A Nonprofit’s Guide to IRS Form 990:  Your Organization’s Annual “Report Card”

When people think about nonprofit organizations, they might believe that a group’s tax-exempt status means the organization doesn’t need to worry about taxes or the IRS.  That misconception couldn’t be farther from the truth!

In fact, the federal government requires annual documentation from nonprofits (other than churches or certain church-related groups) to show how they’re working toward their mission and to confirm they’re following regulations established for tax-exempt entities.  IRS Form 990 provides the framework for this annual reporting.

What’s included in Form 990?

Form 990 basically serves as a public report card on your organization.  It details information such as:

• Your nonprofit’s mission
• Projects and activities you’ve completed during the year
• Your group’s revenue and expenses
• Current organization assets and expenses
• Salary information for officers, trustees, board members and certain key employees

Prospective donors often review a nonprofit’s Form 990 filings to get an idea of how the group is working toward their goals and to get a snapshot of the organization’s financial health.  (If expenses such as unemployment claims or state unemployment premiums are negatively impacting your nonprofit, you can talk to UST about alternative solutions which can help significantly cut these types of expenses.  It could be a smart way to demonstrate your group’s dedication to year-over-year fiscal improvement for your next 990 filing.)

Which version of Form 990 does my nonprofit need to complete?

Your organization’s annual revenue determines which version of Form 990 must be filed each year:

• Less than $50,000 annual revenue >>> Form 990-N.  This is the shortest version of this reporting document and serves as a quick snapshot of your group’s activities during your fiscal year.

• Less than $200,000 annual revenue AND assets under $500,000 >>> Either Form 990-EZ or Form 990.  The 990-EZ version is a streamlined version of the full 990.  Nonprofits within this group have the choice of saving time by completing the shorter 990-EZ or providing a more detailed picture of their group by filing the 990.

• More than $500,000 annual revenue >>> Form 990.  Larger nonprofit organizations must file the full 990 version.  This document reports more in-depth information and financial details.  It contains multiple “narrative” sections which can help shine a light on your successes by illustrating your group’s unique approach toward meeting objectives.

• Nonprofits with unrelated business income >>> Form 990-T.  This form accounts for the business income tax which would be triggered if a nonprofit has an ongoing business which generates revenue which is not substantially related to the tax-exempt purpose of their group.

Form 990 is commonly supplemented by Schedules.  While there are 16 Schedule options associated with Form 990, most organizations are only required to complete a few.  Smaller groups may not need to submit any Schedules. If your nonprofit participates in the activity covered by a certain Schedule, it must be filed along with your 990. 

Once Form 990 is filed with the IRS, does a nonprofit need to worry about state filing requirements as well?

There’s no “one size fits all” answer for this question.  Nonprofit filing requirements vary by state.  The IRS website includes a quick reference of state-by-state information for tax-exempt organizations. 

Are there deadlines for filing Form 990? 

Form 990 is due each year by the 15^th day of the 5^th month after the end of a nonprofit’s fiscal year.  If your organization is running behind on this paperwork, you can file IRS Form 8868 to request a six-month extension.

Smaller nonprofits who use Form 990-N are not eligible for extensions but there are currently no penalties for late filing for these groups.

What happens if a nonprofit doesn’t meet their Form 990 deadline?

Meeting Form 990 deadlines is critical for tax-exempt organizations.  If Form 990 is filed late, the IRS has the right to assess financial penalties.  If your nonprofit’s gross revenues are less than $1,208,500, the fee is $20 per day up to a maximum $12,000 fine.  If your group’s revenues are higher than $1,208,500, the fee jumps up to $120 a day with a maximum fine of $60,000.

While those fines can add up quickly, there’s an even more significant penalty for groups that fail to file Form 990 for three consecutive tax years.  Nonprofits who fall into that situation automatically lose their tax-exempt status.  As a result:

• Your nonprofit would no longer be eligible to receive tax-deductible contributions.
• Your group loses 501(c)(3) status.
• The organization will owe federal income taxes.
• Your nonprofit will be placed on the IRS’ Automatic Revocation of Exemption List.  (Once added to this list, your group’s name and information will remain on this list indefinitely – even if your nonprofit is able to successfully re-apply for tax-exempt status.)

What are some of the most common errors that lead the IRS to reject Form 990 submissions?

The IRS can return your Form 990 filing or even reject it due to errors or missing information.  They recommend reviewing the following aspects of your organization’s 990 filing to avoid this situation:

• Be sure to use the appropriate Form based on your revenue and the year you file.

• Complete all parts of the Form and include all required Schedules.

• Enter answers for each line.  If a question is not applicable to your nonprofit, answer “N/A.”

• Make an entry on all “total” lines.  If the section doesn’t apply to your group, enter “$0” if applicable.

• Make sure the Form is signed by an officer of your organization.

• Avoid including unnecessary personal identifying information.  (Because Form 990 is a public document, it’s critical to ensure your filing does not include personally identifiable information to help avoid identity theft or public identification of individuals featured within your filing.)

With the significant potential penalties surrounding Form 990, most nonprofits take filing this key documentation extremely seriously.  Experts recommend working with your board of directors and a tax professional to help make sure your organization stays in compliance with these important regulations.

As your nonprofit gears up for the upcoming 990 filing, consider adding a strategic approach to reducing unemployment costs to your documentation. UST has assisted over 2,200 nonprofit organizations in minimizing financial exposure to unemployment claims. The savings from working with UST have enabled many organizations to fund staff merit increases, offset rising health insurance premiums, or cover expenses like wellness benefits. See how much you could save by becoming a reimbursing employer with UST by clicking the link here.

SOURCES:

“Charities and nonprofits,” IRS.gov: https://www.irs.gov/charities-and-nonprofits

“Federal Filing Requirements for Nonprofits,” National Council for Nonprofits: https://www.councilofnonprofits.org/running-nonprofit/administration-and-financial-management/federal-filing-requirements-nonprofits

“Your IRS Form 990 Questions Answered,” blueavocado.org: https://blueavocado.org/finance/your-irs-form-990-questions-answered/?gad_source=1&gclid=CjwKCAjwtdi_BhACEiwA97y8BBcZnko5Bt0pKgphXCP99p3pCvcOTnUhgCIQLc1zPLB5BOJeFJIdqxoCnmYQAvD_BwE