- Do all nonprofits need to file a Form 990?
- What is the filing deadline?
- Is the Form 990 an income tax return?
- Do all nonprofits need to disclose the highest paid employees’ salaries?
- Does the IRS target organizations with accumulated operating reserves for audits?
- Is my chance for audit greater if I file an extension or e-file?
- Are all IRS examinations alike?
Have you ever asked any of these questions? Let’s look at them one by one.
Do all nonprofits need to file a Form 990? No. Most small tax-exempt organizations whose annual gross receipts are normally $50,000 or less are required to electronically submit Form 990-N, also known as the e-Postcard, unless they choose to file a complete Form 990 or Form 990-EZ instead. If you do not file your e-Postcard on time, the IRS will send you a reminder notice. There is no penalty assessment for late filing the e-Postcard, but an organization that fails to file required e-Postcards (or information returns – Forms 990 or 990-EZ) for three consecutive years will automatically lose its tax-exempt status. The revocation of the organization’s tax-exempt status will not take place until the filing due date of the third year.
What is the filing deadline? Form 990’s must be filed by the 15th day of the 5th month after the organization’s accounting period ends (May 15th for a calendar-year filer, November 15th for those with June 30th year-ends). If the regular due date falls on a Saturday, Sunday, or legal holiday, file on the next business day. Use Form 8868, Application for Extension of Time to File an Exempt Organization Return, to request an automatic 3-month extension of time to file. Use Form 8868 also to apply for an additional (not automatic) 3-month extension if the original 3 months was not enough time. To obtain this additional extension of time to file, the organization must show reasonable cause for the additional time requested. If both extensions were utilized, returns would be due as late as 11 months and 15 days after the year-end. Watch out for state filing requirements, if applicable, since these may be different than federal deadlines.
Is the Form 990 an income tax return? No. The Form 990’s are used by tax-exempt organizations, nonexempt charitable trusts, and IRC §527 political organizations to provide the information required by IRC §6033 to the IRS. A Form 990-T, Exempt Organization Business Income Tax Return is an Income Tax Return – the form used to report unrelated business income and compute any related income tax liability on this income. The Forms 990 and 990-T for 501(c)(3) organizations are both generally available for public inspection. The public can use these forms as a source of information about a particular organization.
Do all nonprofits need to disclose the highest paid employees? Yes, The Form 990 Part VII and related Schedule J requires the listing of the organization’s current or former officers, directors, trustees, key employees, highest compensated employees, current independent contractors, and reporting of certain information related to such persons.
Does the IRS target organizations with accumulated operating reserves for audits? Unfortunately, the IRS does not reveal what triggers an audit of any tax exempt organization. The IRS website includes the following as possibilities for examination selection:
- IRS examination initiatives and projects.
- Complaints (referrals from current or former employees or others) about potential noncompliance with the tax law.
- Risk modeling from the revised Form 990.
- Related examinations – Returns may be selected for audit when they involve issues or transactions with other taxpayers, such as business partners or investors, whose returns were selected for audit.
- Document matching – Returns may be selected when payer records, such as Forms W-2 or Forms 1099, don’t match the information reported.
- Certain claims for refund or requests for abatement that require further review.
Is my chance for audit greater if I file an extension or e-file? No. There is no evidence that organizations filing extensions or e-filing their Form 990 are more likely to be audited.
Are all IRS examinations alike? No. There are different types of examinations which include both an audit and compliance check.
An audit may include a review of:
- Whether an organization timely filed all returns and forms,
- Whether all returns and forms are complete and accurate,
- Whether an organization’s activities are consistent with its stated tax-exempt purpose,
- Whether all excise tax, employment taxes and unrelated business income tax, if applicable, have been property reported and paid,
- Whether an organization complied with disclosure requirements for applications for exemption, and fundraising solicitations and events.
A compliance check may include review of the following items:
- Whether an organization is adhering to recordkeeping and information reporting requirements,
- Whether an organization’s activities are consistent with its stated tax-exempt purpose.
If you have any questions about this article, or would like to discuss your nonprofit, please contact us at (908) 782-7900 or email firstname.lastname@example.org. Part II of our series Nonprofit Myths and Legends will cover financial reporting topics.