Form 990 for the 501(c) Organizations

What is IRS Form 990?

Form 990 is the IRS Return of Organization Exempt from Income Tax. It is the 501(c) equivalent of a corporate tax return…there’s just no tax to be paid.

Which nonprofits must file Form 990?

Most all 501(c) organizations must file some version of Form 990 with the IRS every year (churches are exempt from Form 990).

When is Form 990 filed?

The due date for filing is the 15th day of the 5th month following the end of the organization’s fiscal year. For a 501(c) with a fiscal year ending December 31, the filing due date is May 15. Two extensions of up to 90 days each are possible, though the second is not automatic.

What happens if an organization files late or fails to file at all?

Late filing can result in substantial penalties that could cost your organization thousands of dollars. The IRS assesses a penalty of $20 per day, up to the lesser of $10,000 or 5% of that year’s gross revenue…plus interest. But, even if your organization is facing a penalty, file as soon as possible to minimize the damage. It adds up quickly and can be devastating to a charity.

If a 501(c) organization fails to file Form 990 for 3 consecutive years, the IRS will revoke the organizations tax exempt status.

How difficult is it to prepare?  Can we do it ourselves?

Prior to the 2008 overhaul, Form 990 was rather formidable. Now, some organizations may find their filing requirement has grown 5-fold.  Unless you have substantial experience in nonprofit compliance, we do not recommend trying this on your own.

What about our local CPA?

Most tax professionals limit their core competency to personal and/or corporate accounting and tax compliance. Few have substantial experience working with nonprofit organizations. This lack of specific experience was a handicap even with the old version of Form 990. Now, the changes to Form 990 render the services of most traditional tax practitioners lacking.

Why? It goes back to core competency and the specific changes to Form 990. You don’t hire a dentist to perform back surgery. The dentist is a competent, trained professional - in dentistry. The same is true for nonprofit compliance. With the ever-increasing IRS scrutiny of 501(c) organizations, you simply must have a professional who understands the issues at hand and who can work with and advise your organization properly.

The overhaul of Form 990 is substantial. Now, most of the return deals with compliance issues, governance, structure, procedures and activities - tax law issues that do not have parallels in the personal or for-profit business tax world. The true parallel is now with the original 501(c)(3) application process (Form 1023). The issues that most concern the IRS during the 501(c)(3) approval process are now at the heart of the new Form 990.

Contact me for details: jamccoyjr@gmail.com