For a lot of nonprofits, sustaining their tax-exempt standing is more than simply doing a charitable mission. They also have yearly reporting requirements which allow regulators and stakeholders to learn about the management of resources.
The IRS states that organizations may lose their tax-exempt status if they don’t file annual returns for three years in a row. Thus, reporting becomes a key compliance duty for organizations to follow on an annual basis.
What is an IRS Form 990?
Form 990 (Return of Organization Exempt from Income Tax) is a yearly reporting document that allows nonprofits to share information about their finances, programs, leadership, and compliance activities with the IRS.
Form 990 is primarily an informational filing that gives regulators and the public insight into:
- Revenue and funding sources
- Expenses and program spending
- Organizational governance
- Executive compensation
- Assets and liabilities
- Mission-related activities
The return helps demonstrate that the organization continues to operate in a manner consistent with its tax-exempt purpose.
What is IRS Form 990 used for?
IRS Form 990 is used for:
Demonstrating ongoing compliance
This Form is a tool used to ensure that tax-exempt organizations are still performing the duties and obligations for maintaining their exempt status. The data reported provides the regulatory authorities with information about how an organization functions as well as if the activities are in accordance with the stated mission.
Promoting transparency
The Form 990s are public records for most. This transparency enables the donors, grant makers, watchdog groups, and community to look at an organization’s financial records and practices.
Reporting financial activity
The form seeks to provide a better understanding of a nonprofit’s finances. These finances include the organization’s revenue, expenses, assets, liabilities, and sources of funding.
Documenting mission-driven results
Organizations can give information about the programs, services, and activities they conducted in the year. This shows that the organization thinks about the welfare of society.
Building public trust
Donors and funding agencies frequently check the form before giving or donating to organizations. A full and accurate report may contribute to an organization’s confidence in managing its resources.
How can nonprofits prepare for Form 990 filing?
Here are a few ways which help nonprofit organizations in staying compliant with the preparation process of Form 990:
- Maintain bookkeeping records
- Track donations and grants
- Reconcile accounts regularly
- Review governance policies
- Gather board and compensation information
What are Form 990 filing requirements?
Here is a list of factors which determine the filing requirements:
- Gross receipts
- Total assets
- Organizational structure
- Type of tax-exempt status
- Applicable IRS filing thresholds
Organizations that commonly have Form 990 filing obligations include:
- Public charities
- Educational organizations
- Community foundations
- Healthcare nonprofits
- Trade associations
- Social welfare organizations
- Private foundations
Which Form 990 filing option is right for your organization?
The right type of form can be filed based on the size, structure, activities, revenue, etc. of the nonprofit.
Let’s go through a list of forms that the IRS provides:
Form 990
Nonprofit organizing entities having assets worth $200,000 or more, and gross receipts worth $500,000 or more file Form 990.
It requires extensive disclosures relating to:
- Financial statements
- Program activities
- Governance practices
- Executive compensation
- Organizational operations
Since so many details are involved, many organizations work closely with CPA firms or nonprofit accounting professionals during preparation.
Form 990-EZ
Organizations with gross receipts below $200,000 and total assets under $500,000 use this version of Form 990 to meet their annual filing requirements.
This shortened version requires less detailed reporting while still providing key financial and operational information.
Form 990-N (e-Postcard)
This filing option is intended for smaller tax-exempt organizations with annual gross receipts that do not exceed $50,000.
This electronic filing requires only basic organizational information and is a simple annual reporting method.
Form 990-PF
Private foundations are generally required to submit Form 990-PF each year, regardless of their revenue, assets, or overall size.
The filing includes information related to:
- Investments
- Charitable distributions
- Assets
- Foundation operations
Form 990-T
Organizations that get income from activities unrelated to their tax-exempt purpose can submit Form 990-T.
Examples can include:
- Advertising revenue
- Certain sponsorship arrangements
What information does Form 990 include?
Form 990 provides a detailed overview of a nonprofit organization’s activities.
It includes information such as:
Organizational information
Basic identifying details such as:
- Legal name
- Employer Identification Number (EIN)
- Address
- Tax-exempt status
- Mission statement
Revenue information
Organizations report revenue received from sources such as:
- Donations and contributions
- Grants
- Program service revenue
- Membership dues
- Investment income
Expense information
The return also outlines major expenditures, including:
- Program-related expenses
- Administrative expenses
- Fundraising costs
- Occupancy and operational costs
Governance & management information
The form contains several questions on topics such as governance practice, board oversight, conflicts of interest, and many more.
Compensation reporting
Organizations often need to show compensation paid to executives, directors, trustees, and other key personnel.
Program service accomplishments
This section provides non-profits with a way to share information about their largest initiatives and to share how they help to advance the nonprofit’s mission.
Is Form 990 public information?
Yes. Form 990s are records made available to the public.
This disclosure shows transparency in the nonprofit sector, boosting stakeholder confidence to make decisions.
Here is the list of who all look at Form 990 filings:
- Donors
- Grantmaking organizations
- Researchers
- Journalists
- Regulators
- Prospective board members
These returns are available online. Thus, nonprofits need to keep in mind that Form 990 is a compliance document and a communication vehicle.
Why Form 990 matters to donors & grantmakers
Many donors review Form 990 before making significant contributions.
The return doesn’t contain information like marketing materials or fundraising campaigns, but information that is consistent across organizations.
Stakeholders often analyze:
- Program spending levels
- Revenue trends
- Financial stability
- Executive compensation
- Governance practices
- Organizational growth
Due diligence, which is regularly a part of grantmaking organizations’ screening process for funding requests, often involves Form 990 reviews.
Thus, the filing serves both as a compliance document and as a public credibility document.
When is Form 990 filed?
Form 990s are typically filed on an annual basis by organizations.
The due date falls on the 15th day of the 5th month of the organization’s tax year. For a calendar year organization, the date is May 15.
Deadlines and extension guidelines may vary based on the conditions, so organizations should check the IRS guidelines every year to ensure compliance.
What happens if a nonprofit fails to file Form 990?
Failure to properly fill out Form 990 can lead to serious compliance problems.
These may include:
- IRS penalties
- Additional regulatory scrutiny
- Compliance challenges
- Increased administrative burdens
- Loss of good standing
If the filing is consistently late by the organization, there may be more ramifications, such as tax-exempt status risks.
That’s why it’s crucial for nonprofit managers to set up systems that ensure proper monitoring of reporting needs and the complete documentation of funds.
The growing importance of Form 990
In the nonprofit world today, there is a growing demand for transparency and accountability.
Donors are interested in knowing where their money is going. Often, grantmakers will ask for a lot of financial information before giving out a grant. Board members must have the information they need to perform their oversight function.
Form 990 helps satisfy all three objectives.
When done correctly, it shows compliance, it talks about the organization’s financial stewardship, and it makes the impact of the organization more transparent to stakeholders.
It’s not just an IRS requirement for many nonprofits. It’s one of the many documents that an organization produces each year, and it’s one of the most visible ones.
Let’s put it this way; someone who wishes to give a donation might never have direct conversations with the leaders. This is where Form 990 will display financial statements of how much money is raised, where it is spent, etc. These are numbers, but they tell a larger story of service, selflessness and the power that a nonprofit can have year after year.
Frequently Asked Questions
This Form is an annual return. It is also a financial, operational, and governance report that must be filed with the IRS by nonprofits.
The form helps the IRS monitor compliance and provides a transparency tool for donors, and the community to learn about a nonprofit’s work and finances.
Most tax-exempt organizations must file a version of Form 990. The type of form depends on the size, revenue, assets, and classification of the nonprofit.
Yes. Most of the Form 990 filings are available to the public, so that stakeholders can see financial and operational data of the nonprofit.
The form includes revenue, expenses, assets, compensation of leaders, governance information and explanations about key programs and activities.
