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Nonprofits, stay up on IRS rules

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Heads of small, nonprofit organizations who glazed over notices that they must register with the Internal Revenue Service have until today to do so, or lose their tax-exempt status. The loss would mean donors to such organizations would be stuck paying taxes on their contributions, an unfortunate and unintended consequence for intended good works all the way around.

People who find it in their hearts and pocketbooks to give to charitable causes — even in these tight financial times — are to be applauded. There are myriad groups out there that do deserving work. Nonprofits, though, must uphold their end of the bargain by responsibly ensuring that all the paperwork is properly handled.

More than 320,000 small nonprofits, including 1,700 in Hawaii, have been listed on the IRS website — http://www.irs.gov/charities/article/0,,id=225889,00.html — for not being in compliance. To avoid penalty for their altruism, donors should check quickly to see if their favorite charitable groups have been too busy to be aware of their risk.

For the nonprofit group, taking a few minutes to answer eight simple questions on Form 990-N and forwarding it electronically would prevent a lot of grief. Churches and state institutions are exempt.

The requirement is part of the below-the-radar 2006 Pension Protection Act, although its relationship to pension reform is unclear. A report by GuideStar, a research organization for nonprofits, says the IRS has been in the dark in recent years about non-reporting organizations and reluctantly decided it should revoke their tax-exempt status to attain a more complete picture of the nonprofit sector. Up until that time, nonprofits with receipts of less than $25,000 didn’t need to file tax returns, so the IRS had no efficient way to confirm their existence.

After its enactment, the IRS sent notices to the last known addresses of those on its list to advise them that they would lose their tax-exempt status if they neglected to file returns for three consecutive years, starting in 2008 for the previous year’s activity. May of this year was the first deadline that could provoke revocations — the Urban Institute estimated that as many as 380,000 would do so — and the IRS extended the deadline to today.

Among those caught by surprise was Paul McCurdy, president of the Oahu Volleyball Association, who thought that filings that he made in two years following the new requirement would suffice. "It’s very confusing," he said. "If they revoke our status now, I’ll be very upset."

Numerous nonprofits in Hawaii could be similarly at risk. Lisa Maruyama, president and CEO of the Hawaii Alliance of Nonprofit Organizations, said she is "really concerned because a lot of them are all-volunteer run and they’re very busy running their own lives and these nonprofits."

True, it may not be an easy task to keep up with bureaucratic requirements, but it must still be done — for the sake of the group, its donors and trust for future giving.

IRS spokesman David A. Tucker told the Star-Advertiser that the agency has continued to try spreading awareness of the new rules and will publish a list of organizations with revoked status early next year.

Nonprofit organizations have been through difficult times since the recession began. It would be a shame if having to pay fines and federal income taxes at this stage of the economy’s gradual rebound would be too cumbersome to allow some good works to continue.

 

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