Income Tax Return Filing Requirements for Churches and Ministries
by Mark Helland, CPA
Mark Helland, CPA is a partner with the accounting firm of Elliott, Dozier and Helland, PC which is located in Tulsa, Oklahoma. For further information on this topic, Mark’s firm has a short report on basic fraud prevention tactics which is available to you at no cost. Mark can be contacted via email at firstname.lastname@example.org or by phone at (918) 627-2286.
The dreaded annual tax season is now upon all Americans and as everyone is busy gathering up W-2’s, 1099’s and tax deduction receipts, it is easy to forget that your church or ministry may have filing requirements as well. In fact, the whole subject of filing income tax returns can be confusing for those who operate IRS recognized tax-exempt/non-profit organizations, also known as 501(c)(3) organizations. Part of this confusion stems from the fact that the Internal Revenue Service (IRS) recently changed the rules in this area and as such, a brief history is in order.
Non-profit organizations that are legally recognized as churches or integrated auxiliaries of churches have always been exempt from filing an annual income tax return and continue to enjoy this privilege. However, a few years ago non-profit ministry organizations had the income tax filing rules changed on them via legislation contained within the 2006 Pension Protection Act. Prior to this legislation, an annual IRS Form 990 or Form 990-EZ was only required for organizations with average annual gross receipts in excess of $25,000. As such, organizations with annual gross receipts less than $25,000 were previously not required to file anything with the IRS unless they engaged in unrelated business activities (UBIT) which would trigger a filing requirement of an IRS Form 990-T. In effect, many small or largely inactive ministry organizations previously had the same income tax treatment as Churches – i.e. no annual filing requirement with the IRS.
However, the rules stated in the previous paragraph changed several years ago, and there are most likely some organizations that may still not be aware of this change in IRS regulations. As of the beginning of 2007, all tax-exempt organizations that are not required to file an annual IRS Form 990 or 990-EZ due to having gross receipts of less than $25,000 must now file an IRS Form 990-N “e-postcard” return electronically with the IRS. The “e-postcard” is a very basic return which only requires limited information including the organization’s name, employer identification number, tax year, mailing address, any other names used, an internet address if one exists, the name and address of a principal officer and a statement confirming the organization's annual gross receipts are normally $25,000 or less. As compared to Form 990’s and 990-EZ’s, no detailed financial information is required for the Form 990-N “e-postcard”.
All of this sounds easy, but here is the catch – these “e-postcard” information returns have been required since 2007 and the IRS has made it very clear in the initial rules and subsequent reminders to tax-exempt organizations to make sure they file these annual information forms on time. In 2010, the tax-exempt status of any non-profit that has not filed the required form in the last three years will be revoked. The Pension Protection Act of 2006 requires that non-profit organizations that do not file an “e-postcard” information return for three consecutive years will automatically lose their Federal tax-exempt status. Additionally, a list of revoked organizations will be available to the public, as well as state charity and tax officials on the IRS website. The consequences of losing tax exempt status are not to be taken lightly; such organizations would have to re-apply for tax exempt status by filing Form 1023 all over again to regain this status and any income received between the revocation date and renewed exemption would be subject to income taxes.
The IRS Form 990-N “e-Postcard” return is due annually on the fifteenth day of the fifth month after your organization’s year end. As most organizations follow a traditional calendar year end, that means that May 15, 2010 is the three year anniversary of the new filing requirements. My recommendation to all officers and directors of non-profits and ministry organizations is to check your records and make sure that you have been filing your exempt organization returns as per the guidelines listed above. Also, make sure that you don’t neglect small or inactive entities that you may have formed and qualified as 501(c)(3)’s that are not operated as your primary ministry organization. I have noted in working with some of my clients that tax exempt status was earned for tertiary organizations that have since been inactive. It is easy to forget that these organizations exist and are subject to the new filing requirements. It would be a shame to lose tax exempt status for such an organization and it could be disastrous for larger organizations if these basic requirements are not followed.