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Hawaii News

Small isle charities risk losing IRS status

More than 1,700 small nonprofits in Hawaii could lose their tax-exempt status for failing to file annual returns, and the Internal Revenue Service is offering them one last chance to keep their charitable standing.

Many had been exempt from annual IRS filings in the past and were not aware of the current requirements.

"That’s news to me," Paul McCurdy, president of the Oahu Volleyball Association, said yesterday when told his nonprofit was on the list of at-risk groups. "The old law was that if annual revenue was less than $25,000, we didn’t have to file. We don’t even come close to that amount."

Well-known nonprofits such as the Honolulu Boy Choir and the Friends of the Royal Hawaiian Band are among those listed on the IRS website as being at risk of losing their tax-exempt status. Others range from the Kahala Business Association to the Kalihi Valley Homes Tenants Association, along with various parent-teacher associations and chapters of the American Legion.

"It’s really important for small charities to pay attention to this announcement," said IRS Commissioner Doug Shulman, noting that the IRS is offering a one-time relief program allowing the nonprofits to retain their tax-exempt status if they file by Oct. 15.

On the Net:

» IRS list of nonprofits at risk of losing their tax-exempt status, as well as guidance on how to preserve that status: http://hsblinks.com/2l2

"These groups do great work in communities across the United States and are vital to the vibrancy of our nation," Shulman said in a conference call. "The last thing we want to do here at the IRS is have these groups lose their tax-exempt status because they haven’t filed a short, simple form."

The change dates back to 2006, when Congress passed a law mandating that all tax-exempt organizations, except churches and church-related groups, file annual returns with the IRS starting in 2007. Those who fail to file for three consecutive years lose their tax-exempt status.

Under the new relief program, many small nonprofits can preserve their tax-exempt status simply by filing an electronic postcard known as Form 990-N by Oct. 15. Other groups that should have filed Form 990-EZ must file their delinquent annual information returns by Oct. 15 and pay a compliance fee.

The relief program is not available to larger organizations that are required to file Form 990 tax returns or private foundations that file Form 990-PF.

The Hawaii Alliance of Nonprofit Organizations is alerting its members about the issue and hoping they will pass the word to others.

"We have a pretty extensive mailing list," said alliance President Lisa Maruyama. "What we’re worried about is that we think we’re missing the really small nonprofits that are not members. Some of this information is not going to get out unless people just spread the word, to friends, neighbors, to booster clubs that are very grass-roots."

She added, "The groups that we’ve talked to have been surprised. As soon as they know, they go ahead and they comply. It’s just getting everyone to know."

McCurdy, whose organization promotes beach volleyball and stages tournaments, said he would file the electronic postcard right away. "I have all my records. It’s supereasy to do," he said. "You can’t get a permit to run a tournament if you’re not a nonprofit. To lose the tax exemption and go through all that again would be a pain."

Jean Serikawa, vice president of the Friends of the Royal Hawaiian Band, was taken aback to hear that it was on the list of organizations at risk of revocation.

"This comes as a complete shock," she said. "I haven’t had any notice. This is actually a double shock, because our treasurer has been filing our tax returns."

The IRS said it has sent more than 1 million letters to small nonprofits since the law was passed, and has been trying to publicize the changes.

"Organizations are often more than willing to comply; they just need to know how best to do it," said David Tucker, a Seattle-based spokesman for the IRS. "We realize a lot of these organizations are staffed by volunteers and there is turnover."

 

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