Small tax-exempt organizations have a new filing requirement. The Pension Protection Act of 2006 made some big changes to the tax law as it affects charities, particularly the operation of tax-exempt charitable organizations. It included new rules for charitable giving, new reporting, unrelated business income and sanction rules, tougher rules for private foundations, tougher rules for supporting organizations and new rules for donor-advised funds.

One measure is a particularly nasty trap for small non-profits.

Small tax-exempt organizations, whose gross receipts are normally $25,000 or less, are not required to file Form 990, Return of Organization Exempt From Income Tax, or Form 990-EZ, Short Form Return of Organization Exempt from Income Tax.

Now these organizations that have not had to file a 990 or 990-EZ must file electronically a Form 990-N, also known as the e-Postcard, with the IRS annually. The 990-N will include the organization's name, address, Internet address, employer identification number (EIN), name and address of the principal officer and evidence of the continued basis for its exemption from filing Form 990. This filing requirement applies to all types of exempt organizations (for example, trade associations and social clubs), not just Section 501(c)(3) organizations.

The following organizations are exempt and do not have to file the 990-N: organizations that are included in a group return, private foundations required to file Form 990-PF, section 509(a)(3) supporting organizations required to file Form 990 or Form 990-EZ, churches, their integrated auxiliaries and conventions or associations of churches.

An organization that is required to file the 990-N and fails to file for three consecutive years will have its tax-exempt status revoked as of the filing due date of the third year. If the organization's tax-exempt status is revoked, the organization must apply (or reapply) and pay the appropriate user fee to have its tax-exempt status reinstated.

The IRS is developing an electronic filing system (there will be no paper form) for the e-Postcard and will publicize filing procedures when the system is completed and ready for use. You must be able to access the Internet, but no software or download is required. If your non-profit does not have a computer, you will be able to fill out Form 990-N using a computer at a public library.

Form 990-N must be filed every year; however there is no one due date for filing the e-postcard. Instead, you must file "by the 15th day of the 5th month after" your nonprofit's fiscal year ends. For instance, if your fiscal year is the same as the calendar year (i.e., ending on Dec. 31), your organization does not need to file the e-postcard until May 15. This filing requirement applies to tax years beginning after 2006. If your organization is on a calendar year, the first 990-N for 2007 and is due on May 15, 2008.

The IRS has been mailing educational letters to more than 650,000 small tax-exempt organizations that are affected. Because these organizations have had no annual filing requirements before, the IRS may not have current addresses. If you believe the IRS may have an incorrect address for your organization, you can file Form 8822, Change of Address, with the IRS.

IRS forms can be downloaded at www.irs.gov. With frequent turnover of volunteer board members, and an executive who may also be a volunteer, many organizations may easily be unaware of the new requirement.

According to the IRS, this new filing requirement was added to improve transparency within the nonprofit sector. The information will ensure that donors, who may want to contribute to your organization, and the IRS have current information about your organization.

The tax agency said Thursday that in the 2007 budget year it audited one out of every 11 with incomes of $1 million or more. Among those with incomes of $100,000 or less, 99 out of every 100 escaped further IRS scrutiny.

Still, the IRS said its auditing rates were generally up for people of all income levels. The rates were 9.25 percent for those with incomes of more than $1 million, up from 6.3 percent in 2006; 2.87 percent for those with incomes above $200,000, up from 2.57 percent; and 0.93 percent for those earning under $100,000, compared to 0.89 percent the previous year.

Overall, the IRS looked at 1,384,563 returns in fiscal 2007, 1.03 percent of the total individual returns of 134.4 million in the previous calendar year. The audit rate was up 7 percent from the previous year.

There were 31,382 audits of those with $1 million incomes, up 84 percent from the 17,015 audited in 2006.

On the business side, the IRS said the audit focus was on partnerships and mid-market corporations, those with assets between $10 million and $50 million.

The returns of 59,516 businesses were audited in 2007, 0.66 percent of the total and compared to 52,223 in 2006. About one out of six large corporations with assets of $10 million and higher was audited, 9,644 out of 57,357, were audited, down slightly from the previous year.

The tax agency said its enforcement budget in 2007 was largely unchanged from 2006, so it had to focus on areas of growth and potential risk.

It said enforcement revenues in fiscal 2007, from collections and appeals activities, were $59.2 billion, up from $48.7 billion the previous year.

The IRS also noted that 57 percent of individual tax filers filed electronically last year, up from 54 percent in 2006.

"It's a big issue," said Timothy C. Gokey, president of retail tax services at H&R Block in Kansas City, Mo. "A lot of people, especially early filers, don't know about it — or don't know how it will affect them."

It's the second year in a row that tax legislation got put off until so late in the year that IRS forms couldn't be prepared on time. The result, according to Nina E. Olson, national taxpayer advocate, is that many taxpayers miss out on money they're due.

Olson said in a report to Congress last week that late-year changes in the tax code are "the most serious problem facing taxpayers."

She estimated that in 2006, more than a million taxpayers may not have claimed deductions they were entitled to "simply because they did not know about them." Low-income families, she added, "may experience financial hardship because their refunds are delayed."

This year's problem with tax credits is a fallout from congressional repair of the alternative minimum tax. The AMT is a parallel tax that eliminates many deductions and credits most taxpayers claim, thus increasing the tax liability of wealthy families who might otherwise pay less.

The AMT "patch" approved by Congress raised the AMT exemption so that millions more middle-income families wouldn't be drawn into AMT. While many forms were quickly updated to conform to the AMT changes, the forms for some credits got hung up.

The IRS said it won't be able to process returns involving any of the five credits until Feb. 11 and that as many as 13.5 million taxpayers face the possibility of delayed refunds.

The five forms affected by the delay are:

_ Form 8863, Education Credits (Hope and Lifetime Learning Credits).

_ Form 5695, Residential Energy Credits.

_ Form 1040A's Schedule 2, Child and Dependent Care Expenses for Form 1040A Filers.

_ Form 8396, Mortgage Interest Credit.

_ Form 8859, District of Columbia First-Time Homebuyer Credit.

Taxpayers can, of course, wait until Feb. 11 to file. But experts offer some alternatives for those who want to file claims earlier.

H&R Block's Gokey estimated that about 4 million of the 13.5 million affected taxpayers file early, and that about half claim a credit for child and dependent care expenses.

The "workaround" for this group, which normally would file the simplified 1040A form, is to file the more complex 1040 tax form along with Form 2441, Child and Dependent Care Expenses.

Mark Steber, vice president for tax resources at Jackson Hewitt Tax Service Inc., said taxpayers also may be able to file at any time without claiming the credits, and then file an amended form later including the credits.

"The hassle is that amended forms have to be paper-filed, and that can slow the refund even more," Steber said. Taxpayers who file their returns electronically and request an electronic deposit of refunds can get their money within 10 days; taxpayers using paper often wait six to eight weeks for their refund, Steber said.

Still, he suggested that taxpayers consult their tax preparers.

"If you're concerned, go in and ask early what your options are," he said. "I worry it could be like last year. How many said, 'The heck with it!' and didn't get the money they deserved?"

Mark Luscombe, principal tax analyst at CCH Inc. of Riverwoods, Ill., said that it's not unusual that tax forms contain new items or special items that get overlooked. The company is a division of Wolters Kluwer, which provides tax information and services to tax professionals.

Last year, for example, federal tax forms included a telephone excise tax refund, "and a lot of people missed it," said Luscombe.

But, he added: "It's been quite a while since we had legislation so late in the year that tax forms had to be amended."

Luscombe suggested that before taxpayers take extraordinary measures to claim credits early, "they should check on the cost" of amending their filings.

Luscombe also warned that similar problems could occur again next year if Congress delays acting.

"Remember, this was a one-year AMT patch, so they'll have to go at it again next year," he said.

The case arose over a relatively small tax dispute, $4,448, involving the income tax return filed by the trust established by the will of Henry A. Rudkin, former chairman and founder of the Pepperidge Farm company.

The trust was funded with the proceeds of the sale of Pepperidge Farm to the Campbell Soup Co. The trust had $2.9 million in assets and $625,000 in income in 2000, the year of the disputed return.

The trust reported that it spent $22,241 on investment advice and deducted all of it on its tax return. The Internal Revenue Service said the expenses could be deducted only to the extent they exceeded the 2 percent floor. The discrepancy was $4,448.

The trust sued in U.S. Tax Court, which ruled for the government. The 2nd U.S. Circuit Court of Appeals affirmed the ruling.

The notice, issued by the IRS on Monday, provides guidance about the standards of conduct that must be met by a tax return preparer to avoid a penalty for an understatement of tax that may result from a position taken on a tax return.

"It is important to note that the regulations expected to be finalized in 2008 may be substantially different from the rules described in this notice, and in some cases more stringent," the IRS notice said.

The IRS guidance applies to large companies such as Jackson Hewitt Tax Service and H&R Block Inc as well as to private attorneys and accountants who prepare tax returns.

A tax preparer may rely in good faith upon information furnished by the taxpayer or another adviser or third party, and is not required to independently verify or review the items reported on tax returns to determine if they are likely to be upheld if challenged by the IRS, the agency said. However, the tax return preparer must make "reasonable inquiries" if the information appears to be incorrect or incomplete, it said.

The IRS notice also asked accountants, industry groups, consumer groups and the public to submit comments by March 24 on how the agency should define "tax return preparer" in its overhaul of regulations.

The IRS is auditing similar issues for 2004 through 2006, the package delivery company said in the filing with the U.S. Securities and Exchange Commission.

"Given the preliminary status of this matter, we cannot yet determine the amount or a reasonable range of potential loss. However, we do not believe that any loss is probable," Fedex said in the filing.

The International Brotherhood of Teamsters, which has asserted FedEx Ground workers are in fact employees and which is campaigning to unionize FedEx Ground drivers, welcomed the IRS decision.

"It's game over for FedEx's independent contractor scam," union President Jim Hoffa said in a statement.

The union said penalties against FedEx could eventually top $1 billion, since the current penalty only covers the year 2002.

FedEx said that it has "strong defenses to the IRS's tentative assessment and will vigorously defend" its position that FedEx Ground's owner-operators are independent contractors.

The filing came a day after Memphis, Tenn.-based FedEx warned that it faces "increase regulatory and legal uncertainty" over the independent contractor model it uses at FedEx Ground, which could result in higher costs..

FedEx Ground uses 15,000 drivers who are paid as independent contractors. Under this system, FedEx Ground drivers can own multiple routes, employing other drivers to deliver packages. Investors like the model because it helps FedEx save money and compete against main rival United Parcel Service Inc and its unionized work force.