Forms 1023, 1024, and 1028 Fee Increase

Fees charged by the IRS for processing Applications For Tax-Exempt Status will be increasing by $100 for all applications postmarked January 3, 2010 and after. The new fees are:

• $400 for an organization with gross receipts averaging $10,000 or less over a 4-year period.
• $850 for an organization with average annual gross receipts exceeding $10,000 over a 4-year period.

The new fee for group exemption letters is $3,000

Cyber Assistant Web-based Software to be Available in 2010

This web-based software is designed to help organizations complete their Form 1023 online. Once Cyber-Assistant becomes available, application fees will change again to motivate organizations to use it. Application fees will be $200 for any size organization that uses Cyber Assistant to complete its application. Fees for paper applications will be $800, regardless of gross receipts.

Caution: The availability of an online application does not eliminate the need for professional counsel when forming a non-profit organization and applying for exempt status. Work with a professional or someone experienced in applying for exempt status and you'll have much better results. This means you'll have a have a better chance of success and you'll get exempt status MUCH faster. As an example, I often get approvals in as little as six to eight weeks. If you don't make the proper case for your organization the IRS will ask for additional information and explanations. This can easily extend your application process to six months or more.

Form 990 Recent Changes and Important Need-to-Know Information

Congress and the IRS are working to improve compliance by nonprofits. One of the ways they are doing this is by redesigning Form 990. Recently, substantial changes were made to the format of Form 990. These changes affect the 2008 Form 990, 990 EZ, and Schedule A. The changes are major and will require more disclosure, and more work for Form 990 preparers. Expect professional fees for preparing Form 990 to increase significantly for the 2008 filing season for many organizations.

The IRS has provided transitional rules to ease the burden of the increased filing requirements for some organizations. They have done this by increasing the gross receipts threshhold for filing Form 990-EZ instead of Form 990. This means that more organizations will be able to file the EZ Form.

Another recent change is that Form 990-T, the tax return for reporting unrelated business taxable income, is now open for public inspection, where before it was not.

New Requirement for Small Nonprofits: Filing Form 990-N

Another significant change is that beginning in 2008, many tax-exempt organizations that were not previously required to file Form 990 because their income was normally $25,000 or less, will now have to file Form 990-N. Failure to do so will result in loss of exempt status. Period. There is no "reasonable cause" provision at the time of this writing. The Form 990-N will not be a paper form, it will be an electronic filing and will be very brief. See my detailed information on Form 990-N.

Serious Consequences for Non-filers of Form 990

In the past, the consequence of failing to file Form 990 has been large penalties, which have been fairly easy to have abated as long as there was a good reason for the failure to file, or for filing late. Beginning with tax years after December 31st, 2006, failure to file Form 990, Form 990-EZ, or Form 990-N (whichever is applicable) for 3 consecutive years will result in the automatic revocation of your organization's exempt status. The only way to have it reinstated is to apply to the IRS with Form 1023 or Form 1024. If you can show that there was reasonable cause for not filing, the IRS may, at its descretion, reinstate your organization's tax-exempt status retroactive to the date of revocation. This need to apply after revocation also applies to organizations that were not required to apply previously.