Nonprofit Form 990 Instructions in Plain English
Recent news reports on nonprofits have pointed out many nonprofits are at risk of losing their 501(c) (3) status. This is primarily due to organizations not filing their annual report with the IRS. In 2006 the Pension Protection Act implemented a rule requiring nonprofits with under $25,000 in income to file an annual report with the IRS (Internal Revenue Service) US Department of Treasury. This is a big departure from previous years as these organizations and certain churches were not required to file any annual report.
With this act organizations that have not filed for three consecutive years will lose their 501(c) (3) status. Many nonprofits are unsure of what forms they should file, though. The IRS currently has three forms: the 990-N, 990 EZ, and the 990. To put these forms in a perspective most individuals can understand: the 990-N could be likened to the 1040-EZ, the 990 EZ would be like the 1040-A, and the 990 would be the 1040. Most individuals who have ever filed their taxes know that each form becomes more difficult as you progress through them. Each 990 form has specific guidelines to determine which form the organization may file.
Read More: Form 990 Instructions, Types and Qualifications
The 990-N is an electronic filing that can only be filed by 501(c) (3) organizations that have income under $50,000. This does not mean your net income (income – expenses) is under $50,000. The 990-N is only for organizations with gross income (income before expenses) under $50,000. Also, organizations that are still in the process of getting their 501(c) (3) status cannot file the 990-N regardless of their income. When the IRS approves an organization it is added to the IRS database and only then can an organization complete the 990-N. The Department of Treasury accepts 990-N filings with ease, however it is important to note that moving forward in a 990-EZ allows for more financial data, history, and reference regarding items such as audits, investors and the community.
The second level of IRS annual reports for 501(c) (3) organizations is the 990-EZ. As seen on the IRS website, the IRS revised the 990-EZ and the 990 in 2007 to make financial information more transparent to the public. The IRS chose to do this in three stages in an attempt to make it an easier transition for nonprofits. In 2008, organizations that brought in more than $25,000 but less than $1 million could file the 990 EZ. These organizations also could not have assets valued at more than $2.5 million. Organizations exceeding $1 million in income and/or $2.5 million in assets had to file a 990. For the 2009 tax year the IRS constricted the income and assets guidelines. Organizations that brought in more than $25,000 but less than $500,000 with assets valued at under $1.25 million could file a 990 EZ. The organizations that exceeded these thresholds must file the 990. In 2010 the guidelines reach the final restriction level. Organizations with income over $50,000 but under $200,000 and assets under $500,000 can file the 990 EZ. This means that starting with the 2010 tax year organizations under $50,000 can file the 990-N and organizations over $200,000 in income and/or assets over $500,000 file the 990.
Read More: Form 990, Nonprofit Resources
As indicated on the IRS website, each of these forms requires certain information to be completed. The 990-N requires the least amount of information as it asks for the organization’s name, any DBA names, address, phone number, contact person and their address; and an affirmation that income was under $50,000. This form does not include financial information so organizations eligible to file this form that want to apply for grants may want to consider filing the 990 EZ. Many grant makers want to see a completed 990 EZ or 990 as a way of looking at the organizations financial information.
The 990-EZ form requires considerably more information than the 990-N. In this form the organization provides the basic information about its name, any DBA names, address, phone number, contact person and their address. The form also answers numerous questions about the organization and its activities; provides the board of directors’ names, addresses, and any information on compensation; and provides the income and expenses for the organization. With this form every organization must complete the 990 Schedule A and dependent on answers to certain questions may complete additional schedules. With the 990, the organization will provide much of the same information as it would on the 990-EZ. The biggest difference is the organization must provide more extensive information on its income, expenses, assets, and liabilities.
Read More: Form 990 Filing Instructions, Compliance for Grant Writing
The IRS now requires all organizations, except qualified churches, to submit some form of annual report. These reports assure the IRS the organization is still active and operating. Organizations that fail to file the forms for three consecutive years will face the loss of their 501(c) (3) status; losing their tax exempt status and deductibility of donations made to the organization. Which form the organization files depends on the income for the organization and the assets it has. As the organization’s income and assets grow it will be required to submit more complex forms. If your organization is unclear how to complete these forms you should contact a professional such as a CPA, bookkeeper, or other professional knowledgeable on these forms. These individuals are trained to complete the forms correctly and may be able to provide information on what the organization could do better. Lastly, some organizations may also need to submit annual returns for income tax and/or charity registration proposes to their state of incorporation, and the deadline dates vary from state-to-state.
If you are even in need of IRS Form 990 Instructions, visit the IRS website or seek a professional – like CharityNet USA – to complete your compliance documents and submit your 990-N to the Department of Treasury. You can also attain the same forms from the IRS website at your local post office or public library. There is no reason for your nonprofit to loose its 501c3 status due to a lack of compliance.