I appreciate all of your imputs in this delegate subject. It is definitely something to consider.
Out of cuioosity , when you do receive the penalty notice do you also receive the information (form) at that time to file an appeal or do you simply begin communicating with the IRS through a general letter?

PresidentJim;147589 wrote: In addition, there is a requirement that if your gross receipts is over a certain amount (don't remember the amount) you have to use an accountant for filing each year.
PresidentJim

Jim - I'd be interested in more information on this if you find it. I've never heard of the IRS requiring use of an accountant, although when things get complex, it may certainly be a good idea. Regardless, if this clause does exist, it's bound to be an an income level far above one most PTOs would ever face.

I was being brutally honest with my opinion. It's a tough one. My nature is to follow all the rules all the time. But weighing the risks - until the N Postcard was introduced, if you didn't file the IRS just assumed less than $25K and you didn't file because you didn't need to. I'm just not sure if I would stir up that pot or not. Unless you choose to self-report, it's highly unlikely anything would ever happen.

Yes - if you are REQUIRED to report and fail to do so 3 years in a row, you can lose your status. But these years were back when <$25K, filing not required.

Whenever we discuss this, I feel like I have the two little imps sitting one on each shoulder. One argues "it's the right thing to do. Set a good example." The other argues the wasted time and effort (on both sides) for a matter that will end financially the same. We paid zero. We owed zero.

I'm also swayed by the fact I work in government (not the IRS). There are so MANY compliance areas, so many rules that have to be enforced. I see time and again situations where government would really prefer not to know (not that they could ever say that) for situations where it will add to the already significant backlog of work but really change nothing (moneywise).

We had a penalty of a few thousand dollars because I checked the wrong box on our 990EZ which made it appear we were 6 months late. It was purely a clerical error so I had no doubt it would be cleared; nor do I mind working with the IRS. But it did take months of back and forth to clear it up. Meanwhile that penalty was hanging over our head as a liability and freaking out the other Board members.

It's not an easy situation.

JHB -
I sort of see your point (no harm, no foul), but I disagree. 501(c)(3) status can be revoked for failure to file your return, can't it?

Our PTO had $11k in fines for failure to file (ever ... long story); we got one fine notice letter for each of the 3 back years that the IRS wanted (after 3 years, they don't care any more). I sent in one abatement (penalty waiver) request letter for each year we were late in filing, and it only took a month or two to sort out. (File the taxes, wait for them to send you the fine notice, then send the appeal. I guess it did take a couple months for them to process the returns, so maybe the 6 months isn't so far off.)

I did all the returns myself, and I'm not an accountant (though I do like numbers more than the average Joe).

If the paperwork was really lost, and it would be a huge nuisance to figure out the numbers for the 990EZ, I might end up agreeing with JHB, though.

-Geoffrey

We just went through the same thing. We got a tax expert to go through the past few years and file for us. We had to include an extra letter explaining the issue.

The big thing about the $25K that JHB mentions is that it includes all monies coming through. For example, each year we hold a candle fundraiser. We earn about $8K, which is 40%. But to get that 40% we end up collecting, and depositing, about $20K. All of the $20K goes against that $25K cap. By this rule there are going to be a very minimal amount of groups that do not meet the $25K gross receipts. Prior we thought that it was only profit, so we did not file.

In addition, there is a requirement that if your gross receipts is over a certain amount (don't remember the amount) you have to use an accountant for filing each year.

It cost us a little extra this year as we had to file numerous years worth, but it's done and we feel much better.

I would recommend biting the bullet and taking your situation to an accountant to properly handle filing.

PresidentJim

Below assumes you are a 501(c)(3):

A key question is if you had more than $25K in gross receipts during the tax years in question. If less than 25K, prior to the 990-N, you didn't need to file anything. If more, then the 990EZ was probably due. (If you didn't file, the IRS assumes less than $25K).

The 999-N (e-postcard) was introduced last year for the less than $25K group. You'll have to look at the timing on that one.

Filing Requirements

If you were less than 25K, you are fine. Either nothing was due, or depending on dates, the e-postcard. And there's no penalty for filing that late.

If the 990EZ is late, the penalty is $20 PER DAY with a maximum of $10,000, or 5 percent of the organization's gross receipts, whichever is less.

The penalty can be waived for "just cause". If you plead ignorance, inept treasurer, didn't know, just a poor little organization, remorseful-never do it again, you can probably negotiate out of the penalty with the IRS. This will take some correspondence back and forth and several months.

Normally I consider myself a pretty straight up, follow-the-rules kind of person. But here's where I find reality and practicality sway my thoughts on the matter. If no tax was due, no one is deprived of funds, no ill-intent, we operated properly in other aspects - I'd be hard-pressed to REPORT MYSELF only to spend the next 6 months negotiating out of a penalty the IRS will most likely waive. (Remember, the 990EZ is only informational. Unless you are in a very unusual situation, you owed no taxes.)

It's extremely unlikely the IRS will ever come after you. They really aren't trying to squeeze small organizations for penalty $$. They just want them to operate properly. Do the math. You've probably maxed out on the fine. In the highly unlikely event it comes up a couple years from now, if you've maxed out - it can't increase.

Good luck.

P.S. Let me be very clear this is strictly my personal opinion. You do what you feel is right for you!