It may sound backward that a nonprofit that’s tax-exempt would have to file a tax return. But like for-profit companies, nonprofits are also required to file yearly reports. Form 990 is the IRS form available to use in filing.
The IRS requires nonprofits to report every year things like:
• The money was taken in throughout the year
• If the nonprofit is still operating
• Financial transparency (the information becomes publicly available)
Most nonprofits are required to file, but there are some exceptions:
• Churches and some religious organizations
• Organizations with less than $25,000 in receipts
• Any organization on a group return
Check with the IRS to determine if your nonprofit is or isn’t required to file a Form 990.
Form 990 gives the IRS information about the nonprofit that shows it is still eligible for tax exemption based on activities and its financial status. The information is also made publicly available so that potential grantors and donors can examine how the nonprofit operates prior to becoming involved.
The deadline for filing a Form 990 is the 15th day of the fifth month after the end of the organization’s accounting period. For instance, if the nonprofit’s fiscal year ends on December 31st, it’s due on the 15th of May. Not all organizations end their fiscal years on December 31st, and it’s possible to request an extension for filing, and the form might not be filed until as late as November.
Forms 990 are available on the IRS website as needed. There are several types of Form 990’s for different types of nonprofits.
The Consequences Of Failing To File
After going through the process of getting tax-exempt status, you don’t want to risk losing it. But that’s exactly what will happen if you don’t file the form every year on time.
The IRS automatically revokes the tax-exempt status of any nonprofit that fails to file three years in a row. Even a nonprofit with less than $50,000 in receipts are required to file a 990-N. This is a postcard with just a few requirements and can be filed quickly online.
The IRS does not have an appeal process if the tax-exempt status is lost. The nonprofit will be required to begin paying taxes.
Additionally, the IRS can levy fines of as much as $100 a day, for a maximum of $51,000 in a year.
Because they are important not just to the IRS but to the public, nonprofits of all sizes should be diligent in ensuring that they are submitted in a timely fashion.
Form 990 also keeps people running honestly and holds them accountable. Information disclosed in Form 990 is also made publicly available. Nonprofits have, unfortunately, also been used dishonestly. After the widely-publicized 2019 college admissions bribery scandal that used a public nonprofit as a cover, more than 50 high-wealth parents faced federal fraud charges, including several celebrities.
Form 990 requires disclosures to the IRS that will, at some point, come under scrutiny. Filing Form 990 means that an honest nonprofit doing good work can demonstrate this both to the IRS and to potential donors and will stand up to review.
Fraudulent founders, board members, and employees are eventually stopped from abusing a nonprofit for illegal and/or immoral schemes. Therefore, it’s also important to show the nonprofit as an honest venture, rather than leave donors and the IRS questioning its validity.
Keep Your Nonprofit Tax-Exempt Status
Whether you’re just starting up your nonprofit, or have been operating it for many years, it’s vital to ensure that you are not only legally compliant, but current with changes in laws and regulations that govern nonprofits.
For over 25 years, attorney James C. Provenza has worked with nonprofits to help them comply with the law and concentrate on doing their mission’s work. Need help? Contact our office at (847) 729-3939 today, or get in touch with our online contact form. We look forward to helping your nonprofit succeed.