If you operate an incorporated not-for-profit organization, you must file a tax return every year, unless your org is a registered charity. If you fail to file a return, you could be on the hook for a big past tax judgment. Arthur Drache, senior partner with charity and non-profit law firm Drache Aptowitzer LLP, suggests that many such organizations fail to understand their tax obligations, and only learn about them when they retain a new accountant—one who actually understands the law.
What we have noticed is that very often when there is a change of accountants, the first bad news delivered to the client is that it is many years in arrears of its filings. This may not in itself be a serious problem in that the penalties associated with the non-filing of income tax returns is based on a percentage of tax owing. But the non-filing means that the tax authorities can go back as far as they wish in examining the finances of the organization. And since non-profit status is based on financial and legal “facts” rather than registered status as is the case of a charity, there is at least a theoretical possibility that the Revenue Agency could impose taxes for years gone by, based on a finding that the non-profit status is not in fact appropriate.
Drache recommends organizations in this position voluntarily disclose their tax information for all years in question. By offering a voluntary disclosure, organizations can avoid the penalties associated with missed filings. Of course, there are rules for this sort of thing. The disclosure must:
- Be truly voluntary, not the result of an audit or other action
- Be complete
- Cover information at least a year old
Now might be a good time to ask yourself—or your accountant: have you been filing tax returns?
Adam Gorley
First Reference Internal Controls, Human Resources and Compliance Editor
Adam Gorley
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