IRS Form 990 must be filed by nonprofits disclosing annual financial information but understanding instructions and requirements can be daunting. This guide breaks down who, what and when to file.
What is the IRS Form 990?
Form 990 is a tax form that any nonprofit organization must file with the Internal Revenue Service. The tax form 990 contains information about your organization’s finances, including how much money it has made and how it has spent that money. It also reports the salaries of your organization’s officers, directors and key employees.
Basically, form 990 provides the IRS an overview of your organization’s activities, governance and detailed financial information.
What is Form 990 used for?
Form 990 is used by government agencies to prevent organizations from abusing their tax-exempt status. It also includes a section for your nonprofit to outline its accomplishments in the previous year to justify maintaining your tax-exempt status.
Since the tax form 990 is available to the public, it is an easy way for donors and other funding sources to evaluate the transparency of the organization. If filled out correctly and completely, the organization can present its mission and achievements in a favorable light.
Why is Form 990 important?
An organization can clarify its mission on the 990 and detail its accomplishments of the previous year. A donor can find out where the group gets its revenue. A foundation can see just how sustainable the charity might be. A potential employee can know how well the nonprofit pays its top employees.
Form 990 required by non profits is an annual report that all tax-exempt organizations must file with the IRS. It provides information on a nonprofit’s income, expenses and other financial activities for the year in question. The information is used by the IRS to determine if a nonprofit should have its tax-exempt status revoked.
How does form 990 add value for the organization and its supporters?
Latest revisions of the 990 have added even more information such as disclosing possible conflicts of interest, board member and staff compensation, and additional details about accountability and the prevention of fraud.
Do all nonprofits have to file a 990?
Who must file IRS Form 990?
- All private foundations file Form 990-PF.
- Tax-exempt organizations with gross receipts of $200,000 or assets worth $500,000 file the Form 990.
- Nonprofits with gross receipts of less than $200,000 but more than $50,000 file Form 990 or 990-EZ.
- Small nonprofits with gross receipts of $50,000 or less file the 990N (e-Postcard) in order to keep their exempt status.
- Any organization that is tax exempt under Sections 501c, 527, or 4947(a)(1) of the US tax code, and do not qualify for exemptions.
Who is exempt from filing Form 990?
- Churches and faith-based organizations such as religious schools, missions or missionary organizations are exempt from filing Form 990.
- Subsidiaries of other nonprofits, if the parent group files.
- Nonprofits who are not registered yet, such as an incorporated nonprofit, or an incorporated nonprofit not planning to apply to the IRS for exemption from federal income tax.
If your organization is registering to be tax-exempt and intends to file with the IRS by the 27th month from date of incorporation, you must file the appropriate Form 990 during the 27 month period, even though determination has not yet been received.
- State institutions that provide essential services such as a university are exempt from filing.
- Government corporations are also exempt.
When to File Form 990?
According to form filing instructions, the 990, which must be filed on or before the 15th day of the fifth month after the end of a tax year, is one of the most important forms for nonprofits. For example, if your fiscal year ends on December 31, the 990 is due on May 15 of the following year. Two ninety-day extensions are allowed with the exception of the 990-N postcard filers.
How to File Form 990?
As of July 1, 2019, legislation requires tax exempt organizations to e-file forms. The following IRS forms are included in the mandate:
- Form 990, Return of Organization Exempt from Income Tax
- Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Trust Treated as Private Foundation
- Form 8872, Political Organization Report of Contributions and Expenditures
- Form 1065, U.S. Return of Partnership Income (if filed by a Section 501(d) apostolic organization)
Form 990-EZ – For tax years ending before July 31, 2021, the IRS will accept either paper or electronic file.
Forms 990-T and 4720 – In 2020, the IRS will continue of accept paper forms pending conversion into electronic form. The IRS plans to have these returns ready for e-filing in 2021 reporting on tax year 2020.
What happens if a nonprofit does not file Form 990?
If you don’t file non profit tax form 990 for three consecutive years, your tax-exempt status will automatically be revoked by the IRS. Keep in mind, if you lose your exempt status for not filing the 990, there is no appeal process with the IRS. Your nonprofit may have to pay income taxes, user fees and have to file additional paperwork.
Form 990 filing instructions
Due to the complexity involved in form 990 filing instructions, it is important to review the criteria and each part individually.
What is the criteria for filing Form 990?
- If your gross revenue is less than $50,000 you have the option of filing a shorter alternative form called the 990-N. Form 990-N is referred to as an “e-postcard” since it can only be filed online, does not include a detailed financial report and only requires minimal information.
- If your gross revenue is less than $200,000 and your assets are less than $500,000, you have the option of filing a 990-EZ. The 990-EZ form includes reporting on revenue, expenses and changes to net assets, along with summary balance sheet data, but does not require the breakdown of expenses by functional area.
- If your gross revenue is greater than $200,000, or you have assets greater than $500,000 you must complete the Form 990.
Form 990 Requirements
Nonprofit tax IRS form 990 includes a description of your mission or other significant activities. You must also disclose financial details on your nonprofit’s revenue, expenses, assets and liabilities. The IRS also wants to ensure that your nonprofit is worthy of maintaining its tax-exempt status and requires more details on the types of activities you engage in during the year.
Form 990 filing instructions include other attachments such as a detailed checklist of supporting information, including a the Schedule A – Public Charity Status and Public Support, the Schedule B – Schedule of Contributors, which is a listing all contributions it receives during the year.
Breaking Form 990 Into Its Parts
The following breaks down form 990 filing instructions:
The organization’s address, including ZIP code The names of the officers who are responsible for preparing this return
The organization’s employer identification number The date that the form was filed with the IRS.
Part I of the 990 is a summary of your Revenues, Expenses and changes to Net Assets that is detailed in subsequent sections of the 990. You must have an accounting system that will allow you to easily extract this information. Otherwise, the preparation will be difficult, timely and expensive.
Income from all sources (both taxable and tax-exempt).
The revenue section, detailed in Part VIII lists revenue by the following three categories:
- Contributions, Gifts and Grants
- Federated campaigns – Contributions received through federated fund raising, campaigns such as the United Way, and revenue received from affiliated organizations.
- Membership dues – Revenue received from members dues
- Fundraising events – Revenue that is generated from attendance at fund-raising events, such as ticket sales, sponsorship, raffle proceeds.
- Related organizations – Revenue received from related or affiliated organizations.
- Government grants (contributions) – Contributions from federal, state or local governments that are considered to provide a direct benefit to the general public. These contributions are distinct from monies received from government contracts or fees for services, which are included in Program Service Revenue.
- All other contributions, gifts, grants – Contributions received directly from individuals and foundations.
- Program Service Revenue
- Program Service Revenue – Revenues received by an organization while charging for the services for which it received tax-exemption.
- Other Revenue
- This category includes revenue streams such as: investment income, rental income, sales of inventory, assets, gaming activities and other special fund raising net income.
Expenses (both direct and indirect)
Your expenses are detailed in Part IX, Statement of Functional Expenses. Here, you must segregate your expenses into three categories: Program Service, Management and General, and Fundraising. We’ve covered the importance of using functional expense reporting in previous blogs, so once again, make sure your accounting system allows you to easily segregate all of your expense activity by functional area.
Program Services Expenses – Expenses incurred by an organization while performing its tax-exempt activities.
Management and General Expenses – Expenses related to the day-to-day operation of an organization. Included are items such as personnel, accounting, and legal services, general insurance, and office management.
Fundraising Expenses – Costs of soliciting the contributions reported on the Direct Public Support, Indirect Public Support and Government Contributions revenue lines.
Part IV, Balance Sheet has the details an organization’s assets, liabilities and net assets. The Net Asset section is divided into three categories:
Net Assets Without Donor Restrictions – assets currently available for an organization to fulfill its tax-exempt purpose.
Net Assets With Donor Restrictions – assets with donor-imposed restrictions that do not expire.
This section of the 990 requires the proper accounting software tools to enable you to segregate your net asset balances into one of the three categories for proper 990 reporting.
All of these details should be included on a Form 990, and if the information is not included, it will be rejected by the IRS.
Where to view Form 990?
Nonprofits are required to make their 990 and exemption application available to the public. You can find any nonprofit’s 990 by visiting the IRS website and searching by name. You also may be able to view it by visiting the nonprofit or their website. In addition to this, you may be able to view 990s at websites like Guidestar.
What are the main points that will resonate with donors?
Viewing a nonprofit’s 990 answers important questions such as revenue sources, sustainability, and how well the organization pays its employees can easily be found. Potential board members can see who else is on the board and what the cash reserves look like.
Since your organization’s Form 990 is available for public disclosure, it is important to understand how the data will be reviewed in relation to your organization’s mission, programs, and finances. The 990, which must be made public, also provides an easy way for donors and other people interested in supporting a particular cause to find and evaluate the best charities to support. In effect, the 990 can be a public relations tool for a charity when care is taken to fill it out correctly and carefully.
A nonprofit’s 990 can provide valuable information for donors and grantors such as foundations, governments, and corporations. Since 990s are public documents and widely available, nonprofits should be diligent about filling them out correctly and filing them on time.
Be sure to consult with a knowledgeable tax professional who has nonprofit experience. This is necessary to ensure you are compliant with the IRS regulations filing the Form 990. If your organization fails to file the appropriate Form 990 for three consecutive years, you risk having your tax-exempt status revoked by the IRS. For further insight, browse our library of articles on Nonprofit Fund Accounting.
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