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164 MODEL AVIATION
initial compliance deadline another five
months and initiated an awareness
campaign to reach these organizations,
hoping to reduce the number of non-filers.
The IRS sent notices to the last known
address for the organization. Clubs change
officers on a regular basis. Officers move,
leave the hobby, or simply become
disassociated with a club for a variety of
reasons.
The IRS had no way of reaching the
organizations or knowing who the current
officers were. Similarly, the organization
had no way of knowing—at least by being
contacted directly—that they were at risk
of losing their tax-exempt status. The
campaign had a minimal to negligible
effect.
The issue flared up again recently
when the IRS issued a report listing
275,000 nonprofit organizations in the
United States that had lost their exemption
for failure to file the appropriate tax
returns. As well as thousands of small
local membership clubs, the list also
included more than 1,800 local councils
of the Knights of Columbus as well a
number of American Legion and
American Legion Auxiliary posts.
The IRS is now allowing organizations
that have lost their exempt status for
failure to file returns in 2007, 2008, and
2009 to apply for “retroactive
reinstatement” if they can show
“reasonable cause” for not having filed.
To qualify for reinstatement, an
organization must submit a new
application for recognition of tax-exempt
status regardless of whether the
organization was originally required to
submit an application; file the appropriate
annual federal tax returns for the three
missing consecutive tax years and all
subsequent years (i.e., 2007 to 2010);
provide a written statement explaining the
reasonable cause for failure to file; ensure
that the organization will timely file its
tax returns in the future; and file the
reinstatement application with the IRS
within 15 months of the notice of
revocation, with a filing fee of $850
(reduced to $400 if gross receipts did not
View From HQ
n 2006 the Internal Revenue Service
(IRS) created new rules requiring all
nonprofit organizations to begin filing
annual tax forms. Failure to file the
appropriate forms would put an
organization at risk of losing its taxexempt
status.
Until that time, nonprofits typically
did not have to file tax returns if their
annual revenues fell under $25,000.
However, this change in the tax law now
meant nonprofits with revenues that fell
below that amount would have to begin
filing abbreviated returns in 2007.
Further, if returns were not filed for three
consecutive years after that, the
organization’s tax-exempt status would be
revoked.
In 2007, the IRS sent out more than
650,000 letters to smaller nonprofits
informing them of the new law. These
letters, outlining compliance
requirements, created considerable
confusion in the nonprofit world and
raised concern in the model aviation
community as well as from a number of
AMA chartered clubs.
The problem, as you might expect, was
that most small nonprofits, including
model aviation clubs, are run by volunteer
officers. Many of these officers had little
experience in dealing with tax-reporting
issues and weren’t prepared to react to the
notices.
After a period of time the issue seemed
to settle down as some clubs began to
address the requirement to file the
appropriate tax forms. The issue simply
fell off the radar of other clubs. For many
it was a case of out of sight, out of mind.
And that’s the way things stayed until
mid-May 2010 when the government
determined that more than 300,000
organizations had failed to file the
appropriate returns. The IRS extended its
Executive Director Dave Mathewson
A club can’t lose what it never had
I
exceed $10,000 annually over a four-year
period).
If the organization fails to establish
reasonable cause, but establishes it
qualifies for tax-exempt status, the
organization’s tax-exempt status will not
be restored retroactively, but will be
restored from the date of filing the taxexemption
reinstatement application.
The IRS has published a list of
organizations that have lost their taxexempt
status. It can be found at
www.irs.gov/charities/article/0,,id=24009
9,00.html. The list is searchable.
Keep in mind that a number of clubs
think they are tax exempt, for
understandable reasons, and they are not.
Throughout the years, clubs misplace
documents and much of the club’s history
only resides with one or two members.
The members leave and the history and
knowledge of the club’s business dealings
leaves with them.
A club can’t lose what it never had. If
a club has never applied for tax-exempt
status with the IRS, or has applied but
wasn’t approved, it won’t be on the IRS
list. To check to see if your club is listed
as a tax-exempt organization, you can
visit www.irs.gov/charities/index.html or
call (877) 829-5500.
The tax code, at best, is difficult to
follow, even for experts who make their
living dealing with the code. If there are
any questions at all about the exempt
status of your club or whether or not it is
compliant, the best advice I can offer is
to talk to a tax advisor. Many clubs have
members with such a background or have
members who know someone who can
help for little or no fee. MA
See you next time.
Dave Mathewson
AMA Executive Director
[email protected]
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