IRS Form 990 is a crucial document for tax-exempt organizations, providing transparency about their finances, governance, and activities. Whether you are a nonprofit leader or a member of a tax-exempt group, understanding Form 990 is essential to ensure compliance and maintain your organization’s credibility. Here, we break down everything you need to know about Form 990 in 2024, including what it is, instructions for completing it, and where to file.
What is IRS Form 990?
IRS Form 990 is an annual tax document required for most tax-exempt organizations under Section 501(c). It serves as a public record of the organization’s financial and operational transparency. Form 990 provides:
- Information on income, expenses, and activities.
- Details about governance and compliance.
- Insights into the organization’s mission and accomplishments.
The form also allows potential donors, grant providers, and regulatory agencies to evaluate the organization’s accountability and financial health.
Why is Form 990 important for nonprofits?
Form 990 serves a greater purpose than simply satisfying IRS requirements, it builds trust among the public. Here is why it matters:
- Transparency: It enables stakeholders and the public to see the uses of donations and resources made.
- Compliance: Filing makes the organization compliant with federal tax laws.
- Public relations: Properly completed Form 990 is a showcase of the organization’s impact and legitimacy.
- Avoiding penalties: Failure to file for three successive years results in automatic loss of tax-exempt status.
Who needs to file Form 990?
Not all tax-exempt organizations are required to file the same version of Form 990. Here is a quick guide:
- Small organizations: Those with gross receipts of $50,000 or less file Form 990-N (e-Postcard).
- Mid-sized organizations: Those with gross receipts under $200,000 and assets under $500,000 may file Form 990-EZ.
- Larger organizations: Those with gross receipts over $200,000 or assets exceeding $500,000 must file Form 990.
- Private foundations: File Form 990-PF.
Some organizations, such as churches and government institutions, are exempt from filing altogether.
How to fill out IRS Form 990
Filling out form 990 is not as hard as it seems. Breaking it into steps simplifies the process. Here’s how to do it step by step:
- Necessary documents: The first step is gathering all financial records, governance policies, and salaries paid to key persons associated with the organization.
- Determine the form to use: Would it be the full Form 990, the shorter 990-EZ, or the really short 990-N?
- Understand the parts:
- Part I: Summarizes the income and expenses of the organization and the changes during the year in net assets.
- Parts II-III: Detail governance and operational descriptions, including mission statement.
- Schedules: Attach those schedules that are applicable, e.g., Schedule A (public charity status) or Schedule B (contributor list).
- Use IRS instructions: Read the instructions for your form very carefully to avoid mistakes.
- Complete and review: Review every entry again. Mistakes can lead to penalties or rejections.
- Sign and file: Have the authorized representative sign the form and electronically submit it.
Where to file Form 990
Since 2019, all Form 990 must be filed electronically through the IRS e-File system. However, they can be prepared and submitted by any authorized commercial tax software or through any tax professional preparer.
In addition, the public can access any Form 990 filed at the IRS or on GuideStar – both venues allow donors and other interested parties to gauge the transparency impact of the organization.
What happens if you fail to file Form 990?
Consequences of failure to file Form 990:
- Loss of tax-exempt status after the third consecutive missed filing.
- Penalties for incomplete or late filings, excluding Form 990-N.
- Damage to reputation because of noncompliance.
The organizations will have to file Form 1023 again and pay relevant fees to get back to being tax- exempt. This is expensive and takes time.
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