When Does a Nonprofit Need to Report Changes to the IRS?

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For a nonprofit, compliance with IRS rules is crucial for maintaining the organization’s federal tax-exempt status. Developing a compliance culture around tax matters should be a basic goal of any nonprofit. Even an organization with a healthy focus on tax issues can lose track of less common circumstances where reporting obligations can arise. Among these are obligations to report certain changes to the IRS.

For the most part, reportable changes can be included in the organization’s next tax return. Hopefully this improves the likelihood that a reporting requirement won’t be missed, since it might come up in the ordinary course of reviewing that year’s forms. But it’s always a good idea to make note of special circumstances that a tax preparer might miss.

There are several important changes that need to be reported to the IRS. An important feature each of these changes has in common is that they often come amidst significant upheaval, as an organization goes through a rebranding or moves offices.

  • A change of address. Changing the address the IRS on file is important not just to comply with the rules. It also ensures that important notices don’t get misdelivered. The IRS offers several ways for an organization to update its official tax address.
  • A change of name. Updating an organization’s name with the IRS is simply a matter of sending a letter that complies with the requirements the IRS describes on its website. It’s important to note that the organization’s amended charter document, which will reflect the new name, needs to be submitted along with the letter. As such, the IRS gets notified of the change only after it has been made official in the organization’s home state.
  • Changes to the organization’s status. The more complex reporting case involves organizations that want to undergo a change in how they are categorized or treated for tax purposes. One example of this would be if a 501(c)(3) charity is changing its mission and activities and wants to be reclassified as a 501(c)(4) social welfare organization to take advantage of the relatively relaxed lobbying rules for 501(c)(4)s. The IRS issues determination letters to formally reclassify organizations that wish to undergo such changes. There can be important consequences for failing to report such changes, such as concerns that donations may not be tax deductible.

The Church Law Center of California provides comprehensive governance counsel to religious and secular nonprofits. We can help your organization meet its compliance obligations in a timely and accurate way, so it can stay focused on its mission. Call us today at (949) 892-1221 or reach out to us through our contact page.

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