Nonprofit organizations are the heart of many communities, dedicated to serving others without the aim of making money. They are powered by the spirit of giving, with volunteers, donors, and experts coming together to offer their time, skills, and sometimes financial support.
Despite their noble intentions and tax-exempt status granted by the IRS, nonprofits must navigate the crucial process of 990 compliance. This isn’t just about filling out paperwork; it’s about transparency, keeping their tax-free benefits, and ensuring the public continues to see them in a positive light.
If you’re intrigued by how these organizations operate and stay compliant with tax regulations, you’ve come to the right place. Let’s explore the essentials of 990 compliance for nonprofits and why it matters.
How Significant is Form 990 for Nonprofit Organizations?
990 Compliance stands as a cornerstone for nonprofit organizations, safeguarding financial data, program accomplishments, donor details, and interactions with regulators. Here are the reasons why ensuring 990 compliance is crucial for nonprofit organizations:
- When it comes to getting grants or raising funds, think of Form 990 as your golden ticket. Funders often want to peek at your Form 990 to decide if you’re the right fit for their support.
- Form 990 serves as a demonstration of the nonprofit organization’s transparency in commitment and distribution. This transparency builds a strong bond with donors, volunteers, and everyone in your community, proving you’re doing things right and by the book.
What is the Form 990 Series?
Tax-exempt organizations in the U.S. annually submit their financial information to the IRS by completing a form in the 990 Series.
There are different types of 990 forms available. Based on the organization’s financial standing and the primary source of funding, the organization must choose and file the applicable form.
- Form 990-N (e-Postcard): Small nonprofit organizations doing $50,000 or less in gross receipts must file a Form 990-N with the IRS.
- Form 990-EZ: Nonprofit organizations with total assets below $500,000 and less than $200,000 in gross receipts must file Form 990-EZ.
- Form 990: Nonprofit organizations with a gross receipt greater than or equal to $200,000 (or) total assets greater than or equal to $500,000 must file Form 990.
- Form 990-PF: The nonprofits that are classified as private foundations by the IRS must file a Form 990-PF, regardless of their gross receipts.
- Form 990-T: This form is used by tax-exempt organizations to report income from a trade or business that is not related to their exempt purpose. If an organization’s total unrelated business income is $1000 or more, they must file Form 990-T.
Along with these, the organizations may also need to attach a few additional documents called Schedules, based on the data they report.
For example, if the organization reports contributions of $5000 or more received from any one contributor. In that case, they will need to attach Schedule B. Similarly, if the organization is a hospital, they will need to attach Schedule H.
What is the Deadline to File 990 Series Forms?
Yes, there is a deadline, and that is usually about the second week of the 5th month after the accounting period is over. This means,
- If the organization follows a calendar tax year, the deadline is May 15.
- If the organization follows the fiscal year, then the deadline will change to the date when the organization’s tax period ends. For example, if the organization’s accounting period ends in July, the deadline for filing 990 is December 15th.
If this deadline falls on a weekend or federal holiday, then the form is due on the next business day.
Penalties for Failing to File 990 Series Forms
Filing Form 990 is crucial for nonprofits, not only for the benefits and enhanced reputation it brings to the organization but also to avoid potential consequences if left unfiled.
If a tax-exempt organization fails to file the applicable 990 return on time, the IRS will impose a penalty ranging from $20 – $110. Furthermore, if the organization fails to file for 3 consecutive years, their tax-exempt status will be automatically revoked, meaning they will no longer be exempt from paying federal income taxes.
Note: For Form 990-N, there are no late filing penalties. However, automatic revocation will apply if the organization fails to file for 3 consecutive years.
Is there an Extension of Time Available?
Just like the other income tax returns, the IRS allows tax-exempt organizations to request an extension of time if required.
To apply for an automatic 6-month extension of time to file their 990 return, the IRS requires tax-exempt organizations to file Form 8868 on or before the original due date. Remember, the IRS doesn’t require any explanation for requesting more time.
E-filing of 990 Series Forms is Mandated by the IRS
Gone are the days when nonprofits used to file their 990 returns on paper. The IRS mandates that nonprofits must file their 990 returns electronically.
What this means is that every nonprofit will have to find a reliable e-file provider to meet their 990 compliance. While choosing the e-file provider, the nonprofits must consider the following:
- Is the e-file provider authorized by the IRS?
- Do they support all the necessary forms and Schedules?
- Do they have a reliable customer service?
- Is their solution secure?
By asking these questions, nonprofits can identify a trustworthy e-file provider to help them take care of their 990 filing requirements efficiently.
Final Note
While the primary objective of any nonprofit is to serve the community in its unique way, maintaining 990 compliance is a crucial aspect to uphold. Compliance not only helps avoid penalties but also enables nonprofits to bolster their public integrity.