Small tax-exempt nonprofits historically have flown under the Internal Revenue Service’s radar, but that’s changing.
Starting this year, the IRS is requiring small nonprofits to file e-postcards annually that include the organization’s name, address and website (if one exists) as well as the names and addresses of principal officers. Organizations also must confirm they receive $25,000 or less in donations or other sources.
It’s a small thing with a big potential penalty. Organizations that fail to file three years running will lose their tax-exempt status.
Oddly, this new nonprofit regulation got tacked onto the federal 2006 Pension Protection Act. The affected nonprofits typically don’t have paid staff, let alone pensions, to protect.
Minnesota has roughly 11,500 tax-exempt organizations that take in $25,000 or less annually, according to IRS estimates. Nationwide, it puts the number of these nano-nonprofits at 450,000-plus. Those estimates could be high because no one knows if and when they close. Until this year, these organizations could conceivably start up, get their tax-exempt status, fold after a few months then live on for years on paper.
According to the IRS website, the postcard registration ensures that the IRS and potential donors have current information on the tax-exempt organizations.
Paul Verrette, accountability program manager for the Charities Review Council, said the postcards could help transparency and weed out inactive nonprofits. But the postcard’s thin information would do little to help potential donors make giving decisions. “If there is one thing I would add it would be the organization’s mission statement,” Verrette wrote in an email.
The filing deadline depends on the organization’s fiscal year. The first ones are due May 15, for organizations with tax years ending Dec. 31. (Churches and organizations included in group returns are exempt.) More information on filing is here.
The low-budget list
As of April 16, 1,347 Minnesota organizations had filed their postcards, also known as the 990-N. Here’s the link.
There are fraternal organizations, small professional associations and charities started by someone with a passion. A search of Minnesota organizations found 72 Ancient Free & Accepted Masons of Minnesota lodges, 64 American Legion Posts and Auxiliaries, and 27 Modern Woodmen of America groups.
One filing offered an amusing juxtaposition. The Ewe Association of Minnesota is headquartered in the hip and urban Uptown area of Minneapolis.
Some names send you looking for more information, such as the Minnesota Perfusion Society. Its mission statement says it advocates “the highest quality of care for patients who require extracorporeal circulation and support.”
I’m still perfused.
A call to one of the organizations on the list, Care in Action Minnesota, reminds you what can be done with a little money and a good idea. Founding director Pete Singer said the fledgling organization links churches and community organizations with child protection and child welfare workers to support children and families in Ramsey and Washington counties.
As a child, Singer said his best friend had a very abusive father. “Everyone knew about it. No one knew what to do about it,” he said, adding that the father eventually killed one of his children. As an adult, Singer attended a Child Abuse Prevention Symposium in 2005 as part of his job. He learned about an organization called HALOS, Helping And Lending Outreach Support, and it inspired him to start a similar nonprofit.
Among other things, Care in Action partners contribute money when county coffers don’t cover expenses, such as beds for a family whose members were sleeping on the floor, he said.
Minnesota keeps tabs
As a side note, the Office of the Minnesota Secretary of State requires nonprofit corporations to register annually, a separate filing from the IRS. It is easy to confuse nonprofit status from tax-exempt status, but not all nonprofit corporations are tax-exempt.
Organizations that fail to register annually as nonprofit corporations with the state — either because they forgot or folded — could lose their names. Once the state declares them “inactive,” another group could incorporate and use the name.
Early each year, the secretary of state publishes an inactive nonprofits list. Here’s a link.
The 2008 list is long. There were 242 inactive nonprofits starting with the letter “A,” including A Blanket of Hope, the American Siberian Education Foundation and the Academy of Holy Angels. (An academy spokeswoman said it had renewed its registration.)
Do new organizations ever swoop in and take the names of organizations that forgot to file?
“Surprisingly, not as often as you might think,” said Pat Baird, business services supervisor for the secretary of state’s office. “Occasionally it will occur.”