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September 08, 2008

New Tax-Exempt Groups Get a Pass on Some Paperwork

While some established tax-exempt groups may consider the Internal Revenue Service’s new reporting requirements a major headache, new organizations applying to for charity status may see a silver lining in the more extensive Form 990.

Under previous rules, groups applying for charity tax status first had to get an “advanced ruling” from the federal tax agency by filing a statement that the nonprofit expected to get money from enough different sources to avoid being classified as a private foundation. After five years, those groups have had to apply for a final ruling on their tax status by filing more paperwork — Form 8734 — to show that they met the so-called public-support test.

Under the new regulations, the IRS will no longer require the five-year review for organizations. Instead, the agency states, the new 990 will give the agency enough information to determine if a group is a public charity or private foundation. In addition, new organizations will retain their charitable tax status for their first five years regardless of actual sources of donations they receive during that time.

A press release from the IRS explains that 95 percent of new applications meet the standards.

“Given the high ‘recognition’ rate and the redesigned Form 990, it makes sense to eliminate the burdensome advance-ruling process” said Lois G. Lerner, director of the IRS Exempt Organizations division, in a written statement.

— Eric Kelderman

Monday September 8, 2008 | Permalink

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