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The Importance of Filing Tax Forms for Non-Profit Organizations


Content provided for general information. Talk to your advisor to learn about recent updates or other rules that may apply to your situation.

If you are the president of a non-profit organization, it is important to understand the tax requirements and implications for your organization. In this blog post, we will discuss the potential consequences of not filing annual tax forms and the benefits of obtaining tax-exempt status for your non-profit. However, it is important to note that this information is provided for general guidance and you should always seek advice from a tax advisor for your specific situation.

The Background of the Organization

As mentioned in the question, the organization is a neighborhood association that owns and operates a pool, maintains neighborhood entrances, and has a board of all volunteers. The only individuals on payroll are the lifeguards and lifeguard manager. The organization was created in 2009 and has been registered as a mutual benefit nonprofit corporation in Tennessee.

One important detail mentioned is that the organization has always filed quarterly 941s, but has never filed an annual 990 form. This is a common mistake made by non-profits, as the 990 form is required for tax-exempt organizations to report their financial information to the IRS. It is possible that this was an oversight by previous board members, but it is important to rectify this error as soon as possible.

The Consequences of Not Filing Tax Forms

The question mentions that the organization may not owe any taxes because they are not making an income. However, even if a non-profit does not have any taxable income, they are still required to file an annual 990 form with the IRS. Failure to do so can result in penalties and potential loss of tax-exempt status.

According to the IRS, if a non-profit organization fails to file their 990 form for three consecutive years, they will automatically lose their tax-exempt status. This is known as the "automatic revocation of tax-exempt status" and can have serious consequences for the organization. Without tax-exempt status, the organization would be subject to paying taxes on any income earned and may also be ineligible for certain grants and donations.

Additionally, there may be penalties for late filing of tax forms. For example, the late filing penalty for a 990 form is $20 per day, with a maximum penalty of $10,000 or 5% of the organization's gross receipts, whichever is less. This penalty can add up quickly, especially if the organization has not filed for multiple years.

The Importance of Tax-Exempt Status

Now, onto the question of whether or not to file a Form 1024 Application for Recognition of Exemption Status to obtain tax-exempt status for the organization. It is important to note that this decision should not be taken lightly and it is recommended to seek advice from a tax advisor before proceeding.

Obtaining tax-exempt status can have many benefits for a non-profit organization. First and foremost, it allows the organization to receive tax-deductible donations from individuals and businesses. This can greatly benefit the organization in terms of fundraising and financial stability.

Additionally, having tax-exempt status can also make the organization eligible for certain grants and exemptions from state and local taxes. It can also provide a sense of legitimacy and credibility to the organization, as it shows that it has met the requirements set by the IRS for tax-exempt status.

In Conclusion

In conclusion, it is crucial for non-profit organizations to understand and comply with tax requirements. Filing annual tax forms is not only a legal obligation, but it also ensures the organization maintains its tax-exempt status and avoids potential penalties. If your organization has not filed tax forms in the past, it is recommended to seek advice from a tax advisor and consider filing a Form 1024 to obtain tax-exempt status. This will not only benefit the organization in terms of financial stability, but it also helps to maintain its reputation and credibility as a legitimate non-profit organization.

Remember, the information provided in this blog post is for general guidance and it is always best to consult with a tax advisor for your specific situation. By being proactive and staying informed about tax requirements, non-profit organizations can continue to make a positive impact in their communities while also maintaining compliance with the IRS.