Nonprofit organizations, along with certain other tax-exempt entities, are required to file Form 990 with the IRS. This form serves as a vital tool for transparency, helping the public understand how nonprofits manage their finances. If you’re wondering what a 990 filing is and why it’s essential, this blog post will break it down for you.
In this guide, we’ll explore everything you need to know about IRS Form 990, including what it is, why it’s important, when it’s due, and the filing process. Let’s dive in!
What Is IRS Form 990?
IRS Form 990 is an annual informational return that certain nonprofit organizations, charities, and other tax-exempt entities must file with the Internal Revenue Service (IRS). The form provides the public with an overview of the nonprofit’s financial health, including its income, expenses, executive compensation, and the activities it undertakes.
Form is often considered the “financial report card” for nonprofits. By requiring this form, the IRS ensures that nonprofit organizations are using their funds appropriately and adhering to the tax-exempt status regulations.
Key Information Reported on Form 990
Form 990 covers several important aspects of a nonprofit’s financial and operational status:
- Revenue: Details about the nonprofit’s sources of income, including donations, grants, program service revenue, and investment income.
- Expenses: Breakdown of how the nonprofit spends its money, including program services, administrative expenses, and fundraising costs.
- Executive Compensation: Information on salaries and benefits of key officers and directors.
- Programs and Activities: Insights into the nonprofit’s major programs, services, and goals.
- Governance: Information about the nonprofit’s governance structure, including the board of directors and their compensation (if applicable).
Why Is IRS Form 990 Important?
The main purpose of this Form is to ensure that tax-exempt organizations maintain transparency about their financial operations. Here’s why it’s important:
- Public Transparency: It provides a clear, public-facing record of an organization’s finances and activities. This is crucial for donors who want to ensure their contributions are being used effectively.
- Tax Compliance: Filing this Form ensures that nonprofits are adhering to the IRS guidelines for tax-exempt organizations. Failure to file can result in penalties or the loss of tax-exempt status.
- Donor Confidence: Many donors and grant-makers rely on Form 990 to assess the financial health and credibility of an organization before making contributions or grants.
- Accountability: Nonprofits are accountable to the public, and this Form ensures they are fulfilling their mission and managing their funds properly.
When Is Form 990 Due?
One of the most common questions regarding IRS Form 990 is: when is 990 due?
The due date for Form 990 depends on the fiscal year of the nonprofit organization. Generally, it is due on the 15th day of the 5th month after the end of the nonprofit’s fiscal year. For example, if the nonprofit operates on a calendar year (January 1 to December 31),this Form is due by May 15 of the following year.
Extensions for Filing
If your nonprofit is unable to meet the original filing deadline, it can apply for an automatic 6-month extension by filing Form 8868. This extension will push the due date to November 15 for calendar-year filers, giving them extra time to complete the form.
However, even with the extension, it is important to submit the form as soon as possible to avoid penalties for late filing.
What Happens If You Miss the 990 Filing Deadline?
Missing the filing deadline for Form 990 can have serious consequences. If a nonprofit fails to file its Form for three consecutive years, the IRS may revoke its tax-exempt status, which could lead to significant financial and operational difficulties for the organization.
Additionally, late filings may incur penalties. The IRS imposes fines based on the size of the nonprofit’s gross receipts. For example:
- $20 per day for nonprofits with gross receipts of less than $1,000,000
- $100 per day for nonprofits with gross receipts over $1,000,000
To avoid these penalties, it’s critical for nonprofits to stay on top of their filing deadlines and make timely submissions.
What Is the Filing Process for IRS Form 990?
The process for filing Form 990 may seem complex, but breaking it down into manageable steps makes it easier:
1. Gather Financial Information
Before you start filling out Form 990, you’ll need to gather the nonprofit’s financial records for the fiscal year. This includes financial statements, revenue sources, expenses, executive compensation, and details about the organization’s programs.
2. Choose the Right Version of Form 990
Depending on the size and structure of your nonprofit, you may need to file a specific version of thisForm:
1) Form 990: The standard form for large nonprofits with gross receipts of $200,000 or more, or total assets of $500,000 or more.
2) Form 990-EZ: A shorter version of Form 990 for smaller organizations with gross receipts between $50,000 and $200,000.
3) Form 990-N: Also known as the e-Postcard, this is the simplest version for organizations with gross receipts under $50,000.
3. Complete the Form
Form 990 can be completed either on paper or electronically. Most organizations file electronically through the IRS-approved e-filing system to ensure faster processing and avoid errors.
4. Submit and Confirm
Once the form is completed, it should be submitted to the IRS by the due date. After submission, you’ll receive confirmation of your filing. Be sure to keep a copy of the form for your records.
5. Post on the Organization’s Website
Nonprofits are encouraged to post their Form 990 on their website for transparency. This helps donors and the public access vital information about how the nonprofit operates and how their contributions are being used.
Common Questions About IRS Form 990
What Is the Purpose of IRS Form 990?
IRS Form 990 is designed to provide transparency and financial information about nonprofit organizations, ensuring they comply with tax-exempt regulations and helping donors make informed decisions.
Can I File Form 990 Online?
Yes, nonprofits can file Form 990 online using the IRS e-file system. This method is faster and helps reduce errors in the filing process.
Do All Nonprofits Need to File Form-990?
Most tax-exempt organizations with gross receipts over $50,000 are required to file this Form. However, churches, certain government entities, and smaller organizations with gross receipts under $50,000 may be exempt from filing.
Can I Get an Extension to File Form 990?
Yes, nonprofits can file for an automatic 6-month extension using IRS Form 8868 if they need more time to complete their Form.
What Happens If I Don’t File Form-990?
Failure to file Form 990 for three consecutive years can result in the revocation of your nonprofit’s tax-exempt status, and you may also face penalties for late filing.
How Can I Avoid Penalties for Late Filing?
To avoid penalties, ensure that your nonprofit files this Form on time or applies for an extension before the deadline. Keep accurate financial records and ensure that the form is filled out properly.
Conclusion
IRS Form 990 is a crucial tool for maintaining transparency and ensuring tax-exempt organizations are fulfilling their mission and complying with IRS regulations. Whether you’re a nonprofit leader or a donor, understanding this Form is essential for ensuring that funds are used effectively and that organizations maintain the trust of their communities.
By staying on top of deadlines, properly filing this Form, and maintaining transparency, nonprofits can continue to thrive and positively impact society.
