000 and assets up to $1.25 million can keep their status by filing delinquent returns on a Form 990-EZ by Oct. 15 and paying a fee ranging from $100 to $500, the IRS said.
“I should note that none of this relief is open to larger organizations that have to file Form 990 or private foundations that file Form 990-PF,” Shulman said.
Information for this article was contributed by Stephen Ohlemacher of The Associated Press.
Business, Pages 19 on 07/27/2010