Don’t Make These Common Form 990 Mistakes!
Sit down with Tax990 Product Manager Nikita and TaxBandits Product Manager Christina for a chat about common Form 990 mistakes!
Nikita
Hi there, my name is Nikita, and I have Christina here with me. I am the product manager for Tax990, and Christina over here is the product manager of a sister product of Tax990 called TaxBandits.
Christina
Hey, everybody.
Nikita
Today, um, we just kind of want to talk briefly about organizations and filing their 990 forms and some of the common rejection errors we see that come across in some of the struggles that the organizations encounter and kind of how to combat those prior to filing your forms to kind of reduce some of those rejections.
Tax990 and Tax Bandits both are authorized e-file providers. We generate tax forms that you can electronically complete on our website and transmit to the IRS. We provide acceptances and rejections when notified by the IRS, acceptance letters, and things like that to help you keep track of all of your documentation throughout all of the years that your organization is in good standing.
We’re just going to go ahead and jump right in, if that’s okay with you.
Christina
Yeah.
Nikita
All right, perfect.
Providing the incorrect tax year
Christina
So can you tell me, like, what is one of the most common rejection errors you see, just the most frustrating for organizations, anything simple that they could, you know, they could fix before they file?
Nikita
That’s a great question. I think one of the biggest errors that we see, or reasons for rejection that we see would be an organization’s tax year being incorrect. The information you put on your 990 return has to match what’s on the IRS database, regardless of what you go off of through the rest of the year, if you work off that or not.
Personally, when you complete these returns, it has to match what’s in the IRS database. So often, an organization is 100% sure that they work on a calendar year, meaning January 1st through December 31st, and they transmit the return, and the IRS says, “No, no, no, this is not correct.” Oftentimes it’s what they call a fiscal tax year, which is really just any 12-month time frame other than January 1st through December 31st.
If the organization doesn’t input that information accurately on their form, it’s going to be rejected by the IRS, and then they have to go through the process of one worrying about the rejected return, getting it re-transmitted in time, avoiding penalties, and things like that, but also trying to contact the IRS, also trying to find all of their previous documentation and update the information, so it just creates this big hassle obviously for an organization.
Christina
And it’s such a small thing to then cause all of that, like that Snowball Effect.
Nikita
Exactly.
Christina
So you mentioned like fiscal years or anything other than the calendar year. Do you see one fiscal year that’s more common than other ones?
Nikita
Yeah. So typically, you’re either a calendar year like I mentioned January through December, or the fiscal tax year of July 1st through June 30th. Again, it can be any 12-month time frame, but those are the most common ones that we see with our 990 series returns. So it could, I mean, it could even be like December to November, or it could be.
Christina
Yes, that’s pretty wild.
Nikita
It is wild, and it’s really confusing for the organizations too. You know, they may have so much turnover, you know, they’re almost all of them are run-off volunteers, and volunteers have lives of their own and jobs that they’re getting paid for and things like that, so the turnover is real. You know, so from year to year, they may have a different treasurer handling these 990 forms that don’t understand what’s been done in all the years past.
Finding your organization’s information
Christina
Well, and I feel like there are certain personality types that don’t document things quite as thoroughly as maybe it would be beneficial to, and so when you step into a role, and there’s just no information like you have no paperwork, you have no records, how do you know?
Is there someplace that we know of that they could go to check and see what the IRS has for them?
Nikita
Yes. So oftentimes, when we encounter the error when we have a client call us and see, ‘This is my rejection error, what do I do?’, we’re going to tell them first off, ‘See if you can’t locate some of your previous tax returns.’
Christina
That’s a good one!
Nikita
Right, because it’s what’s been used in all years past, right? And if you know you haven’t changed it, there’s a pretty good chance it’s going to be the same, exactly. If you have no idea where those previous tax returns are at, see if you can’t find the organization’s determination letter, which is really just a letter the IRS gives the organization when they’re provided exempt status. That’s going to have information on your tax year, on your exempt status, what forms you should file, and things like that.
If you can’t locate any of that information, your next best bet is to go to the IRS directly. You can contact the IRS. Most of the time, when we suggest that, we can feel the pain radiating from the client’s body because it’s not a fun time.
Christina
It tends to be quite the event.
Nikita
It is a little bit time-consuming. I will say, though, that the IRS has a really great tool. It is all public knowledge, but they have a tool on their website where you can input your EIN, and it’ll generate all of the information the IRS has available. They’re on the site, so if the IRS has the previous tax returns or has your determination letter in their database, anybody with the EIN can go and find that information. So that would probably be your best bet prior to calling the IRS.
Christina
That’s a good idea.
Nikita
And we can link that IRS link in the video towards the end, but yeah.
Christina
And maybe even in the description. It’ll be good.
Nikita
It is a great tool.
Christina
Do you see other errors that are related to like the same kind of information and record keeping, and if it doesn’t match?
Incorrect Tax-exempt status
Nikita
Yes, so many of the rejections that we get are really just because the organization or the person completing the form doesn’t know the basic information about the organization. It could be something as simple as tax-exempt status.
We see a lot of rejections because they put that they’re a 501(c)(3) because that’s what this person told them, and that’s what this person told them down the line, but really they’re a 501(c)(4). Well, it’s one number, what’s the difference, what’s it matter? We’re doing the same – It does matter, it all matters!
Christina
Especially when it comes to the IRS.
Nikita
Especially. We all know the IRS.
Christina
And I feel like 501(c)(3), that’s the one you hear about exactly in the culture. That’s the type, so I feel like you see it and you say, “Oh, I’ve heard that before,” and then yeah, you know that’s what somebody checks when they file – and then if it’s not – and that would be in the determination letter too, right?
Nikita
It would, yes. So again, you always want to reference your determination letter.
Providing an incorrect EIN/Organization name
Nikita
Another really common error that we see a kind of associated with that is the EIN and the organization name don’t match.
Again, all of this information’s in the determination letter, but a lot of organizations use like doing business as name or a shorthand name because theirs is so long, or you know, they go by different things because it’s easier to remember, whatever the case may be.
But when you’re filing your forms, you have to match what’s on the IRS database, there’s no question about it. So again, referencing the determination letter or putting your EIN in that database, it’s going to tell you right there, but where it gives you any more information, exactly what your organization name is in the IRS database.
Christina
It’s such a good tool, and you can even, I mean, you can bookmark it and just have it every year because I feel like that’s part of the problem. Even if it’s the same person, it’s such a far-off time for the next year, you know, you get it done this year, and you don’t want to ever think about it again because you finally got it done. And by the time you get back to it next year, so much has happened, and even if it’s you, you know, where was the paper that you had 11 months ago? Who knows exactly? And so, just having that link there is such a big help.
Nikita
I mean, we work in the support industry. We help our clients every day, and that’s, I know, you as well. We both tell, you know, our team members they do this once a year, and we do it every single day. Like, we don’t forget these things because we’re encountering them. You guys, I mean, you guys do this once a year, and if you’re trying to get it done quickly. So, it’s easy to get it done and move on and not think about it for 364 more days, you know?
Christina
And there are so many other things going on. I know it’s not sitting around filing a tax form all day. It’s a million different things all at one time, right?
Nikita
That’s definitely not the main focus when you’re trying to get donations and grants, find volunteers, and host events. And their 990 form is not the front of the topic there.
Christina
Now, speaking of the other 990 forms, we talked about the type, right? They like the 501(c)(3) or you could be something else. Do you sometimes see that somebody gets confused about which 990 form they should even be filing?”
Nikita
“Yeah, unfortunately, that does happen. And it’s really just based on your gross receipts and the type of organization you are with the IRS. For the most part, it’s going to be based on your gross receipts at the end of the year unless you’re a private foundation.
Unfortunately, we see too many people get hung up on that because they either think they’re a private foundation because that’s again what they’ve been told or what they’ve seen on different things, but they’re not, and then they file the wrong form. Or they think that they’re not a private foundation and they file the wrong form and should have filed the 990-PF. And that’s a really hard one, but again, your determination letter will tell you that information.
If you’re a private foundation, it clearly states in your determination letter, ‘You are a private foundation, and you are required to file this 990-PF form.’ And if you’re not a private foundation, then it’s going to clearly state, ‘You should file one of these three forms.’
Christina
Yeah, and that makes sense. I mean, really, it’s almost like the determination letter should come with something, some big tag that’s like “do not lose this every year.” That would be so cool.
Nikita
If the IRS could hop on the convenience board. That’d be nice.
Christina
I mean, just so much information in that one letter.
IRS E-filing requirements
Christina
So in the last gosh, I guess it’s been the last several years now, the IRS started the e-filing requirement, right? I mean, it feels like it was yesterday, but I guess it’s been a couple of Seasons. But there are still so many organizations that are used to paper filing because, for decades, that was the way that it was done.
So are there any, I don’t know, maybe growing pains or like any tips that you have for those individuals that are still trying to get comfortable with this new e-filing requirement?
Nikita
Yeah, that’s been a hurdle. I think it’s a great thing because it’s really streamlined the process. It’s allowing organizations to get IRS feedback a lot quicker, status updates a lot quicker, and those kinds of things. But as you mentioned, most of these organizations have been paper filing,
gosh, I speak to people and they’re like, ‘I’ve been doing this since the 80s, you know, yeah, and I’ve never had to do these sections before. Why am I having to do them now?’
That’s been a big hurdle for a lot of different organizations. But that’s, I think, a lot of why the IRS has gone this direction because it streamlines things. Because they have a better system of making sure that all of the information you’ve provided is accurate, all of the information provided meets what their guidelines are, and what they need you to send.
Um, and that’s where e-filing comes in handy because specifically with Tax990, you know, if you complete, if you say you’re a 501(c)(3), we’re automatically going to tell you you need to complete Schedule A, so nothing’s being forgotten and left out. And that goes through the whole forum and all of the schedules. We just help you understand what you’re required to do per IRS guidelines to help you stay in those good standings.
Christina
It’s, uh, it’s a lot less like up to interpretation.
Nikita
Yeah, exactly. Exactly.
Christina
I mean, it’s really good when you’re trying to file your taxes, right? You want them to be what they’re supposed to be the first time, hopefully.
Nikita
Gosh, and I’ve talked to people, they’re like, ‘Well, I don’t know how to do this, so I’ve just never done it in the past!’ And that’s gotta be painful for the IRS, too, because you know, they have to try to keep up with all of these things, so it’s just significantly helped in all of those different areas, I think.
Start your Form early
Christina
So, with e-filing, are there any suggestions to make that a little bit smoother? Is there like, they’re going through and they’re like, you said, people are skipping sections because they’ve just never done it before, so I know a lot of the IRS lingo, that’s a little detailed.
But I feel like some of the forms, if you kind of just slow down for a minute and you look at what you’ve got in front of you, it’ll kind of guide you to what you’re supposed to be completing. You know, if you’re checking this box, then you have to complete this part, or if these two lines have to match. Sometimes it’s there, it’s just so overwhelming that it’s hard to really fully digest it when you’re in the moment.
Nikita
You know, I think the best suggestion that I would be able to provide would be just to start on it early. You know, you can start your form as soon as your tax year ends. Get your documentation set up, start obtaining your receipts, and find your determination letter and all of these things.
Slowly work on the form throughout that five-month time frame you have from when your organization’s tax year ends and your due date. Take the time to really look at your lines, look at the different sections, reference the instructions.
The IRS really has done a great job of laying out their instructions and making them easy to navigate in the different parts and lines, you know? And use those tools, really. That’s, I think, a big part of it. You know, share your return with members, you know, have more eyes on it.
Christina
Absolutely, yeah.
Nikita
But all of those things take time, and too often, I think people are putting it off to the last minute because…
Christina
It’s uncomfortable. Procrastination.
Nikita
Exactly. It’s too long, and it’s daunting.
Christina
I would not want to be the one, but I know that that’s…
Nikita
But then you just try to rush and get through it, and you’re like, “These numbers don’t match, I’m just going to throw some in here to make it match,” and that’s just not what you want to do for the long term.
Christina
Yeah, that ends up being, you know, worse than if you had just kind of accepted it and spent a little bit more time there.
I mean, it really is, it’s like five and a half months after the year ends that they’re filing this thing, and that’s almost halfway through their next year. So if you’ve closed your year and you’ve been closed on that year for five months, are you really going to remember where everything was?
Nikita
Your mind is no longer there.
Christina
Yeah, so even though it’s hard, if you started when that year ended, you kind of know where your documents were a little bit easier. You kind of have a better idea of where the organization was at that point, and that could make a big difference with being able to fill out some of that information.
Nikita
Absolutely.
Why file with Tax990.com?
Christina
So with Tax990, obviously, it’s set up with the IRC file requirements. It’s going to help with making sure a lot of the stuff is filled out, being based on what they’re looking for. Is there any benefit to starting with Tax990 early?
Nikita
There is! Every month, we offer a “file early” discount, which just means the first week of the month, we’re offering you 10% off. So if you file between the first and the seventh of the month, you get a 10% off discount.
We want you to come in, we want–who doesn’t love a coupon, you know? Come in and file early, get it out of the way. You don’t have to think about us for another year. You don’t have to worry about your tax forms for another year, and then next year, you can get another 10% off. I mean, who doesn’t want that?
All good things,
Christina
All good things. I think it’s better than being done with the uncomfortable task and getting a coupon. I love it.
Nikita
So, did you have any other questions? Anything more you want to just discuss regarding the rejections or the process?
Christina
I don’t think so today. I think we covered a lot of the more common ones, the really easy-to-prevent ones, right?
Nikita
Right, because if it’s going to be something super detailed, you know, sometimes it’s going to take a little bit more looking into. But you can avoid all of these things, mostly by having the determination letter, right, like that, and that’s such a simple thing to go on the site and get. But it’s going to save you so much headaches, I think.
Christina
Absolutely! I think we’ve covered a lot of the things that I was curious about or wanted more information on.
Nikita
Awesome! Well, you know, thank you for sitting with me today. This has been kind of fun.
Christina
Yeah!
Nikita
Again, go ahead, and create an account if you don’t already have one. If you do have an account, May 15th is going to be here in the blink of an eye, which is a very busy season. Um, I know, so go ahead, you know, log in, start your form, and call us if you have questions. We’re happy to help you along the way. Tune in next week if you’re available!
We’re going to be talking about the different 990 series forms, give you a better idea of what kind of categorization you have to have for those different forums, and if you qualify, subscribe to our channel so you can get regular updates on these different little shows that we’re going to be doing here.
And then, of course, if you have any questions, reach out. We have a great support team here, always happy and ready to help.
