All suburban nonprofit groups now must file a return with the IRS

Hundreds of charities, hobby clubs and professional associations in the suburbs - and thousands in the state - could be forced to pay taxes for the first time next year.

That's bad news for many small nonprofits, which could now be forced to pay taxes on the money they raise for charitable work in their communities.

It could also disqualify those groups from getting grants and discourage private citizens from donating to a charity not recognized by the IRS.

"I think it spells trouble for a lot of organizations," said Robert Nowak, a certified public accountant who works with many nonprofits in the suburbs. "You're looking at disadvantaging not only the organizations but also the constituents they serve."

The rule, which Congress passed in 2006 and which took effect in 2007, requires almost all tax-exempt organizations to file annual informational returns with the Internal Revenue Service. Previously, only groups with annual revenues of more than $25,000 had to file.

The new regulations say the IRS can revoke the tax-exempt status of organizations that do not file their required forms three years in a row.

Because the first returns (for 2007) were due in 2008, this is the first year when not filing a return could mean losing tax-exempt status.

The IRS sent more than 1 million letters to smaller nonprofits to alert them about the change, according to a spokeswoman for the agency.

But the IRS's list of organizations that did not file in 2008 and 2009 and have not yet filed this year still includes almost 15,000 groups in Illinois and more than 1,700 just in the suburbs.

The list includes numerous Jaycees chapters, union shops, scholarship funds, foundations, fraternal lodges, cultural groups and American Legion posts.

But the list also appears to have many errors. A high proportion of the organizations are not listed in the Yellow Pages or other business directories and have no online presence, indicating they may no longer exist or may be operating under a different name.

The list even includes Naperville's Hope United Church. That's a problem because churches and other religious groups are exempt from the new rule.

Libertyville-based Lake County United, a nonprofit that coordinates service projects in the county, is one of the groups that appears on the list - much to the surprise of Matt McDermott, the group's lead organizer.

"I'm surprised we're on the list," he said. "We have an audit done every year. I'm looking into it."

It was a similar story for a local chapter of the American Academy of Medical Administrators, based in Des Plaines.

"We file every year," chapter President Renee Schleicher said. "That sounds like an error."

Cathy Cawiezel, treasurer of the Lisle Library Foundation, admits the foundation, which raises money for library programs, did not file its return until this year.

"A lot of us were caught off guard by this," she said. "The foundation was not aware of it in prior years."

But Cawiezel said the foundation did file its latest return - and received a receipt from the IRS as proof, meaning it should not be on the list.

Some of the errors may actually prove beneficial - at least from an administrative standpoint.

Bobby Zarin, an IRS director who works with nonprofits, said earlier this year that the new filing requirement will allow the agency to strike the names of many organizations that no longer exist from its records.

"It will give us a much cleaner list of organizations that actually do exist," Zarin said.

As for organizations that do exist, Nowak said many small nonprofits are likely in the same boat as the Lisle Library Foundation.

"These organizations are so small that filing their (return) is really an unknown to them," he said. "These are not organizations that have financial resources."

Luckily for the small nonprofits that are most affected by the rule change, the IRS is extending the deadline for some tax-exempt groups to file their past-due returns.

Organizations with receipts of $25,000 or less, which file 990N forms, only have to file their 2009 return at irs.gov by Oct. 15.

Groups with receipts of less than $500,000, which file 990EZ or 990 forms, must file returns for 2007, 2008 and 2009 and pay a compliance fee.

But larger organizations and private foundations, which file 990 or 990PF forms, are out of luck if they miss this year's deadline - May 17 for many groups.

For large organizations and private foundations, "that's not a new requirement," said Susan Hales, spokeswoman for the IRS in Illinois.

"We want to work with the organizations, particularly the smaller ones," Hales said. "We do realize they did not have an annual filing requirement until 2007."

As for nonprofits that feel they are on the list mistakenly, they should contact the IRS by Oct. 15 to verify they filed correctly or send proof of filing. Visit www.irs.gov/charities/index.html or call (877) 829-5500 for more details.

A full list of nonprofits that are at risk of losing their tax-exempt status is available in a searchable database on the IRS website.

Look on dailyherald.com for a spreadsheet listing, by town, each organization on the IRS list from the Daily Herald's circulation area.

Daily Herald wire services contributed to this report.

<div class="infoBox">

<h1>More Coverage</h1>

<div class="infoBoxContent">

<div class="infoArea">

<h2>Related data</h2>

<ul class="moreExcel">

<li><a href="/excel/irs.xls">Affected entities </a></li>

</ul>

</div>

</div>

</div>