Definition and Purpose of Form 990
Form 990 is an informational tax form that certain tax-exempt organizations must file annually with the Internal Revenue Service (IRS) in the United States. This form is designed to provide the IRS and the public with financial information about a nonprofit organization. It serves as a primary source of information regarding an organization's mission, programs, and finances. Nonprofits often use Form 990 to increase transparency, allowing potential donors and supporters to make informed decisions.
Key Components of Form 990
- Part I: Summary - Provides an overview of the organization, including basic details such as name, address, and mission statement.
- Part II: Signature Block - Requires the signature of the organization's officer, attesting to the form's accuracy.
- Part III: Statement of Program Service Accomplishments - Describes the nonprofit's mission and significant activities undertaken during the year.
- Part IV: Checklist of Required Schedules - Determines which additional schedules the organization must complete.
- Part V: Statements Regarding Other IRS Filings and Tax Compliance - Asks about the organization's compliance with additional filing requirements and tax obligations.
- Part VI: Governance, Management, and Disclosure - Provides insight into the organization's governance structure and policies.
- Part VII: Compensation of Officers, Directors, Trustees, Key Employees, and Highest Compensated Employees - Details the compensation received by individuals in leadership and other significant roles.
- Part VIII: Statement of Revenue - Summarizes the organization’s income, segregated by different types of revenue streams.
- Part IX: Statement of Functional Expenses - Categorizes expenses by their nature, such as program services, management, and fundraising.
- Part X: Balance Sheet - Offers a snapshot of the organization’s financial position at the end of the year.
- Part XI: Reconciliation of Net Assets - Reconciles changes in net assets from the beginning to the end of the year.
Filing Deadlines and Important Dates
Organizations must file Form 990 by the 15th day of the fifth month after the end of their fiscal year. For instance, if the fiscal year ends on December 31, the form is due on May 15 of the following year. Nonprofits can request an automatic six-month extension if they require more time to file.
Eligibility and Filing Requirements
Who Must File?
- Exempt Organizations: Most organizations exempt from income tax under section 501(c), except for churches and other religious entities, must file either Form 990, 990-EZ, or 990-N, based on their financial thresholds.
- Government Affiliations: Organizations affiliated with government entities may also be required to file if they act as a separate, tax-exempt entity.
Variations of Form 990
- Form 990-N: Commonly known as the e-Postcard, this form is for small tax-exempt organizations with gross receipts of $50,000 or less annually.
- Form 990-EZ: A shorter version of the Form 990, suitable for organizations with gross receipts less than $200,000 and total assets less than $500,000 at the end of the year.
Completing and Submitting Form 990
Steps to Complete
- Gather Required Information: Ensure all relevant financial and operational data is available, including revenue, expenses, and program accomplishments.
- Select the Appropriate Version: Determine whether to file the full Form 990, 990-EZ, or 990-N.
- Use IRS Instructions: Refer to the IRS instructions for detailed guidance on completing each section of the form.
- Complete Additional Schedules: Fill out any required schedules based on organization activities, as identified in Part IV of the form.
- Review for Accuracy: Verify all entries are accurate and reflect the organization’s records.
- File Electronically: Submit the completed form electronically through an IRS-authorized e-file service provider.
Form Submission Methods
- Electronic Filing: Nonprofits generally must submit Form 990 electronically, as it ensures quicker processing and fewer errors.
- Mail Submission: While electronic filing is encouraged, paper submissions are accepted for organizations with financial hardship or lack of internet access.
IRS Guidelines and Penalties for Non-Compliance
The IRS requires accurate and timely filing of Form 990 to maintain tax-exempt status. Organizations that fail to file the form for three consecutive years automatically lose their tax-exempt status. Additional penalties may be imposed for late filing or inaccuracies, ranging from monetary fines to increased scrutiny by the IRS.
Who Might Benefit from Understanding Form 990?
A diverse range of entities and individuals can benefit from understanding Form 990, including:
- Nonprofit Executives: To ensure compliance and transparency in financial reporting.
- Donors and Grantmakers: For evaluating the effectiveness and efficiency of nonprofit organizations.
- Regulatory Bodies: To monitor and ensure nonprofit sector accountability.
- Financial Analysts: To assess the financial health and sustainability of charitable entities.
Digital vs. Paper Version
With advancing technology, the IRS has increasingly moved towards electronic submissions. Electronic forms reduce errors, offer immediate submission confirmations, and facilitate faster data processing. As a result, while paper submissions are still available, filing electronically is generally recommended for efficiency and accuracy.
Terminology and Key Terms Related to Form 990
- Fiscal Year: The 12-month period for which an organization plans its financial reporting and budgeting, not necessarily aligning with the calendar year.
- Gross Receipts: Total revenue generated before deducting any expenses.
- Net Assets: The total remaining assets after liabilities have been deducted, indicating the organization’s equity position.
Understanding and accurately completing Form 990 can significantly impact a nonprofit's transparency, public perception, and compliance status, thereby supporting its overall mission and effectiveness.
