IRS Form 990 instructions can seem overwhelming for many nonprofits. Yet, it’s crucial to follow the requirements for correct submission. If your nonprofit fails to comply with these instructions and stipulations, you could face penalties.
This guide simplifies the process by offering a step-by-step walkthrough on how to accurately file IRS 990 for your nonprofit organization.
Table of contents
- What is the purpose of Form 990?
- What are the four different types of Form 990?
- Form 990 filing instructions
- Overview of Form 990
- Where to view Form 990?
- Bottom Line
What is the purpose of Form 990?
Most tax-exempt organizations file an annual IRS Form 990. The form provides information on the organization’s finances, programs, and governance. It is also the main source of information on the activities of nonprofits. The purpose is to determine whether an organization is operating for a charitable purpose and complying with tax laws.
Used by government agencies, it prevents organizations from abusing their tax-exempt status. It outlines accomplishments in the previous year to justify maintaining your tax-exempt status.
Public access provides 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?
It collects information about tax-exempt organizations, such as their income, expenses, and activities. It also provides organizations with an opportunity to educate the public about their mission and objectives. Additionally, many states use it for charitable and other regulatory oversight and for satisfying state income tax filing requirements.
This important document allows the IRS to monitor the activities and financial health of organizations. It also ensures they are in compliance with all applicable laws and regulations. By filing Form 990, organizations demonstrate transparency and accountability to the public. They also provide important information to the IRS and state regulators.
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. Its information helps the IRS determine if a nonprofit should have its tax-exempt status revoked.
What are the Form 990 filing requirements?
If filled out correctly and completely, the organization can present its mission and achievements in a favorable light.
Tax-exempt organizations, nonexempt charitable trusts, and section 527 political organizations use Form 990 to report their financial details to the Internal Revenue Service (IRS). They need to file this form to meet the requirements of section 6033.
It includes items such as: the organization’s legal name and mailing address; name and address of a principal officer; website address if the organization has one, and confirmation that the organization’s annual gross receipts are $50,000 or less.
Form 990 determines the tax-exempt status of the organization and the amount of public support it receives. Additionally, Schedule L of Form 990 reports certain financial transactions or arrangements between the organization and a disqualified person(s) or other interested persons.
How does form 990 add value for the organization and its supporters?
The IRS Form 990 is a filing requirement for all 501(c)(3) organizations. The form provides the public with information about the organization’s finances and operations. As an added benefit, it lets donors see the use of their donations.
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.
What are the four different types of Form 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 applying for tax-exempt status, you must file the correct Form 990 within 27 months of incorporation, even without a determination.
- State institutions that provide essential services such as a university are exempt from filing.
- Government corporations are also exempt.
When to File Form 990?
You must file Form 990 on or before the 15th day of the fifth month following the end of a tax year. For example, if your fiscal year ends on December 31, the 990 is due on May 15 of the following year. The 990-N postcard filers are the only exception to the rule that allows two ninety-day extensions.
How to File Form 990?
As of July 1, 2019, legislation requires tax exempt organizations to e-file forms. The mandate includes the following:
- 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?
The IRS will automatically revoke your tax-exempt status if you don’t file the non-profit tax form 990 for three consecutive years. 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.
If a nonprofit organization neglects to file the necessary Form 990, 990-EZ, or 990-N for three straight years, the IRS will automatically revoke their tax-exempt status on the due date of the third year they consecutively missed. There is no penalty assessment for filing Form 990-N late, but organizations should still submit the required forms on time in order to avoid any potential consequences.
To remain compliant with IRS regulations, organizations must also provide the public with copies of their Form 990 and other disclosures. Failure to do so can result in additional consequences and penalties.
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.
Step-By-Step Instructions for Preparing Form 990
The first step in filing Form 990 is determining whether your organization needs to file it. Generally, organizations exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code must file Form 990. However, there are exceptions for certain small organizations and churches.
After determining that your organization needs to file, the next step is to collect all the required information. This includes financial information such as income, expenses, and assets, as well as information about the organization’s governance, activities, and compensation of key employees. It is important to have accurate and complete information when filing the Form 990, as the IRS may audit organizations that file incomplete or inaccurate returns.
When preparing to file the Form 990, it is also important to review the instructions for the form. The instructions offer detailed guidance on what information you need to report and how to do so. It is important to follow the instructions carefully, as failure to do so can lead to errors and potential penalties.
The Form 990 has several different schedules and sections, each with its own instructions and requirements. The schedules include information on the organization’s income, expenses, assets, and liabilities. The sections include information on the organization’s governance, activities, and compensation of key employees. You should review the instructions for each schedule and section to make sure you include and report all the necessary information correctly.
Once you have gathered all the necessary information and reviewed the instructions, the next step is to complete the Form 990. We recommend using a computer to complete the form, as it makes making changes and corrections easier. There are also software programs available that can help to prepare the Form 990.
Once you complete the Form 990, carefully review it for accuracy and completeness. Make sure to double-check all the information for correctness and have an authorized representative of the organization sign the form.
Overview of Form 990
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.
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 filed the form with the IRS using its employer identification number on a specific date.
- Part I of the 990 summarizes your Revenue, Expenses, and changes to Net Assets 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)
Part IX details expenses from the 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 divides into two 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.
You must include all of these details on a Form 990. If you do not, the IRS will reject it.
Where to view Form 990?
Nonprofits must 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?
You can easily find answers to important questions such as revenue sources, sustainability, and how well the organization pays its employees by viewing a nonprofit’s 990. Potential board members can see who else is on the board and what the cash reserves look like.
Understanding the review process of your organization’s Form 990 in relation to its mission, programs, and finances is crucial, as it is available for public disclosure. The mandatory public availability of the 990 also simplifies the process for donors and others interested in backing a cause to identify and assess the top charities worth their support. If filled out accurately and meticulously, the 990 can serve as a public relations tool for your charity.
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.
It is important for nonprofits to follow the IRS Form 990 filing instructions and requirements in order to correctly disclose their financial information. FastFund Accounting can help streamline the process and make it easier for nonprofits to comply with the IRS Form 990 requirements.
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.
What is form 990?
IRS Form 990 is an annual reporting return that most federally tax-exempt organizations must file with the IRS. It provides the IRS with information about the organization’s activities, governance, revenues, expenses, and other financial information. The form is also available for public disclosure, promoting transparency within the organization.
Who is required to file IRS Form 990?
Tax-exempt organizations, nonexempt charitable trusts, and section 527 political organizations are typically required to file IRS Form 990. However, the specific form to file (990, 990-EZ, 990-N, or 990-PF) depends on the organization’s gross receipts and total assets.
How can I accurately complete the 990?
Completing IRS Form 990 requires careful attention to detail and an understanding of the organization’s financial situation. It’s crucial to review the instructions for each schedule and section of the form. Consider using accounting software or consulting a tax professional to ensure accurate completion.
Are there any organizations exempt from filing?
Yes, certain organizations are exempt from filing Form 990. These include most faith-based organizations, state institutions, and subsidiaries of other nonprofits that may be covered under a group return.
When and how should Form 990 be filed?
Form 990 must be filed by the 15th day of the 5th month after the organization’s accounting period ends. For example, if your fiscal year ends on December 31, Form 990 should be filed by May 15 of the following year. The IRS encourages filing electronically for quicker processing.
What happens if Form 990 is not filed for three consecutive years?
If an organization fails to file Form 990 for three consecutive years, it will automatically lose its tax-exempt status. Once lost, an organization must apply again for tax-exempt status, which is not guaranteed to be granted.
Why is it important to review the instructions for each schedule and section of Form 990?
Each schedule and section of Form 990 requires specific information about the organization’s activities and finances. By reviewing the instructions, organizations can ensure they are providing accurate information and complying with IRS requirements.
Should I use accounting software or consult a tax professional for Form 990 preparation?
Using accounting software or consulting a tax professional can help ensure the accurate completion of Form 990. These resources can guide you through the process, help catch any errors, and provide advice tailored to your organization’s specific circumstances.
Is Form 990 available for public disclosure?
Yes, once filed, Form 990 is available for public inspection. This promotes transparency and allows the public, including potential donors and grantors, to understand more about the organization’s mission, programs, and finances.
Why is it important to accurately complete Form 990?
Accurate completion of Form 990 is crucial for maintaining tax-exempt status and fostering public trust. It provides a clear picture of the organization’s financial health, governance, and activities. Any inaccuracies could lead to penalties and potentially jeopardize the organization’s tax-exempt status.
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