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Estate and Elder Law

Charitable Contributions: Did Your Favorite Non-Profit Just Lose its Tax Exempt Status?

Non-profits are formed all the time to advance a purpose to better the world or support a cause.  While the philanthropic goals are wonderful. the record-keeping behind them is often spotty or non-existent. The result of bad record keeping?  The IRS has just revoked the tax exempt status of 275,000 charities nationwide, 7800 of which are here in New Jersey. (Look at the list here to see if your favorite non-profit no longer is one)

By way of background, it used to be that small charities didn't have to file a federal income tax return.  That was changed starting in 2007, when all charities became required to file a Form 990-N.  The deadline for all those filings was October 15, 2010.  For any non-profit that didn't file, their tax exempt status was just pulled by the IRS.

What does this mean to the charity?  If they aren't tax exempt, then they need to start paying state sales tax on purchases, and file/pay income tax on earnings.  The IRS does have a reinstatement procedure in place for small charities with annual gross receipts of $50,000 or less in 2010. Per the IRS website "The relief allows eligible small organizations to regain their tax-exempt status retroactive to the date of revocation and pay a reduced application fee of $100 rather than the typical $400 or $850 fee. Full details are available in Notice 2011-43Notice 2011-44 and Revenue Procedure 2011-36, issued today"

What does this mean to you, a supporter of the charity? Well, any contributions that you make are no longer deductible on your income taxes. If you report the deduction, and then the IRS says that your non-profit isn't a charity, you could owe additional income taxes, with interest and penalties.

Deirdre R. Wheatley-Liss is a shareholder of the Law Firm of Fein, Such, Kahn & Shepard, P.C., with offices in Parsippany and Toms River, New Jersey. She concentrates her practice in the areas of Elder Law, Estate Planning and Administration, Business Planning and Tax Law. Deirdre's individual clients range from their 20's to their 80's and beyond, while her business clients range from start-ups with exciting new ideas to 100+ year old business ventures. Clients seek Deirdre's advice and assistance with a variety of planning issues relating to identifying and meeting their personal, family and business goals, whether in a planning or crises situation.