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Lisa Nachmias Davis
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Pension Protection Act imposes "NEW" (2006) BURDENS on SMALL NONPROFITS! *

    written July, 2007, slightly revised 2012, links updated 2016

The "Pension Protection Act of 2006"  makes MAJOR CHANGES in the way small nonprofit organizations must function.   You can read the charitable provisions of the law itself, or can read the summary prepared by Congress' Joint Committee on Taxation.  Or, read on.

  Revocation of Exempt Status if Returns/Notices Not Filed. Under present law, once an organization receives its determination from the IRS, determining that it has been found exempt from tax under section 501(c)(3) of the Code, that status is FINAL -- it remains in effect in perpetuity unless affirmatively revoked by the IRS.  Under section 1223(b) of the Pension Protection Act, tax status is REVOKED if the organization fails for three successive years to file Form 990, the informational return required of non-church organizations with annual revenues of  $50,000, or for all other non-church organizations, fails to file for three successive years a new NOTICE proving to the IRS that Form 990 is not required.

  New Notice Requirement for Small Organizations: 990N.  "Notice?" you say.  "I thought little organizations didn't have to file anything?"  That has been true for over 40 years.  The tiny local charity with annual revenues of $2,000 from bake sales and fund-drives was not expected to navigate the requirements of the Internal Revenue Service.  NO MORE.  Section 1223 of the Pension Protection Act requires all 501(c)(3) organizations exempt from filing Form 990 by virtue of revenues under $25,000, "(1) to furnish annually, in electronic form, and at such time and in such manner as the Secretary may by regulations prescribe, information setting forth—
(A) the legal name of the organization,
(B) any name under which such organization operates or does business,
(C) the organization’s mailing address and Internet web site address (if any),
(D) the organization’s taxpayer identification number,
(E) the name and address of a principal officer, and
(F) evidence of the continuing basis for the organization’s exemption from the filing requirements under subsection (a)(1), and
(2) upon the termination of the existence of the organization, [to] furnish notice of such termination."

The new form is known as 990N and doesn't require much information -- so send it in!

  What is the effect of a loss of exempt status for failure to file either the Return (990) or the 990N?  The IRS publishes a list of the organizations that have had status revoked.  The organization will have to reapply -- take a look at the current Form 1023 to see how much fun that will be!  If the organization can show "reasonable cause" for failure to file the return/notice, and reapplies, exemption may be granted retroactively to the date of loss of exemption, so that there is no break in tax exempt status.   And guess what -- the IRS will also notify the appropriate state charity officials of the change in status.  The law doesn't say this, but since the IRS will publish notice that a charity's exemption is revoked, we can assume that a donor who makes a gift after this happens is not entitled to a charitable deduction.  This was written in 2007. In 2011, the first list was published, but fortunately there is some relief for smaller organizations that file their reinstatement 1023s by 12/31/2012.  In 2014, the IRS issued instructions on how to get reinstated.   READ REV. PROC. 2014-11 online or in PDF

  What else in this bill affects charities?  All of Title XII of the Pension Protection Act -- that means 45 pages -- affects charities.  Some changes:
  • Tax-free distributions up to $100,000 from IRAs made directly to "publicly supported" charities if made by those over 70 1/2 (this was originalyly temporary, but was made permanent in 2015);
  • New requirements for "donor-advised funds";
  • New provisions on supporting organizations that incorporate into the statute some of the nightmarishly confusing language already in regulations
  • Other new provisions for supporting organizations prohibiting certain connections with private donors and requiring more reporting about who is being supported;
  • New rules that may limit or eliminate deductions for gifts of clothing and household items;
  • New rules for gifts of "tangible personal property" where the charity sells the property later on
  • New rules for appraisals............