By TRACEY DRURY
tdrury@bizjournals.com | 716-541-1609

Nonprofit organizations often start out with the noblest of intentions.

Whether it's to support a charitable cause, recognize the historical significance of a place or provide an athletic or social service, nearly all are run by volunteers at their early stages. Those that remain small may never have a paid staff.

And that may be what's partly behind a major problem for thousands of small nonprofits with annual revenues under $25,000. For the first time this year, they are required to file forms or information postcards with the Internal Revenue Service.

Those that miss filing deadlines risk the revocation of their tax-exempt status and may have to pay $750 and go through the application process all over again.

That was nearly the case for the Afro American Historical Association of the Niagara Frontier, which filed its information May 17 - the final deadline for organizations with a Dec. 31 fiscal year-end. Barbara Nevergold is president of the volunteer board of the association, which has 300 members and no paid staff.

"We had not been notified by any of the regulatory agencies that we were not in compliance," she says. "We had no idea that we had other forms to complete."

The change stems from a law passed by Congress three years ago intended to better track nonprofit organizations. Before then, those with revenues less than $25,000 were not required to file at all.

Doug Sauer is CEO of the New York Council on Nonprofits and chairman of the National Council of Nonprofits. He says many organizations were caught unaware of the change.

"There are legal responsibilities attached to creating the corporation, but sometimes people create the corporation and are not aware of the responsibilities, both tax reporting and liability to board members," he says. "That's why you're seeing this from the IRS."

The law passed in 2006 requires most tax-exempt organizations, other than churches, to file a yearly return or notice. Noncompliance for three consecutive years can result in the organization automatically losing its tax-exempt status, which in turn means an organization must file income tax returns and pay income tax and its contributors will not be able to deduct their donations.

Small chapters or affiliates of larger statewide or national organizations were keeping their fingers crossed that their parent organization had taken care of the filing requirements. Michelle Cyran-Little is one of just two accredited leaders with La Leche League of Buffalo, an organization that educates new mothers about the benefits of breastfeeding.

Cyran-Little, who was not aware the organization was a separate 501(c)(3) nonprofit corporation, said she was always told that the insurance and legal details were handled by the national organization. With less than $150 in the group's bank account, a re-filing fee of $750 would be nearly impossible.

"When you're already operating with such low funds, you're just trying to meet your basic mission statement every week," she says. "These groups get passed from leader to leader and a lot of times this stuff is impossible to be on our radar."

The day after the May 17 deadline, a statement on the IRS Web site by Commissioner Doug Shulman acknowledged many organizations still missed the deadline, but said the IRS plans to work with small organizations to do what it can to help them avoid losing their tax-exempt status. He also urged organizations to file, even if they've passed the deadline.

Despite the IRS assurances, it's likely there will be hundreds of organizations that will still lose their exempt status simply because they are small, leadership changes annually or they're just not aware of the change, Sauer says.

"People change addresses, there's different leadership and the IRS isn't hitting the right people," he says.

The Urban Institute's National Center for Charitable Statistics posted a searchable database using data from the IRS Master Business File that allows organizations to track whether they are at risk. A search on May 17 turned up more than 400 organizations in Buffalo alone. The entire Western New York region had more than 1,000 organizations listed.

The site also included links to the IRS site to allow organizations to quickly register and file e-postcards if their revenues were below $25,000 or download the appropriate 990 form based on their incorporation status and size. Those organizations with March 31 year-end dates have until Aug. 15 to file, while those with June 30 year-end dates have until Nov. 15.

The list is several weeks out of date, however, and includes organizations that no longer are operating but may not have gone through the legal process of dissolution.

Others filed paperwork just under the deadline, including the Buffalo Ornithological Society, a 250-member bird watching group founded in 1935. Two members of the volunteer board of directors said they knew nothing about the new filing requirements, though the group's president confirmed in a voicemail message that he filed the e-postcard a week before the deadline.

Kevin Stadelmaier, an attorney and legal adviser for NYCON's Western New York office in Buffalo, says he is surprised by how few calls he's received about the issue in recent weeks. He expected a rush, especially after the organization began sending out reminder alerts via e-mail in recent weeks.

"It's kind of been crickets, which is interesting considering that some nonprofits are looking to lose their nonprofit status," he says. "It makes me think a lot of those organizations either became compliant on their own, or are no longer operating and are content to have the IRS pull their status."

The Amherst Sinking Home Relief Fund Inc. falls into that category. Founded in 2007 by attorneys at Hogan Willig, the corporation was intended to provide assistance for Amherst homeowners who needed assistance to pay for foundation problems. Attorney Diane Tiveron, managing partner at the firm, says the need for the nonprofit organization seems to have come and gone, so they're content to let it go inactive and have the exempt status pulled.

"If you're not doing anything with it, you still have to pay for that privilege and you have to make sure you do your filings every year," she says. "We let it run its course."