Policy Memo 143

DOH-CACFP: Number 143 (08/10)

TO: Small, Tax-Exempt CACFP Sponsoring Organizations

FROM: Lynne Oudekerk, State Director, Child and Adult Care Food Program

SUBJECT: Small Business Tax Filing Updates

I. Purpose and Scope

This memorandum outlines the Internal Revenue Service (IRS) changes in the filing requirements that apply to tax-exempt organizations with annual gross receipts under $25,000. Failure to comply with the IRS requirements may jeopardize your organization's eligibility to participate in CACFP.

II. Background Information

  1. The Pension Protection Act of 2006 (PPA), which was signed into law on August 17, 2006, requires that tax-exempt organizations with annual gross receipts under $25,000 must file Form 990-N yearly.
  2. The title of the form is Electronic Notice (e-Postcard) for Tax-Exempt Organizations Not Required to File Form 990 or 990-EZ. Before the law was enacted, businesses with annual gross receipts under $25,000 were not required to file with the IRS yearly.
  3. Tax-exempt organizations that fail to satisfy annual filing requirements for three consecutive years automatically lose their tax-exempt status.
  4. The IRS is providing one-time relief that will allow tax-exempt organizations to come back into compliance and retain their tax-exempt status even though they failed to file for three consecutive years. This one-time relief benefits Form 990-N (e-Postcard) and Form 990-EZ filers only.
  5. If an organization loses its exemption, it will have to reapply to regain its tax-exempt status. Any income received between the revocation date and renewed exemption may be taxable.
  6. Organizations required to file Form 990 or Form 990-PF are not eligible and their tax-exempt status is automatically revoked if they fail to file for three consecutive years.

III. Summary of Changes

Beginning in 2007, the IRS enacted changes for tax-exempt organizations with annual gross receipts under $25,000, which requires the filing of the Form 990-N, Electronic Notice (e-Postcard) for Tax-Exempt Organizations Not Required to File Form 990 or 990-EZ. Previously, tax-exempt organizations in the under-$25,000 threshold were not required to file with the IRS yearly.

Failure to meet the filing requirements with the IRS may result in the loss of an organization's tax-exempt status. The IRS is offering one-time relief for those tax-exempt organizations that have not met the filing requirements since implementation of the law.

CACFP Sponsoring Organizations and responsible principals that have not met the filing requirements with the IRS will be named seriously deficient in the operation of CACFP. Organizations that fall in the under-$25,000 threshold, and may potentially lose their tax-exempt status, can check their IRS status on the following website: www.irs.gov/app/ePostcard/.