The instructions for IRS Form 990, the long form, are 103 pages long. IRS Form 990-EZ, its mid-range form, instructions are 48 pages long. IRS Form 990-PF, only for private foundations – but required of all private foundations regardless of total revenue, instructions are 40 pages long. And the instructions for IRS Form 990-N, what the IRS calls its “e-Postcard,” still manages to be nine pages long. What is IRS Form 990? It’s a lot of paperwork.
The official IRS subtitle of Form 990 is Return of Organization Exempt From Income Tax. It is tempting to consider this a tax return because it so closely resembles a corporate tax form, but the IRS calls it an information return. The reason for this is that nonprofits are tax exempt, and therefore, they typically do not pay corporate income taxes. What the IRS wants is information, or details, about your nonprofit’s income, expenses, and activities during the past year – even if it’s nothing.
There are five versions of Form 990:
1. Form 990-N:
Form 990-N is the only version of the annual information return that isn’t really a form at all but rather an online-only data filing. In fact, it is referred to by the IRS as an e-Postcard. If gross receipts normally exceed $50,000, the nonprofit will have to prepare and file one of the longer versions. Here’s how the IRS defines normally under $50,000; it’s more complicated than it seems:
- The nonprofit has been in existence for 1 year or less and received, or donors have pledged to give, $75,000 or less during its first taxable year;
- Has been in existence between 1 and 3 years and averaged $60,000 or less in gross receipts during each of its first two tax years; and
- Is at least 3 years old and averaged $50,000 or less in gross receipts for the immediately preceding 3 tax years (including the year for which calculations are being made).
2. Form 990-EZ:
The name itself, Form 990-EZ, is somewhat of a misnomer. While it is certainly easier to prepare than other full0form variants, it is by no means easy. It is the lowest threshold version that really resembles a corporate tax return, only more thorough. In order to qualify to file Form 990-EZ, a nonprofit should have gross income of more than $50,000 but less than $200,000 during the past fiscal year. In addition, the total valuation of all assets should be less than $500,000. If an organization’s assets are worth more than that, a full Form 990 will be required, regardless of revenue.
As we have worked our way up the ladder of the various versions, from the e-Postcard Form 990-N, through Form 990-EZ, and now Form 990, we see that each successive version is much longer and requires more and more detailed information. This version is, by far, the most thorough one of the bunch. To be required to file Form 990, a nonprofit should have a gross income of more than $200,000 during the past fiscal year. Also, nonprofits with assets collectively valued greater than $500,000 must file Form 990, even if their revenue is less than $200,000. Form 990 is a beast of an information return. It is not uncommon for Foundation Group’s Compliance Team to prepare Form 990 returns for clients that exceed 50 total pages!
4. Form 990-PF:
Private foundations are a unique class of 501(c)(3) organization. As such, they have their own exclusive version of IRS Form 990, called Form 990-PF. Where Form 990-PF differs greatly from other, previously mentioned, IRS forms is in the filing threshold… there is none! Where public charities file a version of Form 990 that gets progressively more complex as income increases, private foundations are liable for the entire Form 990-PF, regardless of income. In fact, if a private foundation has zero gross revenue for the year, and even takes a loss on its investments, it still must prepare and submit a complete return.
5. Form 990-T:
Form 990-T is purely for Unrelated Business Income (UBI) purposes and is most directly akin to a for-profit corporate tax return.
Despite the different versions, the IRS is consistent regarding the due date. Form 990 is always due by the 15th day of the 5th month after the end of your organization’s accounting period. So, if your nonprofit has its accounting, or fiscal, year ending December 31 each year, your due date is May 15 of the following year. Similarly, if your fiscal year ends June 30, your Form 990 due date is November 15. The IRS does allow organizations to request one 6-month extension of the due date by filing Form 8868 on or before the original due date of the return. This does not penalize your organization. However, if your extension is filed late, it will be denied.
Another really critical thing to note is the cost of filing the return late. Returns that are filed after the due date or extension date are subject to a penalty of $20 per day, up to a max of $10,000 or 5% of the organization’s gross receipts for that year. Ouch! And worse yet, for nonprofits with annual income over $1 million, the penalty increases to $10 per day up to a max of $50,000. Suffice it to say, don’t file late!
In August 2006, Congress passed the Pension Protection Act of 2006. As the name suggests, this particular bill was an overhaul of the US code regarding the operation of large corporate pension funds. Slipped into the bill in conference committee, however, was 393 pages of legislation that have been progressively affecting 501(c)(3) and other tax exempt entities ever since.
Historically, only nonprofits with annual gross revenue in excess of $25,000 were required to file a Form 990. The PPA changed all that with the introduction of the Form 990-N for small, low revenue organizations – which now means that all 501(c) organizations (except churches) must file some version of the Form 990, regardless of its gross revenue. It did increase the threshold from $25,000 to $50,000 to be able to file Form 990-N, but you still have to file one of the Form 990s. One more big addition of the PPA was the rule that initiated automatic revocation of the tax exempt status of any nonprofit that fails to file its required Form 990 for three consecutive years. We don’t want to scare you, but we need to impress upon you just how important this filing is.
Form 990 is the mechanism by which the IRS keeps tabs on America’s nonprofits. Your return eventually becomes public record, and it is a crucial component in the trust and transparency necessary to remain in good standing. Need a refresher on nonprofit compliance? Check out our Nonprofit Compliance Basics post. Be sure to have your plans for your nonprofit’s Form 990 this year to ensure it is filed correctly and on time.
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