Understanding the IRS’s CP259E Notice: “Return Not Filed – Exempt Organization”
It can be a little scary to get a letter from the IRS, especially one with a code like “CP259E.” Don’t worry; it usually means they just need something from you, not that you’ve done anything terribly wrong. This notice is specifically targeted towards tax-exempt organizations, letting them know that the IRS hasn’t received a tax return that they were expecting. Let’s delve into what this notice means and what you should do about it.
Why Did You Receive a CP259E Notice?
The Basics of Exempt Organizations and Tax Returns
Tax-exempt organizations, often called nonprofits, have a special status with the IRS. This status means they don’t have to pay federal income taxes on most of their earnings, but there’s a catch. To maintain this status, they must file an annual information return. These returns are usually Form 990, Form 990-EZ, or Form 990-N. The specific form depends on your organization’s size and revenue. Think of it like an annual check-up for your nonprofit’s finances.
The Trigger for the CP259E Notice
The CP259E notice is simply an alert that the IRS hasn’t received the required tax return from your exempt organization by the due date. They use these notices to ensure that all eligible organizations are complying with the filing requirements to maintain their tax-exempt status. There are many reasons why the return might not have been filed. Maybe it was overlooked, sent to the wrong address, or perhaps there was a misunderstanding about the filing requirements, or it is possible that the return was filed but not properly processed by the IRS. The main thing is that the IRS has no record of receiving it by the due date.
What Does the CP259E Notice Look Like and What Should You Do?
Deciphering the Notice
The CP259E notice will usually include the following:
- Your Organization’s Name and EIN: This confirms the notice is specifically for your organization.
- Tax Year in Question: The tax year for which the return was not filed.
- Type of Return Expected: Whether it’s a Form 990, 990-EZ, or 990-N.
- Instructions for Filing: Steps for filing the missing return.
- Contact Information: IRS contact details in case you have questions.
- Possible Penalties: Information about penalties if you do not respond.
Taking Action: Responding to the CP259E Notice
Receiving this notice means it’s time to act quickly and correctly to avoid potential issues. Here’s what you should do:
- Verify the Information: Double-check all the details on the notice. Make sure it applies to your organization and that all the information is correct.
- Find Your Records: Search for a copy of the return you think you filed, if you believe it was already done. Verify when and where it was sent. Also, check your bank statements to see if the filing fee (if any) was paid.
- File the Missing Return: If the return was not filed, it’s time to prepare and send it right away, or send a copy if you already filed. It is important to note that you may need to send your documents by mail if there is no option for e-filing. Follow the instructions in the notice, ensuring you use the correct form for the tax year in question. If you filed but the IRS did not receive it, you may still need to submit a copy of the return.
- Keep Records: Keep a copy of the filed return, along with proof of mailing if you sent it physically. It’s also a good idea to make a note of the date you filed the return.
- Respond to the IRS: If you have filed already or believe you don’t need to file a return, follow the instructions on the notice and respond to the IRS indicating your situation.
- Contact the IRS: If you have questions or need clarification, contact the IRS using the phone number listed on the notice. Keep a record of your conversation.
Potential Consequences of Not Responding
Penalties and Revocation
Ignoring a CP259E notice could have serious implications. Here are a few potential consequences:
- Penalties: The IRS can impose penalties for late filing. The penalty amount can depend on how long the return is overdue and your organization’s gross receipts.
- Loss of Tax-Exempt Status: If you fail to file for three consecutive years, the IRS can automatically revoke your tax-exempt status. This means your organization would no longer be considered a nonprofit for tax purposes, making it harder to receive donations and potentially subject to income taxes.
- Public Record: Loss of tax-exempt status becomes part of the public record.
Reinstatement
If your tax-exempt status is revoked, you’ll need to apply for reinstatement. This process can be complicated, time-consuming, and costly, so it’s always best to avoid this scenario by staying on top of your filing requirements.
Common Misconceptions and Important Tips
Common Misconceptions
- “We’re too small to file”: Most tax-exempt organizations, regardless of their size, must file an annual return. The form may be different (990-N for smaller organizations), but the filing requirement still applies.
- “We’re all volunteer, we don’t need to file”: The volunteer status of your organization does not impact the filing requirements.
- “The IRS already knows all of this”: Even if your organization has filed before, the IRS expects a yearly update.
Tips for Staying Compliant
- Calendar Reminders: Set reminders for your annual filing deadlines.
- Maintain Good Records: Keep accurate records of your financial transactions throughout the year.
- Consult a Professional: If you’re unsure about your filing requirements, consult a tax professional who specializes in exempt organizations.
- Stay Updated: Tax laws can change, so regularly check for any updates that may affect your organization.
Related Concepts and Terms
Here are some terms that are connected to the CP259E notice:
- Form 990: The annual information return that most tax-exempt organizations must file.
- Form 990-EZ: A simplified version of Form 990 for smaller organizations.
- Form 990-N (e-Postcard): A very short electronic form for very small nonprofits.
- EIN (Employer Identification Number): A unique number used to identify your organization.
- Tax-Exempt Status: The designation that allows a nonprofit to avoid paying federal income taxes.
- Revocation: The act of canceling your tax-exempt status.
In Summary
The CP259E notice isn’t something to panic about, but it is important to take it seriously. It is the IRS’s way of reminding you that a tax return is missing. By understanding what the notice means, responding appropriately, and staying organized, you can easily maintain your tax-exempt status and avoid penalties. Keeping accurate records and paying close attention to filing deadlines is key to staying compliant. When in doubt, always consult with a qualified tax professional to ensure you are meeting your obligations.