Tax Filing Information
(This page was created & written by Patrick Parker, former treasurer & bookkeeper.)
Basics
CHEA is a 501(c)(3) tax-exempt non-profit, but we still have to file taxes every year. We can be fined and lose our tax-exempt status if we don't file taxes.
We file a Form 990. (We cannot file the 990-EZ, as our income is more than $100,000.)
The IRS might require us to file a Schedule A -- that form can be found here: http://www.irs.gov/pub/irs-pdf/f990sa.pdf . The Schedule A might be included in the 990.
Info on CHEA: http://nccsdataweb.urban.org/orgs/profile/320019308?popup=1 (requires login: CHEA / sasona42)
Other good resources:
http://www.irs.gov/charities/charitable/index.html
Due date
The deadline for filing federal tax returns for a nonprofit organization is four and a half months after the fiscal year end. Therefore, the filing deadline for the fiscal year (ending June 30) is November 15.
"The filing due date for annual returns and electronic notices is the 15th day of the 5th month after an organization’s tax year ends." - http://www.irs.gov/charities/article/0,,id=221600,00.html
Filing for an extension
If necessary, an automatic three-month extension can be filed, moving the deadline back to February 15. And if you still need more time, a final three-month extension can be filed, moving the deadline to May 15.
Just fill out a form 8868, available here: http://www.irs.gov/pub/irs-pdf/f8868.pdf
How to File Taxes
- 1. Give check stubs and bank statements to our paid bookkeeper (not to be confused with our elected in-house bookkeeper).
- 2. The paid bookkeeper creates bookkeeping summaries.
- 3. Give the summaries to our CPA.
- 4. Our CPA fills out the 990s.
- 5. Sign and mail the 990s to the IRS.
You can save yourself time by keeping the check stubs organized and saving the PDFs of the bank statements every month. The CPA will also need the name and position of every board member for the previous year.
Bookkeeper & CPA Contact information
We pay a bookkeeper to get our books in order and then give the bookkeeper summaries to an accountant to file our taxes for us. The following professionals have assisted us and might be willing to continue to help us if we are nice to them:
Bookkeeper: Andrea Jenkinson-Saenz, A.M. Jenkinson & Associates Inc., 5601 Brodie Lane Suite 620-177, Austin, TX 78745, 512-358-7080. www.amjenkinson.com, contact@amjenkinson.com. She charges a non-profit rate of $50/hr.
Accountant: Brian Dahlk, briandahlk@yahoo.com. He is a co-oper, served on the NASCO Properties board, recommended by Jim Jones. He did a great job on 6 years of our taxes (in 2010). He'll do taxes for $150/year. Schedule As are $50.
We give our bank statements and check stubs to the bookkeeper, who creates bookkeeper summaries. We then send those bookkeeper summaries to the accountant, who files our 990s. Then we send the 990s to the IRS.
IRS Contact Information
Telephone Assistance for Exempt Organizations, Retirement Plan Administrators, and Government Entities: Toll-Free, 1-877-829-5500
Hours of Operation: Monday – Friday, 7:00 a.m. to 7:00 p.m. Central Time.
http://www.irs.gov/help/article/0,,id=96730,00.html
Revocation of Non-profit Status for Late Filing
We can lose our 501c3 non-profit status if we don't file for 3 consecutive years.
If we lose our non-profit status, it will take months to get it back, and we will be liable to pay taxes on our earnings during the time that we were "for-profit." We can also face serious penalties and fines.
From the IRS website: "The exempt status of an organization that does not file a required annual return or notice for three consecutive years is automatically revoked, effective as of the filing due date of the third year. The filing due date for annual returns and electronic notices is the 15th day of the 5th month after an organization’s tax year ends." - http://www.irs.gov/charities/article/0,,id=221600,00.html
Non-Profit Times article: http://www.nptimes.com/10May/news-100510-2.html
Fines for Late Filing
The IRS can charge $20/day, up to 5% of our yearly income (approximately $6,500), for each year that is filed late.
From the IRS website:
If an organization whose gross receipts are less than $1,000,000 for its tax year files its Form 990 after the due date (including any extensions), and the organization doesn't provide reasonable cause for filing late, the Internal Revenue Service will impose a penalty of $20 per day for each day the return is late. The maximum penalty is $10,000, or 5 percent of the organization's gross receipts, whichever is less.
- http://www.irs.gov/charities/article/0,,id=139225,00.html
IRS policies on penalty abatement
Information on late filing penalty abatement from the IRS Website: http://www.irs.gov/charities/article/0,,id=139227,00.html
(c) Showing of reasonable cause. (1) Except as provided in subparagraphs (3) and (4) of this paragraph (b), a taxpayer who wishes to avoid the addition to the tax for failure to file a tax return or pay tax must make an affirmative showing of all facts alleged as a reasonable cause for his failure to file such return or pay such tax on time in the form of a written statement containing a declaration that it is made under penalties of perjury.
{....} If the taxpayer exercised ordinary business care and prudence and was nevertheless unable to file the return within the prescribed time, then the delay is due to a reasonable cause. A failure to pay will be considered to be due to reasonable cause to the extent that the taxpayer has made a satisfactory showing that he exercised ordinary business care and prudence in providing for payment of his tax liability and was nevertheless either unable to pay the tax or would suffer an undue hardship (as described in §1.6161–1(b) of this chapter) if he paid on the due date.
- http://law.justia.com/us/cfr/title26/26-18.0.1.1.2.9.62.1.html
Penalty Abatement Advice
Here's an e-book we bought to help us: IRS late filing penalty abatement e-book by David McRee.pdf
For a fee, McRee can help us write a letter. His email is cpa@form990help.com
Notes on the e-book:
General Info:
- Remember that a human being is reading your letter.
- The letter should show that we have not demonstrated "willful neglect" by not filing the taxes.
- The letter should establish that we have filed taxes in the past and have never been charged late filing fees. This shows that we are not non-compliant over-all, and "lessens the error rate."
- List the steps we took to exercise "ordinary business care and prudence." List what extension requests were filed. Demonstrate that effort was made to be in compliance. List what we have done to ensure we will remain in compliance (hired bookkeeper and CPA).
Send the letter using Certified Mail. McRee has a video on his site giving tips on the best way to send mail to the IRS, so that you have proof of timely mailing: http://www.form990help.com/mailing-documents-to-irs.html
- When the IRS receives your letter, they generally put your account on hold for 6-12 weeks for someone to take care of it.
- DO NOT, UNDER ANY CIRCUMSTANCES, LIE TO THE IRS!
The Letter:
- Abatement requests must be in writing, by the Treasurer, with a declaration that everything you said is true under the penalties of perjury.
- The letter should have the CHEA letterhead. We should try to have a nice-looking letterhead.
- Include a copy of the entire IRS notice with your letter.
- Opening paragraph: Include a description of the entire situation, what the fine is for, what tax year and form, the fact that the letter from the IRS is enclosed, all of the relevant information.
- Second paragraph: Identify and briefly describe your organization and what it does.
- Lay out the specific facts which led to late filing. Be thorough and detailed. Anticipate questions someone might have.
Statement of Law: Reference specific IRS regulations which will be relied upon to give reasons for abatement. McRee's book has a great sample letter with a long section stating the law, pages 27-29, that can be copied.
- Ending paragraph: It doesn't hurt to include a short paragraph at the end of the letter explaining how paying the fines will affect your organization. How will it affect our ability to perform our charitable function? Who and how many will be affected?
Second to last statement: Restate clearly that you are requesting an abatement of the penalties. Use McRee's example.
- Final statement: Include declaration that you are telling the truth under penalties of perjury. This is a *required* part of the letter.
Other Steps:
- We can possibly call the number on the letter and request more time. They can potentially put a hold on our account and give us more time to respond.
- They might have put a hold on our account after receiving our request for abatement. We should call to ask about the details of our account.
Email from David McRee:
David McRee <cpa@form990help.com> wrote:
You've struck the correct tone in your letters but the argument is weak. Nevertheless, since this is your first instance of noncompliance the IRS is likely to abate. Note that the penalties are statutorily defined and cannot be "reduced." A recent court case decided that the IRS has no authority to reduce the penalty. They only have authority to abate / waive the penalty if reasonable cause exists.
I think you'll find everything you need in my book to write a much stronger letter.
You need to tie everything into a timeline:
- When was the organization formed?
- When and how was it first determined that a 990 had to be filed and was delinquent? Who discovered the error and under what circumstances? You don't have to name names, but indicate "the treasurer" or "the founder" etc.
- What actions did you take to bring the organizations into compliance and how long did it take you to file the delinquent returns?
- Did you take corrective action before the IRS discovered your delinquency?
- What measures have you put in place to make sure you are not late again (hint: get the board members involved in monitoring the due date and reviewing the 990 before it is filed).
Be sure that in each letter you point out that you filed all four years (or however many) delinquent and filed them all as soon as you found out they were late. Make sure that whoever is reading your letter understands that these are not four separate instances, but are all related to your not knowing a return was due.
If I were the IRS, your first letter would cause me to ask: was the first return late because a responsible person was sick? Or because the organization didn't know about the filing requirement? If the organization didn't know, then the illness was irrelevant since it was unlikely the return would not have been filed anyway. Not a fatal flaw, but you should be more clear in the letters that follow.
You should be able to get abatement for all years with no problem.
David McRee, CPA
$22,000 in IRS fines
In August 2010, we received letters from the IRS informing us of fines for $4,720 and $4,300 for late filing, and then we received even more fines for 2 more years, for a total of $22,000.
Here is a PDF of the letter from the IRS: IRS letter to CHEA re $4700 fine for late filing.pdf
Here's a copy of the penalty abatement letter sent to the IRS, which resulted in all $22,000 in fines being dropped: Penalty abatement letter to IRS 9-4-10 re $22,000 fines.doc
Here's the letters from the IRS dropping our fines: IRS letters dropping fines.pdf
$5,600 in IRS fines
In August 2011, we received a notice of a $5,600 fine for late filing of an old tax year which somehow had been overlooked.