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What You Need to Know About Filing Form 990

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what every nonprofit needs to know about filing a form 990 before the end of the year

What You Need to Know About Filing Form 990

December 29, 2023 Davis Law Group

Groups exempt from federal income taxation under § 501(a) must file Form 990 to report on their finances, activities, and governance.

The IRS uses Form 990 to gauge whether tax-exempt organizations are adequately maintaining their tax-exempt status. An organization that fails to file Form 990 for three consecutive years will automatically lose its tax-exempt status.

Versions of Form 990

There are multiple versions of Form 990, including Form 990-EZ, Form 990-N, and Form 990-T. An organization must file a traditional Form 990 if its gross receipts are greater than or equal to $200,000 or its total assets are greater than or equal to $500,000. Gross receipts are the total income an organization receives from all sources without subtracting any costs or expenses. Tax-exempt groups with revenue of less than $200,000 and assets worth less than $500,000 may file the Form 990-EZ. The 990-EZ has only six sections as opposed to twelve in the full 990. The IRS estimates that organizations can complete the 990-EZ in about half the time as the full 990.

Small tax-exempt organizations may file Form 990-N, also known as an e-Postcard, if their gross receipts are $50,000 or less on average. An organization must average annual gross receipts of $50,000 or less over the preceding three years to qualify for filing Form 990-N. An organization in existence for one to three years needs to average $60,000 during each of its first two tax years to be eligible to file Form 990-N. An organization in existence for one year or less may file Form 990-N if it receives $75,000 or less during its first tax year.

Organizations that make $1,000 or more from unrelated businesses must file Form 990-T to report and pay tax on all unrelated business income. Form 990-T must be submitted along with Form 990 (or Form 990-EZ or Form 990-N). Form 990-T will never replace one of the other 990 forms.

Organizations that claim exempt status but have not yet filed Form 1023 must still file Form 990. There is box the organizations may check on the 990 that states their tax-exempt applications are pending.

Certain organizations, like churches, associations of churches, or primary and secondary schools associated with churches, do not have to file any kind of Form 990.

Filing Form 990

It is important to remember that Form 990 is a public document. After an organization submits the form to the IRS, it is available online. Donors may examine the form before donating. Because it is a public document, many fundraisers consider Form 990 to be a marketing document. The form asks for an extensive amount of information and provides many opportunities to describe the important work the organization does. There are twelve major sections within Form 990.

Part I asks the organization to describe its mission and its most significant activities of the year. Part I also asks for the number of volunteers that worked with the organization during the year and any fees the organization paid for professional fundraising services. Interestingly, the IRS recommends that organizations complete this part last because it asks for information included elsewhere on Form 990.

Part II is a signature block and requires that the current president, vice president, treasurer, assistant treasurer, chief accounting officer, or other authorized corporate officer to sign.

Part III allows the organization to describe its mission again as well as program services (activities that accomplish its exempt purpose). The organization must list the expenses, revenue, and donated services or materials for each activity.Similar to Form 1023, Form 990 has many additional schedules that organizations may need to complete.

Part IV of the form is a checklist of required schedules. For any questions to which an organization answers “yes” in this section, the organization must complete the corresponding schedule. Organizations will have to fill out different schedules depending on the entity and its activities.

Part V requires that an organization report information from other tax forms, such as 1099s, 1098s, and W-2Gs (W-2Gs report winnings on gambling). In this section, an organization must also report the number of its employees, any amount of unrelated business income, and the amount of gross receipts calculated in part VIII. The organization must also disclose any foreign bank accounts and the amount in each account.

Part VI requires an organization to disclose information about its governing body and various policies. Regarding its governing body, an organization must report the number of members in its governing body and the voting rights of each member. If an organization delegates certain management duties, like hiring, firing, and budgeting, to a group other than the governing body, it must disclose such information in this section. Part VI also requires an organization to report changes to organizing documents or bylaws. The amended documents need not be attached to Form 990; rather, the amendments merely need to be described in narrative form.

Part VI also asks about various organizational policies, such as the process by which the governing body reviews Form 990. The IRS does not require governing bodies to review the form, but it is a good practice to have a review process in place. This section also asks about the organization’s conflict-of-interest policy, whistleblower policy, and document retention policy. Finally, Part VI requires an organization to explain the process it uses to determine the compensation of its top management official (usually the CEO). All tax-exempt groups should adopt and adhere to these policies and procedures. If you need help drafting such policies, make an appointment with one of our nonprofit or corporate attorneys today.

In Part VII, an organization must disclose the compensation of its officers, directors, independent contractors, and highest compensated employees. High rates of compensation with no process by which the compensation is determined will raise red flags with the IRS.

Parts VIII through XI comprise most of the financial information an organization must report. Part VIII is the organization’s statement of revenue. The organization must list how much money it receives from various sources such as fundraising events, membership dues, grants, cash and noncash contributions, rents, investments, and sales.

Part IX is the organization’s statement of expenses. The organization must explain where it sends its money to, including grants to individuals and groups; benefits to its members; compensation to its employees, directors, etc.; advertising; and insurance.

Part X is the organization’s balance sheet and requires an organization to list its assets and liabilities at the beginning and end of the year.

In Part XI, the organization must reconcile its net assets by following the IRS’s instructions on combining Parts VIII through X.

Finally, in Part XII, the organization must disclose if the form was compiled, reviewed, or audited by an independent accountant. The organization must also note whether it has previously been audited due to receipt of a federal grant.

Form 990 in all its versions is due by the 15th day of the 5th month after the organization’s accounting period ends. Usually, organizations’ accounting periods end in December. In that case, Form 990 would be due by May 15th of the following calendar year. If the due date falls on a Saturday, Sunday, or legal holiday, the form is due on the next business day.

If an organization dissolves or terminates, it must file its last Form 990 by the 15th day of the 5th month after such dissolution or termination.

An organization may request an extension of time to file using Form 8868. It is important to file on time or receive an extension because the IRS imposes a fine of $20 each day that the form is late.

Davis Law Group Can Help

Completing and filing Form 990 can be a daunting and time-consuming process. If you have questions or need assistance in completing your return, contact our nonprofit attorney today to set up a consultation.