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Keeping your tax-exempt status with the 990

Your nonprofit qualified for tax-exempt status in the United States. Great news! To keep that status, you'll need to file a yearly tax form with the IRS detailing your charitable activities and finances (unless your organization qualifies for a filing exemption). This annual reporting document is called the 990.

Here's what you need to know about 990 options and how to get ready to file.

Form 990-N: Starting simple

You may submit the 990-N, also known as the e-Postcard, if your nonprofit has annual gross receipts less than $50,000. Remember that "gross receipts" refers to all the money your organization receives during the year, not the net amount after paying expenses. The 990-N must be filed online and has only eight questions.

Once you have your Employer Identification Number in hand, you have 27 months to apply for tax-exempt status. During that time, you must file a 990 since your exempt status will be retroactive to your date of incorporation. Since the e-Postcard is an electronic-only form, your organization must be recognized by the IRS before you can file the form. Thankfully, there's a workaround to this barrier: you can call the IRS and request to be set up for e-filing.

Form 990-EZ: Shorter version of the 990

If your nonprofit earned too much to file the 990-N but has annual gross receipts less than $200,000 and total assets less than $500,000, you may file a shorter version of the 990 called the 990-EZ. Many nonprofits choose this form because it's much less detailed than the traditional 990.

The caveat: You can't use the 990-EZ for the first three years your organization exists. During this time, you must file a 990-N (as long as you request e-filing privileges from the IRS, as described above) or a traditional 990.

Form 990: Worth the effort?

The 990 is one of the most complex tax forms required by the IRS. While the 990 is intended for nonprofits with annual gross receipts of $200,000 or more and total assets of $500,000 or more, any nonprofit may elect to file it.

Given its instruction booklet of more than 300 pages and dozens of potential schedules to attach, you might wonder why anyone would voluntarily file the 990. That's fair — but consider the benefits for even smaller nonprofits:

  • A rating from independent charity watchdog Charity Navigator
  • Eligibility for donations from foundations and government agencies that require the 990
  • Waived state filing of some or all parts of the 990 series
  • Visibility in nonprofit directories, such as GuideStar

In general, filing the 990 demonstrates a commitment to transparency and accountability that's attractive to donors and may draw attention to your organization. While your Charity Navigator profile won't disappear if you revert to filing the 990-EZ in subsequent years, it's a good idea to keep filing the 990 after your initial rating. Why? If you stop, the financial information listed for your organization in Charity Navigator will become out of date — which may be a red flag for donors.

Preparing to file

Regardless of which 990 option you select, there's much you can do to prepare for filing — and most of it is really just good governance. The IRS wants to know that you have an engaged board that facilitates the activities of your nonprofit and that money is raised, handled and spent in keeping with your nonprofit's mission.

To ease the filing process:

  • Keep detailed financial records, including supporting documentation for all receipts and expenses
  • Ensure all board members are comfortable with your organization's bylaws
  • Appoint a committee or point person for filing tax forms, even if you hire a tax accountant for assistance
  • Keep a calendar with all important tax dates

Consequences of not filing

If you don't file your 990-N, 990-EZ or 990 on time (or at all), you may face fairly serious penalties.

Although there's no monetary penalty for late filing of a 990-N, you could be subject to a $20 penalty for every day the 990-EZ or 990 is late — up to $10,000 or 5 percent of your annual receipts, whichever is less. For organizations with gross receipts of more than $1,000,000, the penalty is even steeper at $100 per day, up to a maximum of $50,000. Worse, if you don't file your 990-N, 990-EZ or 990 for three consecutive years, your tax-exempt status may be revoked.

If you need more time, apply for an automatic three-month extension with IRS Form 8868.

This article draws on the expertise of Grace Davies, a Minneapolis-based attorney with special interest in product liability, medical malpractice and employment discrimination.

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Disclaimer

MissionBox editorial content is offered as guidance only, and is not meant, nor should it be construed as, a replacement for certified, professional expertise.

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References

IRS: Form 990 resources and tools (2016)

IRS Stay Exempt: Chapter 8: Form 990

Center for Nonprofit Excellence: Record keeping the right way (2015)

Charity Navigator: How current are our ratings?

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Librarian, freelance researcher and nonprofit enthusiast