REVISED EXEMPT ORGANIZATION FILING AND DISCLOSURE REQUIREMENTS

The IRS has provided recent guidance as to the revisions to various filing and disclosure requirements that impact exempt organizations. Many of these requirements were changed as part of the Pension Protection Act of 2006, but not all exempt organizations are aware of the changes. Some of the highlights of the changes, and the IRS guidance as to how those changes are implemented are:

a. SMALL ORGANIZATION EXEMPTION FROM FILING FORM 990. Generally, organizations with less than $25,000 in gross receipts do not need to file an annual Form 990. However, under the 2006 Act, nonfilers must give electronic notice to the IRS of their nonfiling. This is done through the use of the Form 990-N e-postcard. This is due by the 15th day of the 5th month after the close of the tax year, although there are some limited exceptions that exempts some organizations from even having to file the e-postcard form. If an organization does not file for 3 years, the penalty is severe – revocation of tax-exempt status.

b. SUPPORTING ORGANIZATION MANDATORY FILINGS. Supporting organizations are now required to file an annual information return, regardless of the level of gross receipts. The filing includes information on organizations supported, the type of organization that the supporting organization is, and certifying lack of control by disqualified persons.

c. MANDATORY ELECTRONIC FILING. Organizations with assets over $10 million must now file their Form 990 electronically.

d. FORM 990-T. Organizations with $1,000 or more of unrelated business income must file a Form 990-T. This filing requirement may apply even if a Form 990 is not required (e.g., churches still need to file the Form 990-T if applicable, even though they do not have to file a Form 990). The public and inspection and disclosure requirements applicable to Forms 990 are now extended to Form 990-T, although schedules, attachments and supporting documents that don’t relate to the imposition of the unrelated business income tax don’t have to be made available to the public.

IRS PUBLICATION 557

IRS TO STUDY USE OF "COMMENSURATE DOCTRINE"

Private foundations are generally required to distribute 5% of their assets each year for charitable purposes. Beyond that, there is little in the law that requires tax-exempt charitable organizations to distribute or spend their assets for their stated charitable purposes. As a consequence, many charitable institutions have built-up large endowment funds as contributions and investment returns have exceeded charitable spending.

Due to concerns regarding such growth in retained assets, the IRS has indicated that it will be studying whether it is appropriate to apply the "commensurate doctrine" to exempt organizations. The "commensurate doctrine" generally provides that charitable organizations should provide services that are commensurate with their resources, and that measuring expenditures with this doctrine is a method of ensuring that these organizations are fulfilling their charitable mission.

Related to this review will be a study of 400-500 colleges and universities, who will be sent a questionnaire. Some of the areas of questions will relate to endowment funds and executive compensation.