Your organization might not have to pay taxes, but it does not mean you are done with the IRS. The IRS wants to hear from you annually by you filing Form 990. Form 990 is a return of an organization that is exempt from income tax. The IRS considers this an information return and not a tax return. Thus, the IRS just wants details about your finances and activities for the year.
The more your organization makes, the more information you will need to provide. This form also helps the government to see if any of the organizations are abusing their tax-free status. There is a section where the organization will need to justify why they should continue to have its tax-exempt standing by describing their accomplishments in the past year.
Versions of Form 990
There are five main versions of Form 990 that you should be aware of. They are all distinctly different and it can be difficult to determine which Form 990 is best for you. Form 990 you need to file is based (for the most part) on your gross receipts and assets.
If you are a church or affiliated with it, or your only mission is religious in nature, you do not have to file Form 990. However, be sure to talk to a professional advisor to ensure that you really do not need to file before you decide not to file. In fact, having a professional help you file this form is always a good idea, especially if you are not sure what you are doing.
Let’s review each form.
- Form 990-N – This form should be used by small organizations with less than $50K in gross receipts;
- Form 990-EZ – Mid-size organizations with total assets less than $500K and gross receipts that range between $50K and $200K have an option to use this form;
- Form 990 (long form) – If you are a larger organization and your gross receipts are equal to or exceed $200K and assets are equal to or exceed $500K, then turn to this form;
- Form 990-PF – This form is not based on gross receipts, but is used by organizations that are considered private foundations (exempt and taxable) or non-exempt charitable trusts;
- Form 990-T – If you have 1,000 or more of gross income from an unrelated business, then use this form.
When Is It Due?
No matter which form you submit, the Form 990 is always due on the 15th day of the fifth month in regard to the end of the fiscal year-end. For example, if your non-profit’s fiscal year ends on December 31st, you will need to submit it on May 15th of the following year. If it ends on June 30th, your form will be due on November 15th. Organizations have a possibility to file for a six-month extension. To do so, they will need to submit a Form 8868 by the due date they are supposed to submit the Form 990.
Why Should Non-Profits Take Form 990 Seriously?
There are several reasons why you must file a Form 990 and take it seriously. Let’s go over the main ones.
- Significant penalties
Submitting wrong or incomplete Form 990 is the same as filing late with the IRS and may come with IRS penalty fees. Thus, ensure that you have accurate records of money coming in and from who and money coming out and for what. Also, if you consider that you will need to pay $20 for each day you are late (up to $10K or 5% of gross receipts) and this penalty increases if you have over a million in revenue, you might take this form more seriously. Moreover, the IRS will not inform you about this for two years, and these penalties will snowball into huge amounts.
If you depend on someone else to prepare your return, make sure that you get a proof of filing or a proof that an extension was filed. If it was filed on paper, you need a copy of the documentation that was filed plus a certified mail hand stamped at the post office receipt showing the date that it was filed with notations on there what was filed. If it was electronically filed, you still need to get a copy of what was filed and a printout from the software used showing that the return/extension was actually received and accepted by the IRS.
- Tax-exempt status revocation
The IRS has an automatic revocation program. This means that if you do not file Form 990 for a certain number of years, then it will automatically, without telling you and doing anything, terminate your tax-exempt status. If your tax-exempt status is terminated, then your donor can no longer deduct contributions that are made to your organization. Moreover, the entire time you operated and were not tax-exempt, you would also owe taxes and have to file a separate tax return for that period. For large organizations, this can add up to a very high tax burden.
- Public access
Eventually, this form will be available to the public, which will ensure trust and transparency, so the organization maintains its good standing. What does this mean for you? When you fill out the form, do not leave important items blank or just provide a quick and short answer. Describe your activities and accomplishments in detail. After all, individuals who are considering or already making donations to your organization can also look it up. Thus, it is a great way not only to fulfill your obligation before the law but also to attract more finances, services, and goods to ensure that your mission is fully fulfilled.
