Filing a 990 series return is an essential aspect of running a nonprofit. This is primarily because the IRS mandates it, but it’s also important for a few other reasons. In this article, we will discuss everything you need to know about filing a 990 form, from choosing the form to transmitting it to the IRS.
Why do nonprofits file 990s?
The IRS must receive these forms in order to verify that a nonprofit isn’t taking advantage of its tax-exempt status and is fulfilling its responsibilities and requirements. These forms provide access to an organization’s financial activity and other information the IRS needs.
The IRS isn’t the only party that may be interested in these returns. The general public and especially potential donors and volunteers may want to learn about an organization’s activity. From a 990 form, the public can learn about an organization’s program service activities, key employees and directors, and what amount of proceeds go towards the organization’s cause.
What happens if nonprofits don’t file 990s?
If you don’t file a 990 form for your nonprofit organization, you could be subject to IRS penalties. The penalties will differ depending on the form you file, the size of your organization, and how late you file the form.
- If an organization has gross receipts less than $1,129,000, the IRS will impose a penalty of $20 per day past the deadline. This cannot exceed the lesser of $11,000 or 5% of the organization’s gross receipts for the year.
- If an organization has gross receipts of more than $1,129,000, the penalty will be $110 per day late, with a maximum of $56,000 or 5% of the organization’s gross receipts for the year.
A late return is not the only violation that will result in a penalty. If you fail to furnish some required information or provide incorrect information, you’ll receive a notice from the IRS that includes a fixed time to fulfill the requirements. After that period, failure to comply will result in a penalty of $10 per day with a maximum of $5,500.
If an organization fails to provide a 990 return for 3 consecutive tax years, the IRS will revoke the organization’s tax-exempt status. The organization will have to re-apply for tax-exempt status and pay income taxes until that status is reinstated.
How do I file a 990?
Filing a 990 form can be an overwhelming and confusing process, especially if it’s your first time. To help you through the process, here’s a checklist of steps to take before, during, and after transmitting your form to the IRS.
- Gather your required information before you start filing
This will give you easy access to everything you need and prevent you from having to frequently stop and search for a certain detail. The required information for filing 990 forms includes
- The organization’s basic information, including name, address, and EIN
- Financial information such as revenue, expenses, assets, and liabilities
- Program service accomplishments
- Other IRS filings and tax compliance requirements
- Key personnel, governing body, and management details
- Choose an IRS-authorized e-file provider
The IRS mandates that 990 forms must be filed electronically. This means you’ll have to find one that meets all of your needs. Some applications will include helpful features and instructions, so if you need any assistance, you may want to find one of them.
The IRS authorizes e-file providers to participate in their e-filing program. When you’re looking for a provider, you should make sure you find one that is IRS-authorized in order to ensure that your form is transmitted and accepted correctly.
- Decide which form is right for your organization
There are multiple variants of 990 series forms intended for different sizes and types of organizations. These variants are
- Form 990-N (e-postcard), which is intended for organizations with gross receipts less than $50,000
- Form 990-EZ, which is intended for organizations with gross receipts below $200,000 and assets below $500,000
- Form 990, which is intended for organizations with gross receipts equal to or above $200,000 (or) assets equal to or above $500,000
- Form 990-PF, which is intended for private foundations regardless of gross receipts
- Form 990-T, which is intended for organizations that need to report their unrelated business income of $1000 or more to the IRS. Organizations that must file this form will also need to file Form 990-EZ, 990, or 990-PF, whichever corresponds to the organization’s gross receipts
- Make sure you are filing for the appropriate tax year
Some applications allow filing for multiple tax years, so be sure to choose the one you are filing for. Failing to choose the correct tax year could result in a rejection from the IRS, which will extend your filing process even further.
- Enter your details onto the form
This process may differ based on the application you choose to file through. So, please be sure to enter the right information.
- Review your form before you transmit it
Because incorrect information can result in a penalty, it’s important to review and validate your entire return before you send it to the IRS. If you don’t, you may have to file an amended return. You cannot file an amended return until your original return is accepted, so you’ll have to wait to complete your filing process correctly until then.
If you’re overwhelmed and need more time to file your return, you have the option to file an extension Form 8868. Filing this form will result in an automatic 6-month extension on your deadline. You can only file for an extension once per return, so be sure to file by your extended date to avoid penalties.
Although 990 forms can be a little bit of a hassle, the process is much smoother when you are completely aware of what is required from your organization and why you are filing the form.
Always remember to file your 990 returns on time in order to stay compliant with the IRS!
