Tax Time for Nonprofits: Form 990 Reporting for Tax-Exempt Organizations and Related IRS Requirements

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Have you filed your taxes yet?  For many Americans, that question strikes at the heart and raises additional questions like the following.  Are my finances in order?  Did I maintain sufficient records?  Do I even understand the IRS’s tax reporting forms?  And of course – will I owe any money? 

Each year, most nonprofit organizations consider similar questions because, like private individuals, they are required to file annual returns with the IRS.  (Note that churches, their “integrated auxiliaries,” and associations of churches, however, are statutorily exempt from this annual filing requirement.)  Nonprofit tax reporting involves many similar elements.  Thankfully, April 15 is not the operative deadline, and typically no income taxes are due.   

Form 990 Filing Deadlines

The Form 990 filing deadline is different than for individuals and businesses:  it is due four and a half months after the close of an organization’s fiscal year.  So for nonprofits operating on a calendar fiscal year, their Form 990s will be due on May 15. 

An automatic three-month filing extension is available, provided that IRS Form 8868 is filed prior to the original filing deadline.  Beginning with tax year 2016 (with reporting in 2017), this automatic extension will lengthen to six months – good news indeed!

Form 990 Versions

For nonprofit Form 990 filers, the requisite 990 version depends on annual revenues and asset value as follows:

IRS Form 990-N.....................less than or equal to $50,000.00 in gross receipts.1

IRS Form 990-EZ...................less than $200,000.00 in gross receipts and less than $500,000.00 in total assets at year-end.

IRS Form 990.........................$200,000.00 or more in gross receipts, or total assets of more than $500,000.00.

IRS Form 990-N “e-postcard” can be filed online at www.irs.gov.  This form simply notifies the IRS of a nonprofit’s continuing existence.  Note too that an organization may file a version use for higher gross receipts but is not required to do so.  Form 990-EZ requires financial information, as well as program descriptions, and is a simplified version of the full-fledged Form 990.  Form 990 involves detailed reporting of revenues, expenditures, and tax-exempt activities.  Given the complexity of this form, it is recommended that organizations preparing Form 990s seek the services of accountants and attorneys with experience in the field. 

Benefits of Form 990 Filing

An organization’s Form 990 filing is a critical area for legal compliance.  It is required for maintaining tax exemption, as well as for inclusion with many states’ charitable solicitation registrations and state-required annual reports.  Filing the 990 also provides important benefits.  For example, the mandatory financial reporting involved in Form 990-EZ and the long-version Form 990 incentivizes nonprofits to carefully monitor their financial activities with appropriate board oversight.  In addition, the Form 990’s questions about policies and other governance practices can help organizations to comply with “best practices” measures.  The Form 990-EZ and Form 990’s narrative portions calling for program summaries likewise can help nonprofit leaders focus on an organization’s mission, goals, and accomplishments.  And since Form 990s are legally required to be available for public inspection (e.g., through www.guidestar.org), such financial, governance, and program activity reporting showcase a nonprofit’s many high-quality attributes to donors and other interested viewers. 

Potential Income Tax Reporting and Liability

IRS Form 990-T must be filed if a nonprofit receives at least $1,000 in gross income from unrelated business activity (known as “UBI”).  This Form 990-T requirement applies to all tax-exempt nonprofits that receive UBI, whether they are required to file a Form 990 or not (e.g., a church).  Any resulting income tax liability is known as “UBIT,” and it is based on net income.  

Will your organization owe UBIT?  That depends on a three-part test of whether the income was derived from (a) a trade or business that (b) is regularly carried on, and (c) such income is unrelated to the organization’s tax-exempt purposes.  Note that many exceptions apply, such as for rent from real estate that is not debt-encumbered and other passive income. 

Consequences of Not Filing Form 990s

One last caution:  A late-filed Form 990-EZ or the long-version Form 990 can lead to IRS-imposed financial penalties.  In addition, failure to file any Form 990 for three consecutive years (whatever the applicable 990 version) will result in automatic revocation of an organization’s tax-exempt status.  Reinstatement of tax-exempt status is possible, but only upon filing a new IRS Form 1023 application for tax-exempt recognition – and such recognition will not necessarily be retroactive.