Legislation

Tens of thousands of small charities will soon lose their tax-exempt status under federal law if they fail to meet a deadline for filing a simple eight-item informational tax form that would take them as little as five minutes to complete.

The consequences are significant for organizations that fail to file the new form with the Internal Revenue Service by October 15. And the deadline could have ripple effects throughout the nonprofit world, as organizations and the IRS will likely have to work for months to restore lost exemptions.

The Internal Revenue Service has released an online widget that charities, donors, and volunteers can place on their Web or social-networking sites "to help spread the word about the one-time filing relief for small organizations at risk of losing their tax-exempt status."

The IRS announced in July that small groups in danger of losing their exemptions because they have failed to file required informational tax returns (called Forms 990-N or e-Postcards) can preserve their charitable status by filing returns by October 15, 2010.

The Internal Revenue Service is worried that many small nonprofits, such as volunteer fire departments, cemetery associations and 4-H Clubs, may lose their tax-exempt status despite an extension of a filing deadline.

Earlier this year, the IRS began warning charitable organizations who have enjoyed tax-exempt status that they could lose it because of a tax law change in 2006 requires even small nonprofits now to file certain forms.

Fundraisers expect to see more and more donors making contributions prompted by tax considerations in coming months. As a result, they expect a surge in large gifts this year and next. Federal lawmakers are considering at least half a dozen tax changes, and most would have the effect of increasing taxes on wealthy people in 2011.

The tax changes are one reason Congress has been in gridlock, however, and the outcome might not be determined until after the November elections—just as the busiest part of the giving season begins

Wisconsin has an estimated 6,000 small, tax-exempt organizations that could put their tax-free status at risk if they don't fill out and file Form 990-N e-Postcard, said Christopher Miller, an IRS spokesman.

In Milwaukee alone, just under 1,000 organizations that take in $25,000 or less a year are on that list, Miller said.

Many should have filed in May, but the IRS has granted a one-time relief program that extended the filing deadline to Oct. 15, he said.

The Internal Revenue Service reminded thousands of small charities that they can keep their tax-exempt status even if they missed their May deadlines to file a new online form.

The IRS also released additional advice for some organizations, including those that believe they are exempt from filing because they are religious organizations.

New York Gov. David A. Paterson has signed into law a revenue bill passed by the state’s legislature that limits charitable deductions for “high earners”—a move that has nonprofits and a prominent New York philanthropist worried about a related significant loss in contributions to charity. The law puts new limits on tax deductions for people with state- adjusted gross income above $10-million annually—about 3,500 taxpayers in New York. Those residents are now able to write off only 25 percent of their charitable contributions on their state income taxes rather than the previous 50 percent. The provision in the budget

Nonprofit organizations across the country are concerned that a budget plan on the verge of adoption in New York State limiting charitable deductions for “high earners” could catch on with other cash-starved state governments — and Congress — and cause a loss of significant contributions.

New York passed a budget plan that has a provision that would cut deductions taxpayers who earn more than $10 million annually can claim in half.

The Internal Revenue Service announced how it will help thousands of small charities keep their tax-exempt status even if they missed their May 17 deadline for filing a new online form or are about to miss subsequent deadlines.

Small groups at risk of losing their exemptions because they failed to file required informational tax returns for 2007, 2008, and 2009 on May 17 or later can preserve their status by filing returns by October 15, 2010, under “a one-time relief program,” the IRS said.

More than 292,000 nonprofit organizations—about 18 percent of the charities in the United States—may lose their tax-exempt status in the next year for failing to file a tax return with the Internal Revenue Service, according to a report released on Thursday by the Urban Institute’s National Center for Charitable Statistics.