California Arts Council

State of California

Don't Lose Nonprofit Status
New Tax Requirements for Small Nonprofits

Published: 02-13-2008

Tax issues for nonprofits that bring in less than $25,000 per year are easy, since there's no filing needed, right?


While in the past the IRS didn't require 501(c)3 organizations that had less than $25,000 of gross receipts to file any paperwork, that is no longer true. Starting in 2008 for annual year 2007, all nonprofits have to file some kind of documentation with the federal Internal Revenue Service (IRS). Nonprofit organizations that do not file Form 990 (or the simplified versions of this form) for three consecutive years may lose their 501(c) status.

For more information about these issues, take a look at the IRS website for charities at Small nonprofits (the under $25,000 crowd) are probably eligible to file an electronic postcard (Form 990-N), but a thorough reading of the new tax requirements is strongly suggested. There are also changes to the Form 990, and information is available on the IRS page as well. Copies of the Form 990 need to go to the state as well.

These changes were part of the Pension Protection Act of 2006 in Congress. The resulting laws had some changes to charitable giving, reporting, unrelated business income, new and/or tougher rules for private foundations, donor-advised funds, and other related issues. But the new requirements for the under-$25,000 nonprofits are of special concern for some folks.

"With frequent turnover of volunteer board members, and an executive who may also be a volunteer, many organizations may easily be unaware of the new requirement," noted Patti S. Spencer in an article in Pennsylvania's

California experts see that the new tax forms can directly affect the information nonprofit organizations need to gather about their board members and officers. "The structure and instructions of the Form 990 can be confusing," wrote Barry VanderKelen on San Luis "The Pension Protection Act of 2006 added information about the connectedness of directors, officers and key employees, as well as compensation disclosures."

The California Arts Council encourages Californians to pass the word about the new Form 990 requirements to others in the nonprofit field, especially volunteers who may sit on the large number of small nonprofit boards. For example, VanderKelen noted that of the 1,107 nonprofit organizations in San Luis Obispo County, less than half of them had filed a Form 990 for 2006, indicating that about half of the organizations most likely had less than $25,000 annual receipts. If San Luis Obispo County is any indication, there are a lot of nonprofit board members and officers who need to know this information.

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