IRS Form 990

IRS Form 990: A Comprehensive Guide for Nonprofit Organizations

Nonprofit organizations play a crucial role in society, serving public interests rather than private gain. Despite their tax-exempt status, nonprofits are still required to adhere to certain rules set by the IRS (Internal Revenue Service), especially regarding transparency and financial reporting. One of the most important tools for maintaining this transparency is IRS Form 990.

IRS Form 990 is the annual reporting form that most tax-exempt organizations must file with the IRS. It provides an in-depth look at a nonprofit’s activities, governance, and financial health, offering critical insights into how funds are spent and ensuring accountability. This form is essential for maintaining tax-exempt status and is also used by donors, potential partners, and regulators to assess an organization’s legitimacy and performance.

In this post, we’ll explore what IRS Form 990 is, who needs to file it, the various sections included in the form, and key filing tips to help you stay compliant with IRS regulations.

What is IRS Form 990?

IRS Form 990 is a tax form used by tax-exempt organizations to provide the IRS with information about their finances, activities, and governance. While these organizations are exempt from paying federal income taxes, they must still disclose financial details to maintain their tax-exempt status. This form helps the IRS ensure that nonprofits are using their resources to fulfill their tax-exempt purposes and are not benefiting private individuals or shareholders.

The form is also made available to the public, which promotes transparency and accountability within the nonprofit sector. It provides potential donors, grantmakers, and other stakeholders with an overview of how an organization is operating and managing its resources.

Who Needs to File IRS Form 990?

Not all tax-exempt organizations need to file Form 990. The filing requirements depend on the size of the organization and its revenue. Here are the general rules:

1. Organizations with gross receipts over $200,000 or total assets over $500,000: These organizations must file the full Form 990. This is the most detailed version of the form and requires comprehensive financial reporting, including the organization’s balance sheet, statement of revenue, and a detailed breakdown of expenses.
2. Organizations with gross receipts over $50,000 but less than $200,000: These organizations must file Form 990-EZ, a shorter version of the full Form 990 that still provides key financial and operational information but is less detailed.
3. Organizations with gross receipts under $50,000: These organizations are eligible to file Form 990-N (also known as the e-postcard). This is a simplified filing that only requires basic information about the organization, such as its name, address, and confirmation of its gross receipts.

Key Sections of IRS Form 990

IRS Form 990 is a comprehensive document with various sections that provide detailed information about a nonprofit organization’s financials, activities, and governance. Here’s an overview of the main sections:

1. Part I: Summary

Part I provides an overview of the organization’s mission, primary activities, and financial status. This section includes:

• Mission statement: A brief description of the nonprofit’s mission and the activities it undertakes to fulfill that mission.
• Revenue and expenses: A high-level summary of the nonprofit’s total revenue, expenses, and net assets.
• Key statistics: This section includes the organization’s tax-exempt status, gross receipts, total assets, and other critical data.

2. Part II: Signature Block

Part II is where the organization’s authorized representative signs the form, certifying that the information provided is accurate and complete.

3. Part III: Statement of Program Service Accomplishments

This section details the nonprofit’s major programs and activities. It provides a summary of each program, the number of people served, and the costs associated with running these programs. Nonprofits are required to explain how each program is related to their tax-exempt purpose.

4. Part IV: Checklist of Required Schedules

Part IV is a checklist to ensure that the organization includes all necessary schedules for its specific circumstances. It helps the filer determine which additional schedules are required based on the nature of the nonprofit’s activities and finances.

5. Part V: Statement of Revenues

Part V outlines the nonprofit’s sources of income, including contributions, grants, program service revenue, and investment income. It also includes details about unrelated business income, which must be reported separately if applicable.

6. Part VI: Statement of Functional Expenses

This section provides a detailed breakdown of how the organization’s expenses are allocated among different categories, including:

• Program expenses: Costs directly related to carrying out the nonprofit’s mission.
• Management and general expenses: Costs associated with the nonprofit’s overall operations.
• Fundraising expenses: Costs related to raising money, including fundraising events and campaigns.

7. Part VII: Compensation of Officers, Directors, Trustees, and Key Employees

Part VII provides information about the salaries and compensation paid to key individuals within the organization, including officers, directors, and highest-paid employees. This section ensures transparency about how nonprofit leaders are compensated.

8. Part VIII: Statement of Revenue

This section gives a more detailed breakdown of the nonprofit’s revenue sources, including:

• Contributions and grants
• Program service fees
• Investment income
• Special events and fundraising activities

9. Part IX: Balance Sheet

Part IX presents a snapshot of the organization’s financial health by providing a balance sheet with detailed information about assets, liabilities, and net assets. This helps the IRS and stakeholders evaluate the financial stability of the nonprofit.

10. Schedule A: Public Charity Status and Public Support

Schedule A is required for certain organizations to demonstrate their eligibility as a public charity. It provides information about the public support the nonprofit receives and how it qualifies for tax-exempt status under Section 501(c)(3).

How to File IRS Form 990

Nonprofits must file Form 990 annually by the 15th day of the 5th month after the end of their fiscal year. For example, if a nonprofit operates on a calendar year, the filing deadline would be May 15th of the following year. If the organization cannot file on time, it can request a six-month extension.

Here’s how to file Form 990:

1. Prepare the Form: Gather all necessary financial documents and records for the year. This includes income statements, balance sheets, expense reports, and any information related to the nonprofit’s programs and governance.
2. Complete the Form: Fill out the form based on the organization’s financial data and activities for the year. If needed, complete the required schedules.
3. File Electronically: Most nonprofits are required to file Form 990 electronically. You can file through the IRS e-filing system or through third-party services that offer electronic filing.
4. Keep a Copy: After filing, retain a copy of Form 990 for your records. It is also recommended to make the form available to the public, as it promotes transparency and accountability.

Consequences of Not Filing IRS Form 990

Failure to file Form 990 can have serious consequences for a nonprofit organization. If the nonprofit does not file for three consecutive years, the IRS may revoke its tax-exempt status. Additionally, there are penalties for late filing or failing to file the form, which can amount to thousands of dollars depending on the size of the organization.

Conclusion

IRS Form 990 is a vital tool for maintaining transparency and compliance for nonprofit organizations. By accurately completing and filing the form, nonprofits can demonstrate their financial integrity, uphold their tax-exempt status, and gain the trust of donors and stakeholders. Whether your organization is large or small, understanding the requirements for IRS Form 990 and staying on top of filing deadlines is crucial for long-term success and accountability in the nonprofit sector.