What Is Form 990 and Why It’s Important for Nonprofits to File a 990 Tax Return?

105(c)(3) organizations may be tax-exempt, but they need to file an information form with the IRS, known as Form 990. The form ensures that nonprofits continue to conduct their business in a way that is consistent with their beneficial or charitable goals. Officially, Form 990 is known as the Return of Organization Exempt From Income Tax in the United States. If you want to know more about what a Form 990 is and why it is important for nonprofit organizations to file a 990 tax return even after acquiring the tax-exempt status from the IRS, then keep reading!  

What is Form 990?

Form 990 is an IRS form that every nonprofit organization must file every year. The form collects financial information of the nonprofit and helps the IRS make sure that nonprofits do not exploit their tax-exempt status.

Once filed with the IRS, Form 990 becomes a public record, allowing individuals and other organizations to look up the finances of a nonprofit. Form 990 has three main variants, which can be filed in place of Form 990.    

  • Form 990-EZ: Certain organizations with total assets less than $500,000 and gross receipt less than $250,000 may file this form.
  • Form 990-N: This form is generally filed by small organizations with annual gross receipts less than or equal to $50,000.   
  • Form 990-PF: This variant of Form 990 is filed by private foundations.

What Happens If You Don’t File Form 990?

Form 990 must be filed by the fifteenth day of the fifth month after the accounting period of an organization ends. Failing to file Form 990 on time can lead to a penalty.

Organizations with gross receipts less than $1,000,000 for their tax year files are penalized $20 per day for each day the return is late. The maximum penalty is 5% of the organization’s gross receipt or $10,000, whichever is less.  Organizations that have gross receipts greater than $1,000,000, the penalty is increased to $100 per day, to a maximum of $50,000. There are penalties for other acts, too, such as hiding or withholding information.

Organizations can lose their tax-exempt status in case they fail to file an information return for three consecutive years. However, the tax-exempt status may be reinstated if the organization is able to produce a reasonable cause for failing to file the annual returns or notices for three years.

Keep in mind that the IRS will return your Form 990 if it is incomplete or incorrect. Your form may be returned by the IRS if it is incomplete or missing schedules. This makes it important to consult a document filing service to ensure effective filing. The experts can also help you choose the right variant of Form 990 based on your organization.  

Why Is It Important for Nonprofits to do a 990 Tax Return?

Filing Form 990 annually is fundamental to maintain the tax-exempt status of a nonprofit organization. However, this is not the only reason why it is important for nonprofits to file a 990 tax return. 

· Increase Nonprofit’s Credibility

As Form 990 is made public, it is an easy way for donors to find the best charities that support their cause. Plus, its availability of financial information works to increase the credibility of the nonprofit, making it easier for donors to trust the nonprofit with their donations.  

· A Public Relation Tool

Form 990 can act as a powerful PR tool for charities. You can clarify your mission and include the previous accomplishments of the nonprofit to persuade donors to support your cause. If it is filled properly, it can help increase donations and monetary funds.    

· Acquire Grants

Foundations can view the financial information of your organization to gauge how sustainable your charity may be. If your figures are good, your chance of acquiring grants will increase significantly.

Information Required for Form 990

Here’s a list of basic information that is required to file Form 990.

  • Legal name of the organization: The name of the organization stated in the articles of incorporation. 
  • DBA names: These are the secondary names that may be used to refer to the organization. They are commonly known as Doing-Business-As names.
  • Mailing Address: The current mailing address of the organization.
  • EIN: The Employer Identification Number of the nonprofit.
  • Information regarding Principal Officers: Name, address, and other information of the principal members of the organization, such as president, vice president, treasurer, secretary, etc.
  • Annual Tax Year: It refers to the accounting period of 12 consecutive months. A tax year is specified in the by-laws and can be a fiscal year or calendar year. Books and reports of the annual tax year are required.
  • Gross receipts: The total amount an organization received during the annual tax year.  

Other information may also be required. For instance, you may be required to clarify the nonprofit’s mission and goals, along with your previous accomplishments. Due to recent revisions, the form also collects information regarding any potential conflict of interest. Other information pertaining to financial accountability, such as compensation for employees and board members, may also be required.   

The Bottom Line

Now that you know what Form 990 is and why it’s important for nonprofits to file a 990 tax return, make sure you file it on time every year. However, keep in mind that this form is publicly available, which is why it must be filled correctly, diligently, and considerately. This is where A2Z Filings experts can help you.  If you want to file Form 990, then contact us today or visit our website to learn more about our services.