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Are You Sure Your Plan Sponsor is Tax-Exempt?

Do you sponsor a 403(b) plan?  If so, you’d better be sure the employer organization is (still) a tax exempt organization or a 501(c)(3).  A not-for-profit organization must file the appropriate Form 990 series (“Return of Organization Exempt from Income Tax”) at least once within a consecutive three-year period.  Without such filing, the IRS automatically revokes the employer’s tax-exempt status. Federal tax-exempt status can be reinstated if the organization applies to the IRS and is able to show there was reasonable cause for not timely filing the Form 990 series.  Here is an excerpt from the Form 990 instructions:

Automatic revocation for nonfiling for three consecutive years. The law requires most tax-exempt organizations, other than churches, to file an annual Form 990, 990-EZ, or 990-PF with the IRS, or to submit a Form 990-N e-Postcard to the IRS. If an organization fails to file an annual return or submit a notice as required for three consecutive years, its tax-exempt status is automatically revoked on and after the due date for filing its third annual return or notice. Organizations that lose their tax-exempt status may need to file income tax returns and pay income tax, but may apply for reinstatement of exemption.

Diane Wasser is the Partner-in-Charge of the firm’s Pension Services Group. She has more than 20 years of experience providing employee benefit plan audit and consulting services to publicly and privately owned entities across the United States.

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