Form 990 – Return of Organization Exempt from Income Tax

Form 990, officially known as the “Return of Organization Exempt from Income Tax,” is a critical document for tax-exempt organizations in the United States. While it may seem like just another tax form, Form 990 serves a vital purpose in ensuring transparency and accountability among nonprofit organizations. In this blog, we’ll delve into the world of Form 990, exploring its significance, who needs to file it, the benefits it offers, the essential documents required, and a comprehensive guide on how to complete and file it. Whether you’re a nonprofit leader, a donor, or simply curious about the inner workings of tax-exempt organizations, this blog will provide you with valuable insights into Form 990.

 

View Form 990

 

In this blog, we will explore:

• Understanding Form 990
• When do you need Form 990?
• Benefits of Form 990
• Which businesses are eligible for Form 990?
• Documents required for Form 990
• How to complete Form 990 – Step by step comprehensive guide
• How to file Form 990 – Offline/Online/E-Filing?
• Deadline and Extensions to file Form 990
• Special Considerations while filing Form 990
• Common mistakes to avoid while filing Form 990

 

Understanding Form 990

Form 990 is not just a tax form; it’s a window into the financial and operational world of tax-exempt organizations. This comprehensive document requires nonprofits to disclose vital information, including their mission, governance, financial activities, and more. By providing a detailed snapshot of their activities and finances, organizations ensure transparency and accountability to both the IRS and the public.

Form 990 comes in various versions, each tailored to different types of tax-exempt organizations, such as charities, foundations, and religious groups. It is more than just a tax compliance requirement; it serves as a tool for donors, regulators, and interested parties to assess an organization’s performance, governance, and impact. Understanding Form 990 is essential for anyone involved with nonprofit organizations, as it sheds light on the inner workings of these vital institutions.

 

When do you need Form 990?

Form 990 is a crucial document for tax-exempt organizations in the United States, and understanding when it’s required is essential for compliance and transparency. Here’s when you need to file Form 990:

• Annual Filing Requirement: Most tax-exempt organizations are required to file Form 990 annually. This includes 501(c)(3) charities, foundations, and various other tax-exempt entities. It doesn’t matter whether the organization generates income or not; filing Form 990 is mandatory to maintain tax-exempt status and provide transparency to donors and the public.
• Financial Threshold: The specific version of Form 990 that an organization files depends on its gross receipts and total assets. Smaller organizations with gross receipts below $50,000 can file the simpler Form 990-N (e-Postcard). Organizations with gross receipts between $50,000 and $200,000 or total assets below $500,000 can file Form 990-EZ. Larger organizations must file the more detailed Form 990.
• Private Foundations: Private foundations must file Form 990-PF regardless of their financial status. This form provides in-depth information about the foundation’s financial activities and grants.
• Political Organizations: Certain political organizations, like PACs (Political Action Committees), also need to file Form 990. However, they have separate filing requirements under section 527 of the Internal Revenue Code.
• Exemptions and Exceptions: Some religious organizations, state institutions, and specific government entities may be exempt from filing Form 990. It’s essential to consult IRS guidelines and regulations to determine eligibility for exemptions.

Filing Form 990 accurately and on time is crucial, as failure to do so can result in penalties, loss of tax-exempt status, and damage to an organization’s reputation. Understanding the filing requirements specific to your organization’s status is essential to ensure compliance with IRS regulations and maintain public trust.

 

Benefits of Form 990

Form 990, often seen as an administrative obligation, offers a multitude of benefits for both tax-exempt organizations and the public. Here are some of the key advantages:

1. Transparency: Form 990 serves as a transparency tool, providing a detailed overview of an organization’s operations, finances, and governance. By making this information publicly available, nonprofits foster trust and accountability with donors, stakeholders, and the broader community.
2. Donor Confidence: Donors use Form 990 to evaluate nonprofits before making contributions. A well-maintained and transparent Form 990 can instill confidence in potential donors, potentially increasing financial support for the organization’s mission.
3. Compliance and Tax-Exempt Status: Filing Form 990 is a legal requirement for maintaining tax-exempt status. By staying compliant, organizations can continue to enjoy tax benefits and avoid penalties or revocation of their exempt status.
4. Operational Insights: Completing Form 990 prompts organizations to review their governance practices, financial management, and mission alignment. This self-assessment can lead to improved operational efficiency and strategic decision-making.
5. Comparison and Benchmarking: Form 990 allows nonprofits to benchmark their performance against similar organizations. This can help identify areas for improvement and best practices that can enhance an organization’s impact.
6. Accountability to the Board: Nonprofit boards of directors rely on Form 990 to monitor the organization’s financial health and compliance. It helps ensure that resources are used in line with the organization’s mission.
7. Public Relations: A well-prepared Form 990 can enhance an organization’s public image. It demonstrates a commitment to transparency and responsible stewardship of resources, which can attract volunteers, partners, and other supporters.

In summary, Form 990 goes beyond a regulatory requirement; it’s a valuable tool for promoting transparency, accountability, and credibility within the nonprofit sector. Embracing the benefits of Form 990 can lead to stronger organizations and more significant positive impacts on their respective communities and causes.

 

Which businesses are eligible for Form 990?

Form 990 eligibility is primarily determined by the tax-exempt status of organizations, and it applies to a wide range of entities. Here’s a breakdown of the types of businesses that are eligible to file Form 990:

1. 501(c)(3) Charities: Charitable organizations, such as public charities, private foundations, and religious organizations, often fall under this category. They are typically the most common users of Form 990.
2. 501(c) Organizations: Various other 501(c) organizations, including social welfare organizations (501(c)(4)), business leagues (501(c)(6)), and many more, may also need to file Form 990, depending on their gross receipts and assets.
3. Nonprofit Hospitals and Healthcare Providers: Nonprofit hospitals, clinics, and healthcare organizations with tax-exempt status under section 501(c)(3) are typically required to file Form 990.
4. Private Foundations: Private foundations, which are charitable organizations with a primary focus on providing grants and financial support, must file Form 990-PF.
5. Certain Political Organizations: Political action committees (PACs) and certain political organizations under section 527 are eligible to file Form 990.
6. Cooperative Hospital Service Organizations: These are organizations formed by nonprofit hospitals to provide shared services. They may be required to file Form 990.
7. Other Tax-Exempt Entities: There are various other tax-exempt entities, such as educational institutions, museums, and community foundations, that may need to file Form 990, depending on their specific tax-exempt status and financial thresholds.

It’s important to note that the specific version of Form 990 an organization files (e.g., Form 990-N, Form 990-EZ, or the full Form 990) depends on its annual gross receipts and total assets. Smaller organizations have simpler filing requirements, while larger entities must provide more detailed information.

Before preparing and filing Form 990, organizations should consult IRS guidelines and regulations to ensure they meet the eligibility criteria and understand the specific filing requirements based on their tax-exempt status.

 

Documents required for Form 990

Filing Form 990 requires a thorough collection of financial and organizational documents. These documents are essential for accurately reporting an organization’s activities, finances, and governance. Here is a list of common documents required for Form 990:

1. Financial Statements: Organizations must provide their most recent financial statements, including the balance sheet, income statement, and cash flow statement. These statements should be prepared according to Generally Accepted Accounting Principles (GAAP).
2. List of Officers, Directors, and Key Employees: Form 990 requires information about the individuals who hold key positions within the organization, including their names, titles, and compensation details.
3. Revenue and Expense Details: Detailed information about the organization’s sources of revenue and expenses is crucial. This includes grants, contributions, program service revenue, fundraising events, and administrative expenses.
4. Program Service Accomplishments: Organizations need to describe their program service accomplishments, explaining how they fulfill their exempt purposes and benefit the community.
5. Governance and Policies: Organizations must disclose details about their governance structure, including the names and addresses of officers and directors, as well as their conflict of interest policies.
6. Form 990 Schedules: Depending on the organization’s activities, additional schedules may be required. These schedules delve into specific aspects such as compensation, foreign financial accounts, and more.
7. IRS Determination Letter: Organizations should include a copy of their IRS determination letter, which proves their tax-exempt status under a specific section of the Internal Revenue Code (e.g., 501(c)(3)).
8. Employment Tax Forms: If the organization has employees, they may need to attach employment tax forms like W-2s and 1099s.
9. Financial and Accounting Records: Supporting documentation, such as receipts, invoices, and bank statements, should be kept on hand to validate the financial information reported on Form 990.
10. Previous Year’s Form 990: Nonprofits should have a copy of their previous year’s Form 990 for reference and to ensure consistency in reporting.

Accurate and complete documentation is essential when preparing Form 990. Nonprofits should maintain organized records throughout the year to facilitate the annual filing process and ensure compliance with IRS regulations. Additionally, consulting with a tax professional or accountant can help organizations navigate the complexities of Form 990 and its required documentation.

 

How to complete Form 990 – Step by step comprehensive guide

Filling out Form 990, the annual return required of tax-exempt organizations in the United States, may seem daunting, but with careful preparation and attention to detail, it can be a manageable process. This step-by-step guide will help you navigate the complexities of Form 990:

 

Step 1: Determine Which Form to Use

Begin by determining which version of Form 990 is appropriate for your organization based on its annual gross receipts and total assets. Smaller organizations with gross receipts under $50,000 can file Form 990-N (e-Postcard), while those with gross receipts between $50,000 and $200,000 or total assets under $500,000 can file Form 990-EZ. Larger organizations must use the full Form 990.

 

Step 2: Gather Necessary Information and Documentation

Collect all the required documents, financial statements, and supporting information, such as lists of officers, directors, and key employees, as well as details on revenue sources, expenses, and program accomplishments.

 

Step 3: Review Instructions and Guidance

Before starting to fill out Form 990, carefully read the official IRS instructions for the specific version of the form you’re using. The instructions provide valuable guidance on completing each section.

 

Step 4: Provide Basic Information (Part I)

Begin by entering basic information about your organization in Part I of Form 990. This includes your organization’s name, address, Employer Identification Number (EIN), and the tax year you’re reporting on. Ensure accuracy as this section sets the stage for the rest of the form.

 

Step 5: Complete the Checklist of Required Schedules (Part II)

In Part II, you’ll find a checklist of schedules and attachments that may be required based on your organization’s activities. Review this section to determine which schedules are relevant to your organization and be prepared to complete them if necessary.

 

Step 6: Financial Information (Parts III through XI)

The heart of Form 990 lies in Parts III through XI, where you report financial data. Depending on your organization’s size and complexity, these sections can be quite detailed. Here’s a breakdown:

• Part III – Statement of Program Service Accomplishments: Describe your organization’s mission and summarize the accomplishments of your primary exempt activities.
• Part IV – Checklist of Required Schedules: Refer back to the checklist in Part II and mark the applicable schedules you’ll be including with your Form 990.
• Part V – Statements Regarding Other IRS Filings and Tax Compliance: Provide information about your organization’s compliance with various tax-related issues, such as employment taxes and foreign accounts.
• Part VI – Governance, Management, and Disclosure: Detail your organization’s governance structure, including names and addresses of officers, directors, and key employees. Report on your conflict of interest policy and other governance-related matters.
• Part VII – Compensation of Officers, Directors, Trustees, Key Employees, Highest Compensated Employees, and Independent Contractors: Report compensation details for key individuals within your organization.
• Part VIII – Statement of Revenue: Provide a breakdown of your organization’s revenue, including contributions, program service revenue, and investment income.
• Part IX – Statement of Functional Expenses: Detail your organization’s expenses, categorizing them into program services, management and general, and fundraising.
• Part X – Balance Sheet: Report the organization’s assets, liabilities, and net assets.
• Part XI – Reconciliation of Net Assets: Provide a reconciliation of the organization’s net assets, showing how they changed during the reporting year.

 

Step 7: Complete Required Schedules

If your organization selected any schedules in Part II, make sure to complete them accurately. These schedules provide additional details on various aspects of your organization’s activities, such as compensation, foreign financial accounts, and grants.

 

Step 8: Review and Double-Check

Thoroughly review your completed Form 990 for accuracy and completeness. Ensure that all required fields are filled, schedules are attached as necessary, and calculations are correct. Pay attention to details such as names, addresses, and EINs.

 

Step 9: Sign and Date the Form

Form 990 requires an authorized officer, typically the organization’s president or executive director, to sign and date the form. By signing, you certify that the information provided is true, correct, and complete to the best of your knowledge.

 

Step 10: Submit Form 990

You have several options for submitting Form 990:

• E-Filing: The IRS encourages electronic filing (e-filing) for most organizations. E-filing is the quickest and most secure way to submit your return.
• Mailing: If you choose to file a paper return, ensure it’s postmarked by the due date and sent to the appropriate IRS address.
• Third-Party Software: Some organizations use third-party software providers to help complete and file Form 990 electronically.

 

Step 11: Keep Copies and Records

Retain a copy of your completed Form 990, along with all supporting documentation, for your records. The IRS may request additional information or documentation, so having everything organized is essential.

 

Step 12: Meet Filing Deadlines

The deadline for filing Form 990 varies depending on your organization’s fiscal year. Typically, it’s due on the 15th day of the 5th month after the organization’s fiscal year ends. Extensions may be available if needed.

Remember that Form 990 is not just a compliance requirement; it’s a reflection of your organization’s financial health, governance, and transparency. Filing it accurately and on time is crucial for maintaining tax-exempt status and building trust with donors and the public. If you have complex financial situations or face challenges while completing the form, consider seeking assistance from a tax professional or accountant experienced in nonprofit taxation.

 

How to file Form 990 – Offline/Online/E-Filing?

Filing Form 990 can be done through various methods, offering flexibility to tax-exempt organizations based on their preferences and resources. Here’s a breakdown of the three primary filing options: offline, online, and e-filing.

1. Offline Filing:

Offline filing involves completing a paper version of Form 990 and mailing it to the IRS. Here’s how to do it:

• Obtain the Paper Form: You can download the paper version of Form 990 from the IRS website or request it by mail from the IRS.
• Complete the Form: Fill out the form manually or use a typewriter. Ensure that all required fields are completed accurately.
• Attach Schedules: If your organization needs to include schedules, make sure they are attached.
• Sign and Date: An authorized officer must sign and date the form.
• Mail to the IRS: Mail the completed Form 990 to the IRS address specified in the instructions. Be sure to check the mailing address, as it may vary depending on your organization’s location.

Offline filing is an option, but it can be time-consuming and is subject to postal delays. Many organizations prefer the convenience and speed of electronic filing.

2. Online Filing:

Online filing refers to completing Form 990 through a web-based platform provided by the IRS. The process typically involves filling out the form online and then printing it for submission. The IRS’s Modernized e-File (MeF) system offers this option.

• Access the IRS MeF System: Visit the IRS website to access the Modernized e-File (MeF) system.
• Complete the Form Online: Follow the on-screen instructions to complete Form 990 online.
• Print and Mail: After completing the form online, you may need to print it and mail a signed copy to the IRS.

Online filing offers the convenience of digital data entry but still involves a paper submission step.

3. E-Filing:

E-filing is the most advanced and recommended method for filing Form 990. It involves electronically submitting the form and its attachments to the IRS directly through approved software or service providers. Here’s how it works:

• Choose an Approved E-Filer: Select an IRS-approved e-filing software or service provider. These providers offer user-friendly interfaces and ensure that your return complies with IRS requirements.
• Prepare and Submit: Use the chosen e-filing platform to complete Form 990, including attaching schedules and supporting documents.
• Review and Sign Electronically: Review the electronically generated Form 990 for accuracy, then electronically sign it as an authorized officer.
• Transmit to the IRS: Once you’re satisfied with the accuracy of the return, transmit it directly to the IRS through the e-filing platform.
• Receive Confirmation: E-filing provides immediate confirmation of receipt by the IRS, reducing the risk of delays or errors associated with paper filings.

E-filing offers significant advantages, including faster processing, reduced paperwork, and greater accuracy. The IRS strongly encourages tax-exempt organizations to use this method whenever possible.

In summary, tax-exempt organizations have multiple options for filing Form 990, ranging from traditional offline methods to online and e-filing. While offline filing is still available, the benefits of online and e-filing, including speed, accuracy, and convenience, make them the preferred choices for most organizations. Consider your organization’s needs and resources when deciding which filing method is most suitable for you, and always ensure timely compliance with IRS deadlines.

 

Deadline and Extensions to file Form 990

The deadline for filing Form 990 varies depending on your organization’s fiscal year. In general, it’s due on the 15th day of the 5th month after the end of your fiscal year. For organizations following a calendar year (ending December 31st), the typical deadline is May 15th.

However, if you need more time, you can request an extension by filing IRS Form 8868. This can grant an additional six months to submit Form 990. It’s crucial to apply for an extension before the original due date to avoid penalties. Remember that an extension grants extra time for filing but not for paying any taxes owed, so estimate and pay any taxes due by the original deadline to avoid interest and penalties.

 

Special Considerations while filing Form 990

Filing Form 990 comes with specific nuances and considerations that organizations should be aware of to ensure compliance and accuracy. Here are some special considerations to keep in mind:

1. Accurate Reporting: Precision is critical. Ensure that all financial data, including income, expenses, and assets, is reported accurately. Inaccuracies can lead to audits and penalties.
2. Applicable Schedules: Depending on your organization’s activities, you may need to attach various schedules. Be aware of which schedules are relevant to your organization and provide the required information.
3. Executive Compensation: Transparent reporting of executive compensation is vital. Detail salaries, benefits, and other compensation for officers, directors, trustees, and key employees.
4. Public Inspection: Form 990 is a public document. Ensure that sensitive or confidential information is redacted or appropriately disclosed to maintain privacy.
5. Conflict of Interest: Describe your organization’s conflict of interest policy in detail. This demonstrates good governance practices.
6. Foreign Transactions: If your organization engages in foreign financial transactions, be prepared to report them accurately on the form.
7. Unrelated Business Income: If your organization generates income from activities unrelated to its exempt purpose, report this income appropriately in Schedule A and ensure taxes are paid on it.
8. Private Benefit: Be cautious about private benefit or inurement, where the organization’s income benefits private individuals more than it advances its exempt purpose. This can jeopardize tax-exempt status.
9. Donor Acknowledgments: Ensure that your organization issues proper acknowledgment letters to donors for contributions exceeding $250, as this is a requirement for charitable deductions.
10. Amendments: If you identify errors after filing, you can amend Form 990. However, accuracy is essential in the initial filing to minimize the need for amendments.
11. Consult Professionals: Complexities in reporting and tax regulations may warrant consulting with tax professionals or accountants with expertise in nonprofit taxation to avoid pitfalls.
12. IRS Resources: Utilize IRS resources, including the instructions, guidelines, and FAQs related to Form 990, to clarify any doubts and stay updated on compliance requirements.
13. Electronic Filing: E-filing is encouraged by the IRS for efficiency and accuracy. Consider this option if feasible for your organization.
14. Extensions: If you need more time to complete the form, apply for an extension using Form 8868 before the original due date.
15. Consequences of Non-Compliance: Understand the consequences of non-compliance, including penalties, fines, or loss of tax-exempt status, and take steps to avoid them.

Navigating Form 990 requires meticulous attention to detail and an understanding of your organization’s unique circumstances. By staying informed and adhering to these special considerations, your organization can file an accurate and complete Form 990, maintaining its tax-exempt status and demonstrating commitment to transparency and accountability.

 

Common mistakes to avoid while filing Form 990

Filing Form 990 can be complex, and making errors can lead to compliance issues, audits, or penalties. To ensure a smooth filing process, here are common mistakes to avoid:

1. Incomplete or Inaccurate Information: Failing to provide complete and accurate financial and organizational details is a primary mistake. Review all entries for precision.
2. Failing to Attach Required Schedules: Many organizations need to attach additional schedules to provide detailed information. Forgetting to include these schedules can lead to incomplete submissions.
3. Late Filing: Missing the filing deadline can result in penalties and jeopardize your organization’s tax-exempt status. Ensure you file on time or request an extension if needed.
4. Incorrect Version: Using the wrong version of Form 990 based on your organization’s size and complexity can lead to incorrect reporting.
5. Neglecting Governance Details: Failure to provide comprehensive governance information, including conflict of interest policies and details on officers and directors, can raise compliance concerns.
6. Misclassifying Workers: Misclassifying workers as employees or independent contractors can lead to employment tax issues. Ensure proper classification.
7. Inadequate Executive Compensation Reporting: Accurately reporting executive compensation, including salaries, benefits, and allowances, is essential to avoid scrutiny.
8. Ignoring Unrelated Business Income: If your organization generates income unrelated to its exempt purpose, it must be reported and, if applicable, taxed properly.
9. Failure to Report Foreign Transactions: If your organization engages in foreign financial transactions, failure to report them accurately can lead to compliance problems.
10. Lack of Donor Acknowledgments: Not providing proper acknowledgment letters to donors for contributions exceeding $250 can affect their charitable deductions.
11. Private Benefit and Inurement: Ensure that your organization’s income primarily benefits its exempt purpose and not private individuals, as this can risk tax-exempt status.
12. Ignoring Amendments: If errors are identified post-filing, failing to amend Form 990 can compound issues. Correct inaccuracies promptly.
13. Insufficient Record-Keeping: Inadequate record-keeping can hinder the ability to complete Form 990 accurately. Maintain organized financial and organizational records.
14. Ignoring IRS Resources: The IRS provides instructions and guidelines for Form 990. Ignoring these resources can lead to misunderstandings and errors.
15. Not Seeking Professional Guidance: Complex tax and reporting requirements may necessitate professional guidance. Consulting tax experts or accountants can help ensure compliance.

By avoiding these common mistakes and approaching Form 990 with diligence and attention to detail, your organization can navigate the filing process smoothly, maintain tax-exempt status, and demonstrate a commitment to transparency and accountability in its operations.

 

Conclusion

Filing Form 990 is a significant responsibility for tax-exempt organizations, but it’s also an opportunity to showcase transparency, accountability, and commitment to your mission. By understanding the intricacies of Form 990, staying vigilant to common mistakes, and following the guidelines outlined in this comprehensive guide, you can navigate the process effectively.

Remember that Form 990 goes beyond a mere regulatory requirement; it’s a reflection of your organization’s financial health and governance. Accurate and timely filing not only maintains your tax-exempt status but also builds trust with donors, stakeholders, and the public.

Approach Form 990 with care, consult experts when needed, and view it as a tool to demonstrate the positive impact of your organization’s work.

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