News for Nonprofits

Are you required to e-file?

Tax exempt organizations are required to electronically file their returns with the IRS if they have $10 million or more in assets and file at least 250 returns in a calendar year, including income, excise, employment and information tax returns. Previously, this requirement applied to organizations with $100 million or more in assets.

Failure to file electronically is deemed a failure to file a return, even if you submit a paper return. The penalty for failure to file is $100 for each day the failure continues, up to a maximum of $50,000 per return, beginning on the due date of the return. Plus, the person responsible for the nonfiling can be charged a penalty of $10 per day up to a maximum of $5,000.

Nonprofits can request waivers from this process if they can’t meet the electronic filing requirements due to technology constraints or if compliance would result in an undue financial burden. Keep in mind, there are instances when organizations shouldn’t file electronically. They include short-year/short-period, amended and final returns; and returns with a name change. •

What the IRS is focusing on

Last November, the IRS Exempt Organizations division issued FY 2007 Exempt Organizations Implementing Guidelines. This document outlines the IRS’s priorities and new projects for the year, which include:

• Legislation implementation — the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) and the Pension Protection Act of 2006 (PPA),
• Gaming,
• Employment taxes,
• The telephone excise tax refund,
• Community foundations, and
• Unrelated business income tax (UBIT) for colleges and universities.

The IRS also plans to give additional guidance in certain areas, such as political activities, and provide advance and definitive rulings for publicly supported organizations and accommodation parties in tax shelter transactions (as outlined in TIPRA). It will also discuss Section 509(a)(3) supporting organizations. •

Donations and demand have increased

Throughout the country, contributions increased for the first nine months of 2006 compared to the same time period the year before, according to the Fifth Annual GuideStar Nonprofit Economic Survey, which surveyed more than 1,350 not-for-profits. Half of those surveyed reported contributions had increased and 27% said they had stayed the same. Also, 72% of respondents said the demand for services provided by their organization had increased. •

One time only: Telephone excise tax refund

A one-time refund of the telephone excise tax will be available to individuals and tax-exempt organizations on their 2006 tax returns. Even organizations that do not normally file a return, such as churches, can file for the refund. To receive it, you must file Form 990-T — even if you normally don’t file that return — and Form 8913.

There are two ways to determine your refund: 1) Calculate the actual amount of the long-distance telephone excise tax paid between Feb. 24, 2003, and July 31, 2006, or 2) Use the IRS’s formula. You would file an amended return only if you already filed a 990-T. •