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'Tax-exempt' doesn't mean 'no tax return'

July 31, 2009

It might seem perverse, but tax-exempt entitites can face brutal penalties for failing to file tax returns. An outfit dedicated to finance a school in Isreal recently learned that lesson the hard way. The outfit, "American Friends of Yeshivat Ohr Yerushalayim Inc," failed to file Form 990 for 2000, 2001 and 2002 on time. A federal court in New York ruled that they were subject to the $100-per-day penalty for late filing. These added up over $82,000, which would cover a fair amount of Tuition at any school I know about.

The charity claimed that the loss of records in a move was to blame, but the judge didn't buy it:

Plaintiff states in its answers to interrogatories that [bookkeeper] Fishman sent 40 boxes to Chicago, of which were returned to Mrs. Fishman's home residence after Kogan refused delivery. Mrs. Fishman returned from a trip some time later to find the boxes waterlogged on her porch. Instead of making any efforts to salvage the financial records, Mrs. Fishman simply disposed of them. Having shown little regard for the maintenance of its records, American Friends cannot now argue that the loss of the documents constituted a "reasonable cause" for American Friends' late filing.

If you are on the board of a charity, the first thing you should do is make sure they have kept up with their federal tax filing requirements. If not, you might want to find a different charity to spend your time with. Oh, and don't leave your records out in the rain.

Cite: American Friends of Yeshivat Ohr Yerushalayim Inc, DC-ED NY, No. 1:04-cv-01798

IRS Links:

IRS page on small exempt organization filing requirements

ABC's for Exempt Organizations