“Don’t Let This Happen to Your League” details a real-world scenario, how it has impacted a league, and how you might learn from it.
The names have been omitted in the following scenario, but the situation is real.
The SituationA local Little League program, incorporated as a not-for-profit organization, received notice from the Internal Revenue Service (IRS) stating that their federal tax exempt status has been revoked due to failure to file an annual tax return for three consecutive years. The league’s Board of Directors votes to hire a Certified Public Accountant to address the issue with the IRS, and pay for the fees and service by using funds from the current year’s player registration and fundraisers.
The OutcomeAfter months of ongoing correspondence with the IRS, that included providing lengthy forms, additional financial documents and related information, the league is placed on a waiting list for the IRS to review and respond. After an extended period of time (nearly a year), the league receives a reinstatement letter from the IRS. However, the league continues to be listed on the IRS Exempt Organization Select Check website because the listing is not updated on a regular basis. Potential sponsors and other financial supporters of the league are aware of the listing, and fail to donate or support the league until the league is reinstated according the IRS website. The loss of the status and unexpected expenditure depleted the league’s funds for the coming season. For the league’s fiscal year, it was unable to purchase new equipment or uniforms, pay for any field upgrades, and it could not afford to enter any teams into the Little League International Tournament.
Note to LeaguesLittle League International provides all its leagues with direction and information on Local League Federal Tax Exemption Status. The IRS also offers guidance on how not-for-profit organizations can remain tax exempt. Leagues recognized under the Little League Group Exemption Number (GEN) must use a fiscal year beginning October 1 and ending September 30 of each year.
- All non-profits must file some type of 990 form with the IRS annually, regardless of income. That includes ALL the individual Little League programs and districts nationwide that are considered 501(c) (3) tax exempt charities. Little League Baseball, Incorporated, CANNOT file on behalf of any of the thousands of leagues under its group exemption number.
- The IRS automatically revokes the federal tax exempt status for any Employer Identification Number (EIN) that hasn’t filed a 990 Form for three consecutive years – whether or not the league is under Little League Baseball, Inc.’s group exemption number (G.E.N.) or not.
- Once revoked, it is a long, arduous and costly process to get the league’s existing EIN’s federal tax exempt status reinstated with the IRS which can affect the league’s donors and ability to fundraise.
- This can all be easily avoided by making sure your Little League program files the proper 990 Form with the IRS annually. For leagues that make less than $50,000 in gross receipts, a simple 990-N Electronic Postcard done directly on the IRS website (www.IRS.gov), can be done in less than 10 minutes. Those 10 minutes can save the league hours upon hours and hundreds, if not, thousands of dollars by avoiding the automatic revocation/reinstatement process.
- Once the revocation issue is resolved, the league must notify Little League Baseball, Inc., whether they want to remain under the G.E.N., or not.
- While the revocation issue in no way impacts the charter status of the local league, it can impact the league’s ability to solicit donations and operate their program.
For more information and support, there are a large number of tax-related webinars and resources on the IRS website.