It is the responsibility of most nonprofits and charitable organizations who are recognized as tax-exempt to file their annual information return with the IRS using Form 990. The Form 990, which is public, gives an easy way for donors and other individuals who are interested in supporting a particular cause to search and evaluate the best charities to support. In a way, the 990 can be a public relations tool for charities and proper precaution needs to be taken to make sure that it is filled out correctly and carefully.
An organization can verify its mission on the 990 and provide details about its accomplishments of the previous year. It can be easy for a donor to find out where the group earns its revenue. It provides an organization a view about how much sustainable the charity can be. A potential employee will know how well the nonprofit pays for them. And a potential board member can view who else is already on the board and what the charity's cash reserves is used for and looks like. All these information and more can be found on the 990. This makes the 990 form useful for those individuals who are doing research on nonprofits. This fact makes it even more important that a nonprofit spend a huge amount of time and energy to fill out their 990 carefully and on time.
Definition Of Tax-Exempt Status & Its Advantages
The term tax-exempt status refers to an organization which is exempted from filing federal income tax under the Section 501(c)(3) of the IRC (Internal Revenue Code). For being exempted from making any payments related to income, local or state business sales, and property taxes, you need to get separate tax exemption from the government. Most of the time, getting a federal tax exemption will automatically provide you with state income tax exemption and makes it easy for you to get property and sales tax exemption from local as well as state government.
Do you know that tax-exempt status is provided by the IRS to various organizations like state and federal credit unions, social welfare organizations, title holding companies, fraternal organizations, recreation and social clubs, and child care organizations? There are many tax exempt statuses which are available for organizations like 501c1, 501c2, 501c3 through 501c25. Among these, the 501c3 is the most common and required status for nonprofits.
Benefits & Advantages of Tax Exempt Status
The following are the benefits of having a tax-exempt status -
- Tax-deductible contributions
- Exemption from federal income tax
- Reduced postal rates
- Exemption from sales, state income, and employment taxes
- Tax-exempt financing
- Exemption from federal unemployment taxes
Annual Filing Requirement for Tax Exempt Organizations?
Tax exempt organizations covered under the Section 501(c)(3) don't need to pay their taxes but they must file information on the expenses and income for the given accounting period, either by filing Form 990, Form 990-N, Form 990-EZ or Form 990-PF for maintaining the tax exempt status.
Form 990
For filing Form 990, exempt organizations need to have total assets less than $500,000 and gross receipts less than $200,000.
Form 990-EZ
Exempt organization having gross receipts less than $200,000 and total assets less than $500,000 need to file Form 990-EZ. Even an organization can voluntarily file the Form 990.
Form 990-N (e-Postcard)
Tax exempt organizations having gross receipts less than or equal to $50,000 need to file Form 990-N as there is no paper form available for Form 990-N.
Form 990-PF
Form 990-PF is filed by non-exempt charitable trust as well as exempt and taxable private foundations.
Information Required to file 990 Forms
There are certain information which needs to included to file 990 online -
General Information
This consists of basic details like the EIN, name of the organization, details of the board of directors (like names, working hours per week, positions, remunerations), phone number, mailing address, website, and email.
Financial Details
Here you need to add the list of the gross expenses and revenues, balance sheet, contribution of the board of directors, list of the individuals or organizations who have contributed more than $5,000 in the past year (their names and mailing address).
Exempt Purpose & Accomplishment
You need to add the details of the exempt purpose and accomplishment and other information based on the organization’s activities.
Schedules Filed Along With Form 990
| Schedule A | Organizations who are filing Form 990-EZ or Form 990 need to use this schedule to provide the required information about the public support and public charity status. |
|---|---|
| Schedule B | This schedule is filed by the organization to provide information related to the contributions reported on Form 990-EZ, 990-PF, and Form 990. |
| Schedule C | Section 527 and Section 501(c) organizations use Schedule C to disclose the additional information related to lobbying activities and political campaign activities. |
| Schedule D | The Schedule D is used by organization to provide the required reporting of donor advised funds, certain arts and museum collections, conservation easements, custodial arrangements and escrow accounts, supplemental financial information and endowment funds. |
| Schedule E | Schools who file 990-EZ Online or Form 990 must use this schedule E for reporting the information about private schools. |
| Schedule F | Organizations filing Form 990 often use this schedule for providing information on activities which are conducted outside the US at any time of the tax year. |
| Schedule G | This schedule is used by organizations which file Form 990-EZ or Form 990 to provide information about the fundraising events, professional fundraising services, and gaming. |
| Schedule H | This schedule is used by hospital organization to provide information on policies and activities and community benefits provided by hospital facilities and other non-hospital health care facilities which are operated in the given tax year. |
| Schedule I | Organizations who are filing Form 990 would use this schedule for providing information on grants and other assistance which are made by the filing organization in a given tax year to governments, organizations and individuals present in US. |
| Schedule J | This schedule is used by organizations who are filing Form 990 for reporting the compensation information for directors, certain officers, key employees, individual trustees, and information about certain compensation practices. |
| Schedule K | Organization who are filing Form 990 will use this schedule to provide information about their outstanding liabilities which are associated with the tax-exempt bond issue. |
| Schedule L | Organizations who are filing nonprofit tax return Form 990-EZ or Form 990 use this schedule for providing information related to certain financial arrangements or transactions among organization and disqualified individuals under the section 4958 or other interested individuals. Also, this schedule is often used for determining if the member of the governing body of the organization is an independent member or not. |
| Schedule M | Those organizations who are filing Form 990 will use this schedule for reporting the various non-cash contributions which they get in a given tax year and information regarding these contributions. |
| Schedule N | The Schedule N is used by organizations who file 990-EZ Online form or Form 990 to report the information related to the closure of the business or disposition of more than 25% of their net assets by sale, contraction, exchange or other kinds of disposition. |
| Schedule O | This schedule is used by organizations who file Form 990 or Form 990-EZ for providing the IRS with the required and narrative details about the response to certain specific questions present in 990-EZ and 990. Rather than using a separate attachment, this schedule describes the operations of the organization or responses to various questions. |
| Schedule R | Organizations who file Form 990 will use this schedule to provide information on certain transaction with related organizations and certain unrelated partnerships through which they perform significant activities. |
Extension Of Time To File 990 Forms
For getting an extension of time to file Form 990, you need to file Form 8868. Form 8868 provides an automatic extension of six months to file your form 990.
Learn moreAutomatic Revocation of Tax Exempt Status
The organization doesn’t file its annual tax return for three consecutive years, then the tax-exempt status will be automatically revoked.
Organization which loses the exempt status will need to file their income tax return and also make payment for income tax. However, they can easily apply for reinstatement of the exemption.
How to get the tax exempt status again after the exempt status revoked?
In order to get the exempt status back, you need to re-apply by submitting Form 1023, 1023-EZ, 1024, 1024-A along with the appropriate user-fee not later than 15 months after the later of the date of the Revocation Letter (CP-120A) of the organization or the date when the organization appeared on the revocation list of the IRS.
