Small nonprofits that haven't filed returns could lose tax-exempt status

Time is running out for nearly 6,800 Maryland nonprofits to get right with the IRS or lose their tax-exempt status.

The nonprofits, which haven't submitted a tax return for three years in a row, have until Oct. 15 to file a return. If they fail to do so, their tax-favored status automatically will be revoked. That could have serious financial consequences.


"If they receive donations from taxpayers, those donations aren't tax-deductible," says Jim Dupree, IRS spokesman in Baltimore. "They have to notify contributors their status has changed."

Plus, any revenue coming into the organization could be subject to income tax, he adds.


It's possible that many nonprofits, especially smaller ones, aren't even aware of the federal requirement. For years, nonprofits with receipts of $25,000 or less did not need to file a federal tax return.

The rules changed with the Pension Protection Act of 2006. Congress, noting that IRS information about small nonprofits was out of date, created the filing requirement so the tax agency and the nonprofit groups would be in annual contact, says Mark Luscombe, a principal tax analyst with CCH, an Illinois-based provider of tax information.

Groups will lose their tax-exempt status only if they don't file returns for three consecutive years. Small nonprofits with up to $25,000 in receipts can come into compliance quickly by filling out Form 990-N at The form — a kind of electronic postcard — asks eight questions, including tax identification number and name and address of the nonprofit's principal officer. Larger groups will be required to fill out forms 990-EZ or 990 on paper.

Churches do not have to file.

The IRS has been trying to get the word out, sending letters in 2006 and 2007 to noncompliant nonprofits' last known addresses. In late July, it published the names on its website of about 321,000 nonprofits out of compliance, including 6,789 in Maryland.

Many of those on the list are sports associations, garden clubs and auxiliaries, as well as veterans' and community groups.

The Disabled American Veterans Free State Chapter 16 in Baltimore is on the list.

"[The return] will be filed on time. We are totally aware of it," says Nathan Moody, who became treasurer of the chapter last month. The chapter, with 382 members, has about $1,400 in the bank, says Moody, a Vietnam veteran.


The Bea Gaddy Family Center, which has provided free Thanksgiving dinners to those in need since the early 1980s, wasn't aware of the filing requirement until August, says Cynthia Brooks, the group's executive director. Brooks says a return has been filed.

Many of the noncompliant Maryland groups appear to be tiny, and attempts to contact them were often unsuccessful. Phones were disconnected or the organizers had moved. Or the IRS record wasn't up to date.

The IRS listed the Baltimore Colts Marching Band as one of the groups at risk of losing nonprofit status. The band is famous for carrying on after the Baltimore football team moved to Indianapolis in the 1980s and was the subject of Barry Levinson's documentary "The Band That Wouldn't Die."

The band's president, John W. Ziemann, says he notified the IRS about a dozen years ago that the band was giving up its nonprofit status. The band, now called Baltimore's Marching Ravens, was folded into the new team's organization in the 1990s, he says.

Nonprofits that lose their tax-exempt status can be reinstated, although they will have to reapply and pay a fee, Dupree says. The fee is $400 for organizations with up to $10,000 in annual receipts and $850 for larger groups.


Nonprofits at risk

•Nonprofit organizations that haven't filed a federal tax return for three consecutive years will have their tax-exempt status revoked if they don't submit a return by Oct. 15.

•Check the IRS site at for the names of groups that were out of compliance as of late July.

•Small nonprofits with receipts of up to $25,000 can file a Form 990-N online with the IRS.

•Groups with questions can call the IRS at 877-829-5500.

•Donors can check the IRS website early next year for a list of qualified nonprofits.