Find the essential information for nonprofit organizations about IRS Form 990, including tax-exempt status, filing requirements, and the importance of transparency and accountability.
For nonprofit organizations in the United States, maintaining transparency and accountability is crucial. One essential tool for achieving this is IRS Form 990. This form helps organizations report their financial activities and plays a crucial role in promoting public trust.
In this article, we will explore the essentials of tax-exempt status, nonprofit obligations, the intricacies of Form 990, and its filing requirements.
What Is Tax-Exempt Status? How to Acquire It?
Tax-exempt status allows qualifying organizations to be exempt from federal income taxes. This status is typically granted under Section 501(c) of the Internal Revenue Code (IRC), with various subsections defining specific types of tax-exempt organizations.
To acquire tax-exempt status, organizations must:
- Form a Legal Entity: Establish a legal nonprofit firm in the state where they operate.
- Apply for Tax-Exempt Status: Submit IRS Form 1023 (for 501(c)(3) organizations) or Form 1024 (for other types) along with the required documentation, including bylaws, a statement of purpose, and financial projections.
- IRS Determination Letter: If approved, the IRS will review the application and issue a determination letter granting tax-exempt status.
Do Tax-Exempt Organizations Have Any Tax Obligations?
Even though tax-exempt organizations are not subject to paying any federal income tax, they still have specific tax obligations. Every organization that has acquired tax-exempt status or is awaiting approval must report its activities, finances, and programs to the IRS annually to stay compliant. For these reporting purposes, IRS Form 990 is used.
Note:
Unrelated Business Income Tax (UBIT): If a nonprofit engages in business activities unrelated to its primary mission, it may be subject to Unrelated Business Income Tax. Additionally, tax-exempt organizations must adhere to state and local tax laws, which can vary widely.
Form 990 – Understanding the Significance
Form 990 is an annual information return that tax-exempt organizations must file with the IRS. It provides a comprehensive overview of the organization’s financial activities, governance, and compliance with tax regulations.
The form is publicly available, allowing donors, stakeholders, and the general public to access essential information about the organization’s operations. Hence, its significance broadens beyond just a filing requirement.
1) To Ensure Compliance with the IRS
The 990 forms are publicly available and demonstrate the organization’s adherence to IRS regulations. By providing transparent documentation, the organization showcases its commitment to maintaining its tax-exempt status, fulfilling annual filing requirements, and ensuring that all financial activities align with federal guidelines.
2) To Substantiate Financial Accountability
Transparency in financial reporting reinforces accountability. This openness helps to mitigate concerns about mismanagement and fosters a culture of integrity within the organization. Stakeholders can see the impact of their contributions, which can enhance their overall support.
3) To Enrich Public Perception and Trust
Public access to organizational information cultivates trust among the community and potential donors. When people see that an organization is transparent about its operations, they are more likely to support its mission. Positive public perception can lead to stronger community relationships and an increased willingness among individuals and businesses to engage with the organization.
4) To Boost Grants and Fundraisings
Funders and grant-making organizations often prioritize transparency and accountability in their decisions for funding. By making essential information publicly available, the organization positions itself as a reliable partner, making it more attractive for potential grants and donations.
5) To Keep Track of Records
Maintaining a publicly accessible record of operations allows for better internal tracking and management of the organization’s progress and initiatives. This documentation can be valuable for strategic planning and evaluation, helping the organization assess its goals, measure outcomes, and make informed decisions.
Does Form 990 Have Any Variants?
Yes, Form 990 has several variants tailored to different types of organizations and their financial conditions. Each variant has specific reporting requirements and instructions, so organizations must determine which form to file based on their financial situation and type.
The various 990 forms include:
- Form 990: The standard form for larger nonprofits with gross receipts over $200,000 or total assets exceeding $500,000.
- Form 990-EZ: This is a simplified version for smaller organizations with gross receipts between $50,000 and $200,000 and total assets below $500,000.
- Form 990-N (e-Postcard): A streamlined option for organizations with gross receipts under $50,000, allowing them to meet the filing requirement quickly.
- Form 990-PF: Specifically for private foundations, this form provides unique information relevant to their operations and funding.
- Form 990-T: This form must be used by any organization with any Unrelated Business Income (UBI) apart from their primary motive.
What Information is Required to be Reported on Form 990?
Form 990 requires a wide range of information, including:
- Financial Statements: Detailed revenue, expenses, and net assets, often presented in a standardized format.
- Program Services: Information about the organization’s primary activities and how they align with its mission.
- Governance: Details about the board of directors, key staff, and policies related to governance and management.
- Compensation: Disclosure of compensation for top employees and board members.
- Tax Compliance: Information regarding compliance with tax laws, including any unrelated business income.
Additionally, organizations must report their fundraising activities, grants awarded, and other financial transactions that provide insight into their operations.
Are There Any Additional Filing Requirements for Form 990?
Nonprofits must be aware of these additional requirements to ensure complete compliance and avoid penalties. In addition to Form 990, nonprofits may have other filing requirements. Schedules are one such requirement, providing additional information about the data on the primary 990 forms. There are 16 different types of Schedules, each serving unique requirements.
Note:
Many states have filing requirements for nonprofits in addition to federal tax compliance. Nonprofits must understand and comply with these state requirements to maintain their tax-exempt status and ensure smooth operations within their state jurisdictions.
When is Form 990 Due?
Form 990 is typically due on the 15th day of the 5th month after the end of the organization’s fiscal year. The form is generally due on May 15 for organizations operating on a calendar year.
The deadline is extended to the next business day if the due date falls on a weekend or holiday.
Is There an Extension for the Deadline?
Yes, nonprofits can apply for an extension to file Form 990 by submitting IRS Form 8868. This extension allows organizations six months to complete their filing, extending the deadline to November 15 for calendar-year organizations.
Conclusion
Filing IRS Form 990 is a crucial responsibility for tax-exempt organizations. By understanding the requirements for maintaining tax-exempt status and the specific obligations of nonprofits, organizations can ensure compliance, promote transparency, and build trust with stakeholders. Staying aware of filing deadlines and additional requirements helps nonprofits manage their reporting effectively, allowing them to focus on their missions. With the proper knowledge and resources, nonprofits can navigate IRS regulations and continue positively impacting their communities.
