What Not-For-Profits Need to Know About Form 990
Purpose of Form 990
Nearly all the approximately 1.74 million organizations recognized as tax exempt by the IRS must file Form 990 or another form in the same series annually. Churches are not required to file any of the forms in the IRS 990 series. The Form 990 series is intended to make a not-for-profit organization's operations transparent to the public. In exchange for tax-exempt status, not-for-profits must demonstrate that they are handling funds donated by the public responsibly and are using them to further the organization’s charitable purpose. The information provided in the Form 990 is intended to make an organization accountable to its supporters, and by reviewing an organization's Form 990, potential donors and other supporters can determine which not-for-profits they wish to give to.
Forms in the 990 series
Returns in the 990 series include Form 990 (the long form), Form 990-EZ (the short form) and Form 990-N (the postcard). Organizations making more than $200,000 in gross revenue (revenue before expenses) and having more than $500,000 in assets must file Form 990, while organizations with revenue and assets less than these amounts can file Form 990-EZ.
Organizations making less than $50,000 can file a Form 990-N e-postcard, the least detailed and easiest to prepare form in the 990 series. Ultra-small not-for-profits (income less than $5,000 per year) can operate as public charities without applying for exemption with the IRS, but they must still file Form 990-N each year.
Any public charity can opt to file the long form 990, and many do because donors or grant-makers often want to see the wealth of detailed information provided by this form.
Due dates and extensions
Returns are due on the 15th day of the fifth month after the close of the not-for-profit's fiscal year. An automatic six-month extension request may be made by filing Form 8868. Form 990-N filers are not required to file for an extension; there are no late-filing penalties for filing the 990-N late.
Don’t file Forms 990 or 990-EZ late! An organization that fails to file a required return by the due date (including any extensions of time), must pay a penalty of $20 a day for each day the return is late. In general, the maximum penalty for any return is the lesser of $10,000 or 5 percent of the organization's gross receipts for the year. For an organization that has gross receipts of over $1 million for the year, the penalty is $100 a day up to a maximum of $50,000. Don’t despair; these penalties can often be abated if there is reasonable cause.
Make sure to file annual returns, even if they are late. Any not-for-profit organization that fails to file one of the forms in the 990 series for three years will have their exempt status automatically canceled by the IRS.
Governance and accountability section of the form
A great deal of the space on Form 990 is dedicated to explaining an organization’s governance and accountability practices. Effective management and governance policies help ensure that the organization meets the IRS's goal of transparency and accountability. Form 990 asks about specific policies in Section B Policies. While not-for-profits are not necessarily required to conform to all these policies, it is considered a best practice to adopt them. Some of the policies addressed in this section include:
- Whistleblower policy. The organization's formal whistleblower policy should encourage reporting unethical or illegal conduct. It should also state that there will be no retaliation for reporting pursuant to the policy.
- Compensation policy. The organization's compensation policy should require the board to review comparable compensation data from similar organizations to determine reasonable compensation for its officers and key employees.
- Conflicts of interest. The organization should have a process in place to carefully monitor whether board members have any conflicts of interest, including relationships with individuals, entities, or vendors that serve the organization. If such an interest exists, the individual should be recused from any decisions specific to that interest. Further, these conflicts must be disclosed on Form 990.
- Document retention and destruction. A document retention policy is a document management policy; a record of what types of documents the organization must retain and for how long. The policy should specify that the organization will adhere to a regular business practice of document destruction according to the schedule in the policy.
Let us help you!
All not-for-profit organizations, regardless of size, must be aware of the complex rules governing operations and reporting requirements. Let us know how our not-for-profit team here at R&A CPAs can help you in complying with these requirements.
About this Author
Susan is experienced in tax research, not-for-profit taxation, trusts and estates, and sales tax. She has prepared tax returns for pubic charities, private foundations, and charitable trusts as well as unrelated business income tax returns for numerous charities.