It may feel like very few things involving the IRS are straightforward. But when it comes to nonprofit tax exemption, staying compliant with IRS regulation can be–all because of the Form 990 Series.
The Form 990 Series is a specifically designed tax form that most nonprofit organizations will need to file annually. Even though your nonprofit organization may not need to pay federal income tax, it still needs to report its financial details, activities, contributions received, and certain other information every year in order to stay compliant with the IRS.
Beyond the fact that it’s a requirement, however, there are a number of other benefits to filing as well—such as increased credibility in the eyes of donors and volunteers. Here is what you need to know about the requirements for reporting, the benefits of doing so, penalties for not, and important deadlines to keep in mind.
Which 990 Form(s) Should I File?
Even after obtaining tax-exempt status, your organization must report its financial details, activities, and certain other information by filing an annual 990 return. Based on information regarding gross receipts and assets, you will most likely file one of these applicable forms:
Form 990-N: Filed by organizations with gross receipts of less than or equal to $50,000.
Form 990-EZ: Filed by organizations with gross receipts less than $200,000 and assets less than $500,000.
Form 990: Filed by organizations with gross receipts greater than or equal to $200,000 and assets greater than or equal to $500,000.
Form 990-PF: Filed by private foundations to determine tax based on investment income and to report charitable distributions/activities.
Additional Filing Requirements
The IRS requires organizations to attach 990 Schedules for reporting additional information or explanation for some of the answers provided on Form 990 or 990-EZ.
Organizations with unrelated business income (UBI) of $1000 or more during the tax year must file Form 990-T. Some examples of UBI include:
Selling merchandise with your logo: Having people passionate enough about your nonprofit to represent it through merchandise is great, but since selling t-shirts, hats, and stickers isn’t the primary purpose of your nonprofit, this revenue is UBI.
Renting out property or equipment: If you decide to rent out your facility or any organizational equipment to private parties or events, this rental income is UBI.
Selling snacks at community events: While providing snacks and drinks is an excellent way to encourage a great turnout for both volunteers and patrons, any money made from these sales would be considered UBI.
Can I File a Form Other Than the One I Qualify For?
Although Forms 990, 990-EZ, and 990-N are intended for organizations with varying levels of income, there is some leeway. If your organization qualifies for 990-N filing (gross receipts less than or equal to $50,000), you can still choose to file a 990-EZ or 990. Similarly, if you qualify for Form 990-EZ filing (gross receipts less than $200,000), you can elect to file a long form 990.
If your organization has a gross receipt total over the limit of a form, however, you cannot file that form. For example, if your organization’s gross receipts total $100,000, you can file a Form 990 or short form 990-EZ–but you cannot file a Form 990-N. If your organization is classified as a private foundation, the only form you may file is Form 990-PF.
What if I Filed a Different Form Last Year?
If you previously filed a version of the form and wish to file a different version this year, you can do so as long as your organization’s gross receipts do not exceed the form limit. For example, if you filed Form 990 last year but qualify to file Form 990-EZ instead, you can choose to do so.
What are the Penalties for Not Filing?
It’s important to remember to file your Form 990 by the deadline—failing to do so without providing reasonable cause may result in some nasty penalties.
An organization with gross receipts less than $1,020,000 for its tax year will have a penalty of $20/day for each day that the return is late. The maximum penalty for these organizations is $10,000 or 5% of the organization’s gross receipts—whichever is less.
An organization with gross receipts more than $1,020,000 for its tax year will have a penalty of $100/day for up to a maximum of $51,000.
Keep in mind that any organization that fails to file a Form 990 for three consecutive years is at risk of having its exempt status revoked.
If the organization follows the calendar tax year, then the deadline to file their 990 returns is May 15th.
Operating on a Fiscal Tax Year?
Fiscal year begins
Fiscal Year ends
Deadline to file 990 type forms
The organizations must file their 990 return by the next business day if the original deadline falls on a weekend or holiday.
Need More Time? Get an Extension!
If your organization needs an extension for filing its Form 990, you can get one automatically by filing Extension Form 8868. This provides your organization with an additional six months to prepare and file the actual 990 Form.
What Does Form 990 Do For My Organization?
There are numerous reasons beyond the simple requirement that make filing your Form 990 a great decision for your organization. For one, it makes your nonprofit more transparent—your records are available for the public to see. When potential donors can see your proven track record of using donations to do something good, they become actual donors. Let’s face it—we all want to know our money is going to be put to good use, and filing a 990 Form is an excellent way to reassure everyone that your organization is doing just that.
A healthy, active nonprofit will likely have a much easier time finding supporters of its cause. Again, your organization being transparent and compliant with the IRS provides ideal optics to not just your nonprofit, but also your community and your cause, as well. Having the legitimacy that comes with Form 990 filing also means more opportunities to connect with other reputable organizations, merchants, and individuals.
Save Time by Filing Electronically
As a result of the Taxpayer First Act of 2019, 990 Forms are now required to be filed electronically.While this change may seem an inconvenient one for some at first glance, it introduces a bevy of benefits that make the entire process much simpler, including:
New error codes make correcting mistakes easier. New error code explanations help in directing the user to the location of the error and provide the necessary information to correct it.
It’s faster. Transmissions are processed and acknowledgements are returned within 24 hours. No more waiting for daily system processing cycles.
There is a built-in accuracy check. Paper Form 990s have an average error rate of over 25%. E-filing means built-in accuracy checks that catch the error before it is submitted.
Filing a 990 series form electronically may seem like a big change at first, but knowing the basics goes a long way towards getting done with paperwork and getting out into your community. Do your research and find out what e-filing service is right for you and your nonprofit. When looking for an e-filer, make sure:
They are IRS-authorized
They support all 990 Forms
They include all required schedules (and attach them automatically, ideally)
Show Your Nonprofit’s Impact By Filing Your 990
Filing Form 990 is about more than just staying compliant with the IRS. It can have a huge impact on your nonprofit’s reputation as well.
990 Forms provides your organization with a way to be transparent with the public, government, and potential donors. They allow you to demonstrate what you accomplish with the donations and contributions you receive throughout the year.
This transparency helps make potential donors sure of the good you do with your nonprofit and can encourage them to make the jump to becoming a donor!