We are a nonprofit corporation established in 1997 but apparently never recognized as a 501(c)(3) charity. Our previous treasurer and agent are both dead and we have no proof that an application was ever filed. Nor do we have any notices from the IRS on file. We filed a 990-N annual return in 2011 which was accepted. In 2013, we filed another 990-N which was rejected. Until two years ago, we did not have any income. Two years ago, we started a block pool during college football season. Our current gross revenue is below $25,000 a year. We want to file for exemption. What should we do?
My first question is whether your activities qualify you as a charity. I am not exactly sure what you mean by “a block pool during college football season,” but it doesn’t have a clear ring of charity. Sounds like you could be a social club, not a charity.
If you qualify as a charity (and that means that your activities are primarily charitable and that your governing documents contain all the “magic language” that the IRS requires (See Ready Reference Page: “Articles of Incorporation Establish Basic Form of Nonprofit Corporations”)), you should look closely at the Form 1023-EZ simplified application for exemption. You can’t file it if you have lost your exemption for failure to file an annual tax return for three consecutive years, but it sounds as though the IRS thinks you never received for exemption so you didn’t lose it for not filing annual reports. If you don’t fail on any of the other tests, EZ filing is wonderful for the applicant (and terrible for the public because it provides virtually no useful information). You have nothing to lose by trying it.
If you don’t qualify as a charity but would qualify as a social club (or some other exemption under section 501(c) of the Code), you should file a Form 1024 application for recognition as such an organization. If you are successful in most classes under section 501(c), with only $25,000 in gross revenue each year, you can then file the 990-N.
I wouldn’t worry about having to pay prior taxes or penalties. The worst that you would have to pay would be based on very little income for a relatively short time. We recently filed for recognition of a social club founded in the 1890s that had never sought recognition or filed a return, even though it had had substantial annual income from its members. The IRS recognized the status and did not seek any back payments.
The Service did not seem concerned about recouping taxes or penalties that might be due from an exempt organization seeking to make amends and emerge from tax obscurity. They will realize that the amount they could legitimately seek from you would not affect our $2 trillion annual deficit.
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