What Nonprofits Need to Know About IRS Form 990?

All nonprofits that are exempt from federal income tax are required to file form 990. 990 form ensures that the charity conducts its business in a manner that is aligned to its public responsibilities.

Form 990 is a document that can be easily accessed by the public. It helps them understand the nonprofit better. They can compare form 990 of different charities and select the one that they feel inclined towards.

Why is it necessary to file form 990?

Form 990 is mandatory for nonprofits with tax exemptions because it is how they complete their annual reporting to the IRS.

Form 990 is the only source that provides the public financial information of the nonprofit.

It also helps bring in transparency in the operation of the nonprofit. It helps the government ensure that the charity is not abusing its tax-exempt status.

What exactly does form 990 contain?

Details of the organization such as:

1. It's Mission
2. The number of employees.
3. The number of volunteers.
4. It's Revenue
5. It's expenses
6. Net assets
7. Fund balances

It contains a signature block where an officer of the organization attests that the details provided are true and complete to the best of his knowledge.

1. Contains the mission of the organization
2. It's accomplishments
3. Expenses and Revenues for the organization’s three largest program services

Contains the checklist of schedules required to be completed.

Contains statements about other IRS filings and tax compliance.

This part of the form asks for data related to governing body and management and its policies.

It contains details about compensation paid such as:

1. Compensation of the current and former officers, directors, trustees, key employees, etc.
2. Employees receiving more than $100,000 as compensation
3. Data of five independent contractors who receive over $100,000 in compensation

This part contains information about the revenue of the organization from related or exempt funds and unrelated business income. For the unrelated business income, the organization is required to file Form 990-T.

This part is related to reporting of expenses of the organization.

This part contains the balance sheet of the organization.

This part is for reconciliation of the net assets of the organization.

This part relates to the financial statements of the organization and its reporting.

The US IRS has made it mandatory for all charities to make public their most recent 990 or 990 PF annual returns including all the relevant supporting documents.

The 990 forms of a nonprofit can be accessed by anyone through:

990 Finder or Foundation directory online QuickStart or through websites such as Guidestar, Economic Research Institute or Pro Publica.

Since form 990 is a public document, nonprofits should file them diligently.

The details provided in form 990:

1. Enable a donor to understand where the group gets its revenue from.
2. It gives an idea about how sustainable the charity is to any foundation looking to support the charity.
3. Form 990 provides potential employee information such as how much the company pays its top employees, etc.
4. It gives information about the board members of the nonprofit.
5. Form 990 also gives an idea about the cash reserves of the nonprofit.

Do all nonprofits need to file form 990?

The answer to this is No! It is essentially the tax-exempt organizations that need to file form 990.

More specifically:

1. Form 990-PF is filed by all private foundations irrespective of their income.
2. If the gross receipt of a tax-exempt organization is $ 200,000 they are required to file form 990.
3. In case the assets of a tax-exempt organization are $500,000, they need to file form 990.
4. Form 990 or form 990-EZ is mandatory for larger nonprofits with a gross receipt of more than $50,000.
5. To maintain the tax exemption organization status, small nonprofits with gross receipts of $50,000 or less are required to file 990-N.
6. Organizations that are tax-exempt under Section 501(c), 527 or 4947(a)(1) of the US tax code are also required to file form 990 unless they are exempted due to other clauses.

Organizations that are exempted from filing form 990:

1. Churches and faith-based organizations such as religious schools, missionary organizations, missions, etc.
2. In case a nonprofit is a subsidiary of another, only the parent company needs to file form 990.
3. In case the nonprofit has not applied for exemption from federal income tax, it does not need to file form 990.
4. Government Corporations.
5. State Institutions that provide essential services.

When should a nonprofit file form 990?

Form 990 needs to be filed by the nonprofit by 15th day of 5th month of the taxable year with up to six months extension. In other words, if the nonprofit follows the calendar year 1st January to 31st December, it will need to file form 990 on 15th May.

A nonprofit files must form 990 on time because if it does not file form 990 three years in a row, it will lose its tax-exempt status.

There is a penalty of $20 per day that the organization delays making its form 990 publicly available.

How to file form 990?

A nonprofit can file form 990 with the IRS by mail or with an authorized electronic e-file provider electronically.

As per Taxpayer First Act of 2019, a nonprofit must file its form 990 electronically and not by mail for fiscal years beginning after July 2019.

Form 990 is a must for all nonprofits that enjoy tax-exempt status. This form provides all details about the organization such as its mission, financial details, etc. Form 990 is available to the public. This document enables the government to ensure that the nonprofit is not abusing its tax-exempt status. It also provides details to donors about the nonprofit which facilitates comparison of different nonprofits. This document gives an idea to the potential employees about the organization as to whether they can join the organization or not.

It is an important document for the nonprofit as it offers a peek into the details of the nonprofit. Hence, it is imperative that the organization files this document furnishing all details asked for within the specified date to continue enjoying tax-exemption.