As a tax specialist, I often come across clients who are unfamiliar with IRS Form 990. This form is a crucial document for tax-exempt organizations, providing critical information about their operations, finances, and governance to the Internal Revenue Service (IRS) and the public.
In this article, I will explain what IRS Form 990 is, who needs to file it, and what information is required. I will also discuss the consequences of not filing or filing incorrectly.
What is IRS Form 990?
IRS Form 990 is a tax form that tax-exempt organizations, such as nonprofits, charities, and religious organizations, must file annually with the IRS. This form provides information about the organization’s mission, programs, finances, and governance.
The form is also known as the “Return of Organization Exempt From Income Tax” and is required by law for tax-exempt organizations with gross receipts of $50,000 or more per year. Small organizations with gross receipts of less than $50,000 can file Form 990-EZ or 990-N (e-Postcard) instead.
The IRS Form 990 serves several purposes. Firstly, it helps the IRS monitor tax-exempt organizations to ensure they are operating by the law. Secondly, it provides transparency to the public about the organization’s operations and finances. Thirdly, it helps the organization maintain its tax-exempt status.
Who needs to file IRS Form 990?
As mentioned earlier, tax-exempt organizations with gross receipts of $50,000 or more per year are required to file IRS Form 990. This includes nonprofit organizations, charitable organizations, religious organizations, and other tax-exempt entities.
However, there are some exceptions to this rule. For example, churches and certain religious organizations are not required to file Form 990, but they may choose to file Form 990-EZ or Form 990-N (e-Postcard) voluntarily.
It’s important to note that failure to file Form 990 for three consecutive years can result in the loss of tax-exempt status. Therefore, tax-exempt organizations need to understand their filing requirements and ensure they file the necessary forms on time.
What information is required on IRS Form 990?
IRS Form 990 is a comprehensive form that requires tax-exempt organizations to provide a significant amount of information about their operations, finances, and governance. Here’s a breakdown of the key sections and the information required:
Part I – Summary
This section includes basic information about the organization, such as its name, address, and EIN (Employer Identification Number). It also asks for a brief description of the organization’s mission and activities.
Part II – Signature Block
This section requires the signature of an authorized officer of the organization, along with the date and the title of the signer.
Part III – Statement of Program Service Accomplishments
This section requires a detailed description of the organization’s programs and activities, along with information about the number of people served and the impact of the programs.
Part IV – Checklist of Required Schedules
This section requires the organization to indicate which schedules are attached to Form 990.
Part V – Statements Regarding Other IRS Filings and Tax Compliance
This section asks the organization to provide information about its compliance with other tax requirements, such as employment taxes and excise taxes.
Part VI – Governance, Management, and Disclosure
This section requires the organization to provide information about its governing body, management, and policies related to conflicts of interest, whistleblowers, and document retention.
Part VII – Compensation of Officers, Directors, Trustees, Key Employees, Highest Compensated Employees, and Independent Contractors
This section requires the organization to disclose the compensation of its key personnel, including officers, directors, and top employees. It also requires the organization to provide information about any compensation arrangements with independent contractors.
Part VIII – Statement of Revenue
This section requires the organization to provide information about its revenue, including contributions, grants, and program service revenue. It also requires the organization to indicate whether it has any unrelated business income.
Part IX – Statement of Functional Expenses
This section requires the organization to provide information about its expenses, including program services, management and general, and fundraising expenses.
Part X – Balance Sheet
This section requires the organization to provide information about its assets, liabilities, and net assets.
Part XI – Reconciliation of Net Assets
This section requires the organization to reconcile the beginning and ending balances of its net assets.
Part XII – Financial Statements and Reporting
This section requires the organization to provide a copy of its audited financial statements, if applicable, and to provide information about its accounting method and reporting period.
Part XIII – Supplemental Information
This section allows the organization to provide any additional information that is not included elsewhere on the form.
As you can see, IRS Form 990 requires a significant amount of information, and tax-exempt organizations need to keep accurate records and maintain good financial practices.
What are the consequences of not filing or filing incorrectly?
Failing to file IRS Form 990 or filing incorrectly can have serious consequences for tax-exempt organizations. Here are some of the potential consequences:
- Loss of tax-exempt status: As mentioned earlier, failing to file Form 990 for three consecutive years can result in the loss of tax-exempt status.
- Penalties: The IRS can impose penalties for late or incorrect filings, which can range from $20 to $100 per day, up to a maximum of $50,000 per return.
- Public scrutiny: IRS Form 990 is a public document, which means that the organization’s financial information is available to the public. Failing to file or filing incorrectly can damage the organization’s reputation and undermine public trust.
- Legal action: In extreme cases, the IRS may take legal action against tax-exempt organizations that fail to file or file incorrectly. This can result in fines, penalties, and even criminal charges.
Therefore, tax-exempt organizations need to take IRS Form 990 seriously and ensure they file the necessary forms on time and accurately.
Conclusion
In conclusion, IRS Form 990 is a critical document for tax-exempt organizations, providing information about their operations, finances, and governance to the IRS and the public. Understanding the filing requirements and providing accurate information is essential for maintaining tax-exempt status and avoiding penalties and legal action.
As a tax specialist, I encourage all tax-exempt organizations to take IRS Form 990 seriously and seek professional assistance if needed to ensure compliance with tax laws and regulations. By doing so, they can maintain their tax-exempt status, build public trust, and continue to serve their mission and purpose.
Learn more about IRS Form 941: A Guide For Employers
