Small not for profit

[pcmcpa]

Recently, I've been working with a small NY based athletic not for profit. They were founded in the late 70s as a NYS not for profit, but never filed for the Federal recognition. Roughly 2000, they became a part of a national 501©(3) organization and were told that they needed to file a separate Form 990. They complied. After two or three years, they felt that they weren't getting their moneys worth from the national 501©(3) organization and broke away. They continued to file the form 990. They do not show up in a search of Publication 78. I was considering contacting the IRS to find out exactly what the IRS had them listed as. Note Revenues for the last few years are greater than $25k, but less than $100k.

1) Is there any downside of doing this? I think they should know for sure what they should be filing and where they stand with the IRS.

2)I presume I would just get power of attorney and then call the not for profit unit in Utah, Is that correct or is there another way to handle this?

[Gail in Virginia]

It sounds like the problem is that they never filed form 1023 for federal tax recognition.

[pcmcpa]

That is correct, they don't believe they filed for Federal exemption. However, when they were a branch of the national 501©(3), upon breaking away from them, would they retain their federal exemption under 501©(3) or would they revert to just a regular corporation in the eyes of the federal government and should have been filing form 1120?

[Margaret CPA in OH]

Check with NYS corporation laws. If they originally incorporated as a not-for-profit corporation, it seems they would still be a not-for-profit. If they have continued filing a 990, I think they/you should contact IRS, explain the situation and get guidance. It would seem to me that they must file a 1023 under their own EIN and get an determination.

I had a small not-for-profit which originally was tax-exempt. Over several years, it's focus shifted from being an educational group to a specialty chamber of commerce. I contacted IRS, explained the evolution and the agent guided us to a change in status filing and redetermination. IRS was very helpful with this.

[JJStephens]

As a general rule Form 1023 must be filed by the last day of the 27th month after the organization's original charter date in order to have exempt status recognized as of the charter date. If they file after the deadline they will probably be recognized as exempt only as of the filing date of Form 1023 (see Form 1023 Schedule E). Prior activities would not be exempt (i.e., donations would not be deductible--which makes for great donor relations!-- and (unless the org qualifies to file Form 1024 for the prior period) net income could be subject to tax).

When the organization broke ties with the 'central' or 'parent' organization under whose group letter they were operating as a 'subordinate' they had 27 months to submit their own Form 1023 requesting a individual letter. Since they did not do that my guess is that when they file they will be eligible for recognition retro-active only to the date of filing. However, if there were extenuating circumstances they can appeal for a special dispensation of grace. I work almost exclusively with religious non-profits and have taken that track on three occasions--it worked on two of them.