Automatic recognition of tax-exempt status for grassroots organizations
If your organization meets certain requirements, you can avoid taxes without applying for tax-exemption.
The paperwork required for tax-exempt organizations is cost-prohibitive to many small, grassroots organizations, which is why the IRS has created ways for small charities, religious, and educational groups to function without fulfilling the normal requirements.
If your organization does not receive more than $5,000 in annual support, then it is not required to fill out the typical application for tax-exempt status, Form 1023. Once you reach this threshold, you must submit the application within twelve months.
If you hit the ground earning more than $5,000 annually, you have 15 months after your organization files its articles of incorporation, association, or trust documents. After successfully qualifying for tax-exempt status, you are required to submit a relatively simple form every year to upkeep your status.
Currently, tax-exempt organizations taking in less than an average of $50,000 are required to full out and submit Form 990-N, the E-Postcard. The E-Postcard is operated by the Urban Institute, which is a nonprofit designed to help the IRS with compliance issues. The entire process requires under 15 minutes to complete. Simply enter your nonprofit’s information, its web address, Employer Identification Number (EIN), and other miscellaneous details before hitting submit.
The IRS changed its treatment of relatively small grassroots organizations in two major ways in the last decade. First, it created an E-filing requirement, which went into effect in the 2007 tax year. It also raised the maximum limit for not filling out the more time intensive Form 990. The limit doubled from $25,000 to $50,000 in 2011.
If your organization does not file Form 990-N, then the IRS will gradually turn up the heat. The first year, it will send you a reminder to file. Nothing big. But the third year of non-filing results in the revocation of your tax-exempt status. This means your organization’s contributions will not be recognized as tax-deductible.
After your yearly receipts cross the $50,000 threshold, you will be required to fill out Form 990, Form 990-EZ, or Form 990-PF. These require more intensive book-keeping and are subject to more intense scrutiny by the IRS.