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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 16544
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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A small non-profit social club that: - Formed at the state

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A small non-profit social club that:

- Formed at the state level
- Received an EIN
- Did not complete the application for tax-exempt status
- Was involuntarily dissolved at the state level less than three years after incorporation for not filing a report with the state.
- Has gross receipts under $10k per year

How would an organization in this situation ensure that they do not have a tax liability with the IRS?

Megan C :

Thank you for your question. My name is XXXXX XXXXX I will be happy to assist you today

Megan C :

So you had a social club, and did not file form 1024 to recognize tax exempt status?

Customer:

Correct

Megan C :

Okay. Thank you for that information

Megan C :

If you have gross receipts under $25,000 per year, no tax return is required.

Customer:

Even if we are not recognized as exempt?

Megan C :

Basically, the IRS will not accept a form 990 from you unless you have applied for tax exempt status. Since you would never file the 990 because your gross receipts are low, then you could get away with not filing for tax exempt status.

Customer:

Okay

Customer:

Our gross receipts were less than that, however, the do include external fund-raising. Would that have an impact?

Megan C :

But now, you have to file form 990-N that's the problem. I forgot about that one

Megan C :

The problem is that you cannot file any tax exempt tax returns, unless you have tax exempt status...and it's too late to go back because you typically file within 15 months

Megan C :

If there's no tax exempt status, then you would have to file the proper tax return and tax would be due, unfortunately. If you set up as a corporation, you would file form 1120.

Customer:

We set up as a non-profit corporation.

Megan C :

So you have a corporate status. If the IRS does not recognize you as exempt, you will file form 1120

Customer:

Fair enough. Does the dissolution of our organization have an impact on that?

Megan C :

You still were a corporation until you were dissolved. You would still have to file the proper tax return

Customer:

Okay. For a corporation in this situation, what would be considered taxable income?

Customer:

And lastly, what would be the potential consequences of not filing?

Megan C :

The consequences are that you will owe tax and penalties. Unfortunately

Megan C :

Taxable income is anything that you receive, less your expenses

Megan C :

You're only taxed on the profits

Customer:

So if we spent 100% of our "income" on the expenses of running our corporation there wouldn't be any tax liability?

Megan C :

that is correct

Megan C :

But, you're still required to file a return

Megan C :

You should have very little income ...

Customer:

Fair enough.

Customer:

We have next to 0

Customer:

So that is easy

Megan C :

That's good so the effects will be minimal.

Customer:

Are there penalties for a corporation that files late?

Megan C :

Yes, it's 5% of the tax due per month, up to 25% of the tax

Customer:

So if there's no tax due...

Customer:

The penalty is minimal?

Megan C :

No tax due, no penalty

Customer:

Megan, you have been extremely helpful this morning

Customer:

Thank you

Megan C :

You're welcome

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