Many nonprofit leaders do not realize that registered nonprofit organizations are required to file an annual “tax” form with the IRS. This form is commonly known as the 990 and is a matter of public record. Unlike your individual 1040 tax forms, the 990 is public knowledge because when the IRS grants the organization nonprofit status, it is essentially using public dollars to do so; thus the public has the “right” to know how much money comes into the organization and how funds are being used. Even if your organization never takes government dollars, as a nonprofit organization, it is still benefitting from public dollars in the form of tax breaks received as a nonprofit entity. In other words, the general public must pay additional tax dollars to support the work of every nonprofit that is not required to pay taxes.
Since we get many questions about the 990 and who is responsible for completing the form, take note of the following information:
- All nonprofit organizations are required to some form of the 990.
- Small organizations, those with revenues less than $50,000 can complete the 990 Postcard.
- Organizations with revenues less than $200,000 and total assets less than $500,000 can complete the 990 EZ or the 990.
- Organizations with revenues over $200,000 and assets over $500,000 must complete the 990.
- Unlike the individual tax form, there is no standard due date for the 990. Instead, the 990 due date is based on the fiscal year date of the organization. The forms are due to the IRS by the 15th day of the fifth month following the close of the fiscal year.
The next question I often get is, “what happens if we don’t file a 990?” A few years ago, the IRs began cracking down on nonprofits that didn’t follow the rules. Those organizations that fail to file a 990 for three consecutive years automatically lose their nonprofit status. To get the tax exempt status back, the organization must go through a re-application process.
In the past, the IRS did not do a lot of reviewing 990s. However, many accountants believe this is about to change. For 2016, the IRS has announced that their focus will be in the following areas:
- Does the organization’s activities align with the reason for which the tax exemption was granted? Remember the Form 1023 that was submitted to obtain tax exempt status? Double check the form to make sure your organizational activities “fit” with what you said you would do. It is important to know that in addition to the 990, the IRS will also be looking at your website, newsletters, etc. to see how everything fits with your mission. (Yes, your mission statement really does matter.
- Is the organization protecting its assets? In particular, the IRS is looking to make sure that assets of the organization are not being used for personal gain or for reasons that are not in alignment with one of the stated reasons for granting nonprofit status.
- Is the organization paying all required taxes? While nonprofits are not required to pay taxes on their income, they are required to pay all payroll taxes as well as tax on unrelated business activities.
- Is the organization involved in any international activities? As terrorism prevention continues to be at the forefront of national security, the IRS wants to ensure that US nonprofits are not supporting terrorism activities. If your organization is involved in any activities outside of the US, you will want to ensure that all of your work is well documented.
One of the best ways to ensure your organization remains in compliance with the IRS is by having up-to-date financial policies for organizational operations and a board policy manual. We can help you meet these needs, contact us today for help.