Ensuring Form 990 compliance - What Nonprofits Should Know

A significant advantage of nonprofit organizations is their ability to obtain federal tax-exempt status from the IRS. While they are exempt from paying taxes, they are required to annually report their activities using Form 990 to ensure compliance with IRS regulations. Timely and accurate filing of Form 990 can enhance the transparency and credibility of nonprofits, potentially attracting more donations and bolstering their reputation.

Failure to file Form 990 on time can result in significant penalties, despite the organization's tax-exempt status. Therefore, it is crucial for nonprofits to thoroughly understand the key aspects of ensuring 990 compliance.

Form 990: Purpose and Significance

Form 990 serves as the IRS's primary tool for collecting essential information, including income, expenses, liabilities, and assets from tax-exempt nonprofits. This helps the IRS ensure that these organizations remain compliant with established guidelines.

Moreover, Form 990 provides nonprofits with an opportunity to publicly disclose details about their programs, fostering transparency and accountability within the organization.

Break Down of Different 990 Forms

Prior to submitting the organization's annual information return, it is imperative to correctly identify the required form, as errors in this selection can result in the rejection of the filing.

Form 990-N (e-Postcard)

Designed for small non-profit organizations with annual gross receipts of $50,000 or less, this form is commonly known as the e-postcard due to its simplified nature, requiring minimal details.

Form 990-EZ (Short form)

Applicable for non-profits with gross receipts under $200,000 and assets less than $500,000.

Form 990 (Long form)

Applicable for organizations with gross receipts equal to or exceeding $200,000 or assets equal to or exceeding $500,000.

Note: Non-profit organizations eligible to file Form 990-N may optionally choose to file Forms 990-EZ or 990. Similarly, those required to file Form 990-EZ have the option to file Form 990, but not the other way around.

Form 990-PF

Organizations classified as private foundations under IRC section 501(c)(3) must file Form 990-PF.

Form 990-T

This form serves as a supporting document, and organizations with $1,000 or more in Unrelated Business Income (UBI) are required to file it

Information Reported on a 990 Form

When preparing to submit Form 990, organizations typically need to gather the following key pieces of information

• Organization details including the legal name, Employer Identification Number (EIN), address, and contact information of the organization

• Statement of Program Service Accomplishments

• Description of activities regarding Governance, Management, and Disclosure

• Statements Regarding IRS Filings and Tax Compliance

• Compensation of Officers, Directors, Trustees, Key Employees, Highest Compensated Employees, and Independent Contractors

• Revenue, expenses, assets, and liabilities

The information may vary depending on the type of form the organization is required to use.

Deadlines and Extensions

Nonprofits must file their 990 returns with the IRS by the 15th day of the 5th month following the end of their tax year. For organizations following the calendar tax year, this deadline falls on May 15. It's crucial for nonprofits to keep track of this deadline to avoid last-minute rushes and potential penalties.

If organizations need more time to prepare and submit the form, they can request an extension using Form 8868. This form provides an extension of up to 6 months past the original deadline. However, it's important to note that Form 8868 must also be filed on or before the 15th day of the 5th month. Additionally, the 8868 extension does not apply to Form 990-N.

Penalties

If the required forms are not filed before the deadline, nonprofits may incur penalties ranging from $20 per day to $120 per day, depending on their organization's size. However, Form 990-N users are not obligated to these penalty charges and extension forms.

Furthermore, it is important to keep in mind that failure to file the 990 return for more than three consecutive years may lead to the revocation of the organization's tax-exempt status. Therefore, adhering to the instructions and deadlines provided by the IRS is essential to maintain tax-exempt status and avoid potential penalties and repercussions.

E-filing Mandate

The IRS mandates that nonprofit organizations file their 990 forms electronically. Therefore, it’s important to choose an IRS-authorized e-file provider to file your 990 returns electronically. It is also important to stay aware of IRS regulations and stay compliant with IRS standards.

Conclusion

Understanding the requirements for 990 compliance empowers nonprofits to navigate the complexities of Form 990 with confidence. Timely and accurate filing not only fulfills legal obligations but also showcases the organization's commitment to integrity and mission-driven work. Prioritizing compliance strengthens operations, enhances donor confidence, and fosters positive contributions to communities.