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GuideStar is reporting that 500,000 nonprofits could lose their tax-exempt status in May 2010, if they haven’t yet filed the required Internal Revenue Service Form 990-N and continue to not do so for several more years. 2008 was the first year when this specific set of small nonprofits—groups that didn’t meet the income threshold for filing an IRS Form 990 “or its variants”—were required to file a new IRS form, according to the Pension Protection Act of 2006.

“Nonprofits whose exemptions are revoked will suddenly be required to pay federal income taxes -- and subject to financial penalties if they fail to do so. Hundreds of thousands of charities … could find them themselves no longer eligible to accept tax-deductible contributions,” Guidestar states. “Nonprofits that wish to have their exemptions reinstated will be required to re-apply to the IRS for tax-exempt status, a process that can take several months.”

"If you volunteer with, work for, or give to a smaller nonprofit, make sure its leaders know about the 990-N,” urges Bob Ottenhoff, GuideStar president and CEO. "… Smaller nonprofits make up as much as three-quarters of the nonprofit sector. They are the local animal rescue societies, the neighborhood groups that tutor elementary school students, the all-volunteer organizations that drive cancer patients to chemotherapy. Collectively they have a tremendous impact, and society will be the poorer if these organizations lose their federal tax exemptions.”