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Maintaining tax-exempt status: what nonprofits need to do

The federal individual income tax filing deadline was less than a month ago. But given the complexities of federal tax law, there are also other filing deadlines besides that one.

One of those other deadlines has historically been the June 30 deadline for filing the FBAR form. FBAR stands, of course, for Report of Foreign Bank and Financial Accounts.

In this post, we will discuss another filing deadline: the May 15 deadline for most nonprofit organizations regarding their tax-exempt status.

To be sure, some nonprofits use an alternate tax year and do not have filings due at this time. But most nonprofits do face the May 15 deadline, which is only three days away.

Awareness of this May 15 filing date is generally high among larger nonprofits and private foundations. But some smaller nonprofits are still adjusting to a fairly recent law change.

That change, which took effect in 2007, now requires an annual IRS filing no matter how little income a particular nonprofit may have received during the year.

Small nonprofits who are focused on their missions can easily fail to comply with this requirement. After all, how important could such a filing be for organizations that may not have enough business income to pay taxes anyway?

Well, the IRS has already thought about that. A tax-exempt organization that does not file the required federal tax return for three straight years can lose its tax-exempt status.

Unfortunately, that is exactly what has happened. Thousands of nonprofits have already lost their tax exemptions. This has put them back at square one, having to jump through procedural hoops to get their status reinstated.

Lack of tax-exempt status can be fatal for a charitable organization. This is not only because it would put the issue of having to pay taxes on the table. It would dampen interest among donors who could longer get the charitable tax deduction.

Source: Forbes, "IRS Filing Deadline For Tax-Exempt Organizations A Few Days Away," Kelly Phillips Erb, May 7, 2014

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