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What You Need to Know About Form 990

What is Form 990?

Even though nonprofit organizations don’t pay federal taxes, they do file an information return annually with the IRS.  That return, called Form 990, officially known as the "Return of Organization Exempt from Income Tax," is a United States Internal Revenue Service form that provides the public with financial and other information about a nonprofit organization. It is often the only source of such information and as such, it makes sure that nonprofits conduct their business in a way that is consistent with their public responsibilities. It is also used by government agencies to prevent organizations from abusing their tax-exempt status. Certain nonprofits have more comprehensive reporting requirements, such as hospitals and other health care organizations that use Schedule H.

Why is the 990 So Useful for the Organization?

The 990, which must be made public, also provides an easy way for donors and other people interested in supporting a particular cause to find and evaluate the best nonprofits to support.

Because an organization can clarify its mission on the Form 990 and detail its accomplishments of the previous year, donors can find out where the group generates and spends its revenue. The form collects comprehensive information about the mission, programs, and finances of the nonprofit and provides an opportunity to report what it accomplished the prior year, thus making a case for keeping its tax-exempt status. 

Additionally, a  donor foundation can see just how sustainable the nonprofit might be, what its cash reserves are like so that potential donors and employees can know how well the nonprofit pays its top employees and how financially stable it may be.   At the same time, the Form 990 provides insights that can used by a potential board member, allowing him or her to see who else is already on the board. Even more importantly, due to recent revisions, Form 990 collects even more information such as disclosure of potential conflicts of interest, compensation of board members and staff, and other details having to do with financial accountability, governance and avoidance of fraud. 

Since this Form supplies such critical data about the organization, it is easy to see that it can be an excellent public relations tool for the group when care is taken to fill it out correctly and carefully and on time.  As such, many nonprofits now make 990s available on their websites as well as reminding their supporters that they can be viewed at Guidestar, an organization that provides information about nonprofits.

Which Nonprofits Have to File a 990?

  • All private foundations, regardless of income file Form 990-PF.

  • Most tax-exempt organizations with gross receipts of $200,000 or assets in excess of $500,000

  • Nonprofits that have gross receipts of more than $50,000 may file Form 990 or Form 990-EZ.

  • Small nonprofits with gross receipts of $50,000 or less must file the 990-N (e-Postcard) to maintain their exempt status.

  • Organizations that are tax-exempt under Sections 501(c), 527, or 4947(a)(1) of the U.S. tax code, and that don't fall into the exemptions listed below.

What Organizations Are Exempt from Filing Form 990?

  • Churches and most faith-based organizations such as religious schools, missions or missionary organizations affiliated with a church or faith-based organization.

  • Subsidiaries of other nonprofits, where there may be a group return filed by the parent group.

  • Nonprofits not in the system yet. If you are an incorporated nonprofit or an unincorporated nonprofit in your state but don't plan to apply to the IRS for exemption from federal income tax, you don't have to file a Form 990.
    However, if your organization claims to be tax-exempt and intends to file with the IRS by the end of the 27th month from the date of your incorporation, you must file Form 990 (or 990-EZ or 990-N as appropriate) during the 27 month period, even though no application has been submitted to the IRS nor any determination yet received.

  • State institutions. Some state institutions are exempt because they provide essential services (a university is an example).

  • Government corporations.

When Do We File the 990?

To avoid facing the consequences of not filing correctly or in a timely fashion, you must file your 990, 990-EZ, 990-N, or 990-PF by the 15th day of the 5th month after your accounting period ends. So, if your fiscal year ends on December 31, the 990 is due on May 15 of the following year, an extension is allowed, except for 990-N (postcard) filers who have no extensions.

It's important that you file and on time. If you don't file a Form 990 for three years in a row, your tax-exempt status will be automatically revoked by the IRS.

What Happens if We Don’t File?

Many nonprofits have lost their tax-exempt status in recent years because they did not file a 990 as required. These are often small nonprofits that did not realize that even with receipts under $50,000, they must file the 990-N. The 990-N is a postcard with minimal information that can be filed electronically.

Don't miss filing deadlines! Remember the consequences for not filing are steep. In fact, penalties for not filing timely can be as much as $100 per day with a maximum penalty of $51,000!