Discussion:(c)(7) organization has never filed 990s

None of the returns will show tax due, this is purely a question of having failed to file the required returns.

The first question is whether the c7 ever applied for recognition of its exempt status. Does it have a determination letter? You'll want to find that out first.

If it has a determination letter (regardless of whether it can actually locate it now) then I recommend that you file the last 5 years' 990s (assuming they've had $25k or more on average.) You can attach a letter explaining the oversight, but expect to get penalty notices anyway (very large penalties). Once you get the penalty notices, respond immediately with a reasonable cause letter requesting abatement. Don't wait until you get a notice for all delinquent years. Respond to each notice as it is received, without delay. Most likely you'll get a letter in about 8 weeks or so showing zero penalty due.

If it never filed for recognition of exempt status and does not have a determination letter, you'll probably want to call IRS's Exempt Organization division and ask what to do in that case. The IRS has generally indicated that it will not accept 990's from organization that it has not officially recognized as tax exempt. The organization may have to prepare Form 1024 before it can file the 990's. Not sure how IRS deals with that now. When you find out, let us know!

Sometimes it takes a lot of letter writing, but I've had great success with penalty abatement for multiple years' failures to file Forms 990 and 1023 / 1024. And don't be shy about calling the IRS to find out if your abatement request letters have been received and which 990's they've received and processed, etc. CPAdavid 17:06, 1 May 2009 (CDT)

I addressed this issue a number of years ago with a ski club.

We sent in a request for penalty abatement based on the club's treasurer being a nonprofessional volunteer and noted that the club did a good deal of community service.

The penalties were all waived.

I didn't think there was much of a downside because the club had very little cash.

But, I heard of another ski club in the area that may have gone bankrupt because of the issue, which would have been a shame because they owned some real estate.

The down side would be that if the organization does not have the funds to pay the penalties, the IRS will go after the individual directors. The section 6652 penalties apply to the organization and responsible persons (any officer, director, trustee, employee, or other individual who is under a duty to perform the act in respect of which the violation occurred).

I recently had a conversation with an IRS collections employee regarding an organization that had multiple years incomplete filings and several non-filings of Form 990. The penalty assessments were about $7,000 on the late filed returns. The collections agent was not the least bit deterred by the fact the the organization had almost no cash and no assets at all. They suggested the directors look to retirement accounts, personal funds, or other assets to pay the balance due. Fortunately, I was able to mount a successful reasonable cause argument.

However, it is highly unlikely that it would ever come to this, given the reasonable cause provisions also provided for in sec 6652(c)(3). There would have to be demonstrable "willful neglect" or a failure of the organization to request abatement and demonstrate reasonable cause for the IRS to really pursue collection of the penalties. It really is a simple matter to have penalties abated, if done properly and timely.

I had no idea - more proof of the old adage that it's better to be lucky than smart!