One-Fourth of Nonprofits to Lose Tax Breaks

From The New York Times:

At midnight on May 15, an estimated one-fifth to one-quarter of some 1.6 million charities, trade associations and membership groups will lose their tax exemptions, thanks to a provision buried in a 2006 federal bill aimed at pension reform.

“It’s going to be an unholy mess once these organizations realize what’s happened to them,” said Diana Aviv, president of the Independent Sector, a nonprofit trade group.

The federal legislation passed in 2006 required all nonprofits to file tax forms the following year. Previously, only organizations with revenues of $25,000 or more — or the vast majority of nonprofit groups — had to file.

The new law, embedded in the 393 pages of the Pension Protection Act of 2006, also directed the Internal Revenue Service to revoke the tax exemptions of groups that failed to file for three consecutive years. Three years have passed, and thus the deadline looms.

Wow. This sounds huge. Does anyone know how this affects churches?

Update (4/28/2010): I just got an email from a friend (who is a CPA and church treasurer) informing me that this does not apply to churches. He referred me to the Instructions for Form 990 which states the following:

For annual tax periods beginning after 2006, the law requires most tax-exempt organizations, other than churches, to file an annual Form 990, 990-EZ, or 990-PF with the IRS, or to submit a Form 990-N e-Postcard to the IRS. If an organization fails to file an annual return or notice as required for 3 consecutive years, it will automatically lose its tax-exempt status. (Instructions for Form 990, page 1; under the section What’s New: New Penalty Provisions for Nonfiling)

That’s good news. I’m glad to know this won’t be catching any churches by surprise. Now, hopefully the other nonprofits can catch up on time.

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