By Rebecca Tonn
Thousands of some of Colorado’s smallest nonprofits could soon lose their tax-exempt status unless they file their annual 990 financial statement with the IRS.
The first wave of 990s are due May 15. Many are expected to miss the deadline. That’s because smaller nonprofits aren’t accustomed to filing the forms, although the law requiring them to do so was enacted in 2006.
All nonprofits must file their 990 forms, though about 8,800 nonprofits in the state with less than $25,000 in annual revenue had been excluded from that requirement until the law was changed.
Now, nonprofits that haven’t filed the forms for three consecutive years will have their tax-exempt status revoked. The 990s include revenue and expenditure information, as well as salary data for nonprofit executives.
“The ones that will get caught in any of this are the very small ones that aren’t used to having to file. It may not be on their radar,” said Sharon Knight, chief operating officer of the Colorado Nonprofit Association.
Nationally, as many as 400,000 nonprofits could lose their tax-exempt status when they miss the deadline, according to GuideStar.
GuideStar, an organization that gathers and publishes data about nonprofits, based its estimate on a review of the IRS’s exempt organizations records.
“This is the small mom-and-pop organizations,” said Suzanne Coffman, director of communications for GuideStar. “They’ll have to go through the whole process (of applying for tax-exempt status) all over again. It’ll be a number of months before that’s restored.”
The new requirements are designed to help donors recognize which nonprofits are complying with the law and which might be defunct.
“In the short run, there probably will be hardships for nonprofits that lose exempt status and decide to reapply for it,” she said.
But people will be more comfortable making donations if they know an organization’s status is current, Coffman said.
“The fly in the ointment is that for many of the smaller organizations this is a new requirement (even though it) went into effect three years ago.
“For a lot of small organizations, their records are in a shoebox,” she said.
Rita Worster, tax manager at BKD, an accounting firm, said the IRS has tried to make nonprofits aware of the problem.
“Unfortunately, there will still be a few that didn’t get the message,” she said.
Worster said GuideStar’s 400,000 figure may be high.
Many of the organizations in the IRS list no longer exist, or applied for tax-exempt status and “never got off the ground,” Worster said.
Moving forward, the IRS will be able to clean up its records, and donors will know which organizations are still in existence and have tax-exempt status.
Any nonprofits not aware of the impending deadline are, “for whatever reason, really disconnected from the nonprofit community. The network in the nonprofit industry is really strong in this community,” Worster said.
And they had to have filed only once in the past three years to avoid losing their exemption.
“We’ve sent out hundreds of thousands of postcards since the legislation passed in 2006,” said IRS spokeswoman Karen Connelly.
Dave Somers, executive director of the Colorado Springs-based Center for Nonprofit Excellence, an advocacy and educational resource for nonprofits, said any nonprofit that loses its exempt status probably deserves to.
“Quite frankly, if they aren’t complying with the law, then it should put them out of business,” he said.