IRS Tax Exemption

IRS Tax-Exemption Questions Answered: Essential Insights for Nonprofit Professionals

Whether you are new to the nonprofit sector, considering creating a nonprofit, or a nonprofit leader wearing a lot of hats, tax exemption and its related filing requirements will require your knowledge and attention.

When it comes to filing a 990 series return or understanding IRS processes and tax exemption, Tax990 is here to help. While sometimes you must contact the IRS for information regarding your nonprofit, we will help explain some of the common questions and topics that an organization may encounter.

Which IRS Form 990 Do I File?

A 990 series return is a return filed annually by nonprofit organizations to report activities and financial information to the IRS. The 990 series consists of the 990-N, 990-EZ, 990, and 990-PF. An organization files one of the four forms annually based on their financial and exempt status:

  • Form 990-N: For organizations with $50,000 or less in gross receipts.
  • Form 990-EZ: For organizations with gross receipts less than $200,000 and total assets at the end of the year less than $500,000.
  • Form 990: For organizations with gross receipts greater than or equal to $200,000 or total assets greater than or equal to $500,000 at the end of the tax year.
  • Form 990-PF: For organizations recognized as Private Foundations, required regardless of financial status.
  • Form 990-TThis is a supporting form that the organization may need to file if the unrelated business income (UBI) is $1,000 or more
  • An organization can choose to file a larger form but cannot file a smaller form than required. For example, if an organization qualifies for the 990-N, they can choose to file the 990-EZ instead but cannot choose to file a 990-N if they qualify for the 990-EZ.

What is the Group Exemption Number?

The IRS may grant tax-exempt status to a group of organizations associated with a central organization. A group exemption number is a four-digit number assigned by the IRS to a central or parent organization, categorizing all organizations within the group with the same exempt status. This eliminates the need for each organization to submit a separate exemption request.

The only difference between a group exemption letter and an individual exemption letter is that the group exemption letter applies to multiple organizations. The filing procedures for exempt organizations remain the same regardless of a group exemption letter. Both the central organization and subordinates must submit an annual 990 series return.

If you believe your organization is part of a group, we suggest contacting the IRS or the parent organization before filing for verification.

What is the Penalty for Filing Form 990 Late?

If the organization files its Form 990 after the due date (including any extensions) and doesn’t provide reasonable cause for filing late, the IRS may impose a penalty. The penalty is $20 a day ($105 a day for large organizations) for late filing of the 990 series forms. The penalty can go up to a maximum of $10,500 or 5% of the organization’s annual gross receipts. For organizations with gross receipts exceeding $1,084,000, the penalty is $105 a day, up to a maximum of $54,200.

Tax990 cannot assist in determining penalties, but we provide the option to include a reasonable cause explanation on the return. If you have fees due to the IRS, you will typically be contacted by mail with information on fees owed.

How Do I Determine Applicable Schedules for My Return?

Tax990 supports 15 different 990 schedules associated with the 990 series returns. The necessary schedules will auto-generate based on the information you provide on the return:

  • Schedule A: Public charity status and public support information.
  • Schedule B: Contributions of money or property valued over $5,000.
  • Schedule C: Political campaigns or lobbying activities information.
  • Schedule D: Supplemental Financial Information, such as donor-advised funds, conservation easements, art collections, and endowment funds.
  • Schedule E: Information on private schools.
  • Schedule F: Activities conducted outside the United States.
  • Schedule G: Fundraising services, events, and gaming activities.
  • Schedule H: Activities, policies, and community benefits of hospital and healthcare facilities.
  • Schedule I: Grants and other assistance to domestic organizations, governments, and individuals.
  • Schedule J: Compensation information for certain officers, directors, key employees, and highest compensated employees.
  • Schedule L: Financial transactions or arrangements with disqualified or interested persons.
  • Schedule M: Noncash contributions received during the year.
  • Schedule N: Dissolution or disposition of at least 25% of net assets.
  • Schedule O: Descriptive answers required for specific questions.
  • Schedule R: Information on related organizations.

For more information on our schedules, you can watch a previous webinar at titled Reviewing Common 990 Series Schedules

How Long Should an Organization Keep Records for Tax Purposes?

An organization should retain all necessary records to substantiate any part of income, deduction, or credit for three years from the date the return is filed or when the return is due. Certain records, like determination letters confirming the organization’s tax-exempt status, articles of incorporation, by-laws, and board minutes, need to be retained permanently. All employment tax records must be retained for four years.

Where Can I Find My Tax-Exempt Status?

An organization should keep records of the determination letter provided by the IRS, which clearly indicates the exempt status on record and the recommended 990 series form the organization should file annually. If your organization does not have a copy of the determination letter, call the IRS or use the IRS electronic database.

How to Reinstate Tax-Exempt Status if Revoked?

If your organization fails to file for three consecutive years, its tax-exempt status may be revoked. If this happens, the IRS will reject forms filed until the status is reinstated.

To reinstate tax-exempt status, you must submit an application to the IRS, such as Form 1023, Form 1024, or Form 1024-A, within 15 months of revocation. Include a declaration with the application proving that the organization had a valid reason for not submitting the required annual return for at least one of the three consecutive years. Tax990 does not support the reinstatement process but supports filing for the current and two prior years if the IRS requests it. The IRS will notify the organization by mail if the status is revoked. For additional information, contact the IRS.

My Organization Doesn’t Have an EIN. Can I Use the EIN of My Parent Organization?

No, you cannot use the EIN of your parent or any other organization to file. An Employer Identification Number (EIN) is a unique nine-digit number provided by the IRS to identify an organization. If you do not have an EIN, you must request one by filing Form SS-4, Application for Employer Identification Number. If you file a return with the wrong EIN, your return will likely be rejected.

My Organization Has Subordinate Organizations. Can I File a Group Return?

You can file a group return for all subordinate organizations that fall under a group exemption, provided that your subordinate organizations are affiliated with the central organization at the end of its tax year. However, a subordinate organization can choose to file its annual information return separately instead of as a group return. In that case, the organization must file an individual form and use its own EIN.

How Can I Notify the IRS of Changes in My Organization’s Governing Policies/Bylaws?

You need to provide a document detailing the changes made to the organization’s governing policies/bylaws, signed by an officer with authority in the organization, to the IRS.

How Does an Exempt Organization Change Its Accounting Period?

To change an accounting period, an organization can file a short tax period 990 series return, which is a period less than 12 months. For example, if a foundation following a calendar tax year decides to change its accounting period to a fiscal year ending October 31, it should file a 990 series return for the short tax period from January 1 to October 31. Mention “Change in Accounting Period” at the top of the short tax period return and transmit it to the IRS. The new accounting period will begin on November 1 and end on October 31. Note that an organization cannot change its accounting period on a Form 990-N (e-Postcard) for the short tax period; it must submit Form 990, 990-EZ, or Form 1128.

Check out this blog for a full guide!

What is Considered a Parachute Payment?

Parachute payments include compensation, bonuses, severance, and payments due to a change in control of the organization. An organization that makes a parachute payment of more than $1,000,000 to any covered employee is required to file Form 4270.

Should 990 Series Filings Be Made Public?

The IRS requires every exempt organization to make its Form 990 filings available for public inspection and copying. The annual return copy of Form 990 must include all information furnished to the IRS, including all statements, attachments, and supporting documents. This information is useful for the public and individuals researching an organization to understand its mission, program accomplishments, and finances. Nonprofit organizations should ensure that the information return is correctly filled and filed on time.

By understanding and following these guidelines, leaders of small nonprofits can ensure compliance with IRS requirements and maintain their tax-exempt status smoothly. Tax990 is here to support you every step of the way, providing the tools and resources you need to manage your organization’s filings effectively.


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