To keep their federal tax-exempt status, most nonprofits have to file 990 or one of its simpler versions, each and every year. The IRS examines these yearly filings to keep track of financial activities, governance, and mission alignment of every organization. More than just compliance, Form 990 serves as a trust and accountability building tool for nonprofits.
Why Nonprofits Must File 990 Annually
The IRS made sure all tax-exempt organizations have to submit an annual return even if there were no earning. This is to ensure non-profit organizations still just operate within their charitable purpose and not assisting private individuals. This is to minimize non-filing to avoid penalties and risk losing tax exemption.
Form 990 outlines a non-profit’s overall financial status i.e. income earning, expenses, assets and salaries paid to executives. Other than the financial information, it also summarizes the non-profit’s major activities and accomplishments. This helps funders, regulators, and the general public see how the mission is financially supported.
Which Form Should Your Nonprofit File?
The IRS provides several versions of Form 990 based on an organization’s size and financial activity:
- Form 990-N (e-Postcard): For organizations with annual gross receipts of $50,000 or less.
- Form 990-EZ: For nonprofits with gross receipts under $200,000 and total assets under $500,000.
- Form 990: For larger organizations with gross receipts or assets exceeding those thresholds.
- Form 990-PF: Required for all private foundations, regardless of income or asset size.
Filing the correct version ensures compliance and helps the IRS maintain accurate records of nonprofit operations nationwide.
What Happens If You Don’t File?
Not filing Form 990 for three years in a row means that the organization’s tax-exempt status is automatically revoked. A revoked nonprofit becomes liable for federal income tax and unrestricted tax exemptions must be regained through a costly and time-consuming application process. Filing late can increase the risk of daily fines and reduce the audience’s perception of the organization.
Maintaining Compliance
To ensure compliance, nonprofits must note deadlines on their yearly calendars, collect financial documents in advance, and use the IRS e-file system to e-file returns. Nonprofits can request extensions via Form 8868; however, taking extensions on deadlines may signal compliance concerns.
Filing Form 990 annually is best practice and a legal requirement. This helps keep the organization in good standing, demonstrates transparency, and shows donors their money is being managed properly. If you are not sure about the compliance, contact us today. Dimov Tax presents professional assistance to nonprofit organizations.