A Guide to Tax Filing Requirements for Charities and Nonprofit Organizations

Nonprofit Organization

There are many instances of small charities and nonprofits—especially those that are heavily reliant upon the work of volunteers—losing their nonprofit status because they fail to fulfill their annual filing requirements.

To protect your organization’s tax-exempt, nonprofit status, you need to correctly file your annual returns each year.

Generally, most exempt organizations must file annual returns from year to year with a few exceptions. If you do not file your returns, there might be consequences for your organization, including:

  • The IRS can issue costly penalties to your organization.
  • After not filing as required for three consecutive years, your status as a tax-exempt organization is automatically revoked.

Here’s what you need to know about filing your annual returns as a charitable organization or nonprofit.

The Different Types of 990 Forms

Each year, tax-exempt organizations and non-exempt charitable trusts such as charities, nonprofits and section 527 political organizations have to provide certain information to the IRS via a Form 990 filing. These forms are mandated by the Federal government for organizations to disclose information with the IRS as laid out in U.S. Code Section 6033, which imposes reporting and notice requirements for certain tax-exempt organizations.

There are multiple variations of the 990 form:

  • Form 990-N is for small tax-exempt organizations with less than $50,000 in annual receipts.
  • Form 990-EZ can be used by nonprofits with gross receipts of less than $200,000 and total assets less than $500,000.
  • Form 990 is for organizations with gross receipts of $200,000 or greater, or total assets valued at $500,000 or more.
  • Form 990-PF is for private foundations.

In addition to the various types of 990 forms, there are also different schedules corresponding to types of tax-exempt organizations.  Those schedules are:

  • Schedule A: Public charity status and public support
  • Schedule B: Schedule of contributors
  • Schedule C: Political campaign and lobbying activities
  • Schedule D: Supplemental financial statements
  • Schedule E: Schools
  • Schedule F: Statement of activities outside the United States
  • Schedule G: Supplemental information regarding fundraising or gaming activities
  • Schedule H: Hospitals
  • Schedule I: Supplemental information on grants and other assistance to organizations
  • Schedule J: Compensation information
  • Schedule K: Supplemental information on tax-exempt bonds
  • Schedule L: Transactions with interested persons
  • Schedule M: Non-cash contributions
  • Schedule N: Liquidation, termination, dissolution or significant disposition of assets
  • Schedule O: Supplemental information to Form 990
  • Schedule P: Related organizations and unrelated partnerships

To know which forms your organization must submit each year, you can consult the IRS’s filing thresholds page.

Employment and Unrelated Business Income Tax

Although an organization is recognized as being tax exempt, there are some cases in which it still may be liable to pay tax on any annual unrelated business income. What does this mean?

Unrelated business income refers to income that comes from regular trade or business that is not related to the main charitable or educational purpose of your organization’s exemption in a substantial way.

Any exempt charity or nonprofit with $1,000 or more in gross unrelated business income must complete and submit Form 990-T. Additionally, these organizations are also required to pay estimated tax if they expect their tax for the year to be at or above $500. 

In addition to unrelated business income tax, exempt charities and nonprofits that have employees must also manage the following responsibilities:

  • Federal and state income tax withholding
  • Social Security
  • Medicare taxes

In some instances, tax-exempt organizations must also file federal unemployment tax.

Common Nonprofit Filing Mistakes

Nonprofit and charitable organizations need to be careful about filing their returns accurately so as not to complete the wrong form or submit incorrect information.

What frequent mistakes do tax-exempt organizations make when filing 990 forms?

  • Filing the incorrect 990 form
  • Making an error on employee identification numbers, tax periods and group identification numbers
  • Failing to complete all parts of the 990 form
  • Forgetting to sign the return (Form 990-T cannot be electronically filed)
  • Including extraneous personal identification that is not required by the IRS
  • Not completing all applicable and necessary schedules for your organization

If your 990 form has not been completed accurately, the IRS will send your form back with a code alerting you to your errors, which is located in the upper right-hand corner of the letter. The codes are designed to let you know what information is needed as follows:

  • Letter 2694C Returning Form 990 indicates that there is missing information on Form 990.
  • Letter 2695C Returning Form 990-EZ informs the recipient that there is missing information to Form 990EZ.
  • Letter 2696C Missing Information Request to Process is a form requesting permission to process your tax-exempt organization’s return as is.

If an organization receives a letter that indicates a potential error, the charity or nonprofit needs to take the following steps:

  1. Provide any missing information and sign the return or file a new, completed, accurate return including a signature.
  2. Include a photocopy of the letter sent by the IRS with your completed return.
  3. Attach a reasonable cause explanation sharing why all the required information wasn’t included in your initial return.

Failure to submit missing information and a reasonable cause explanation within 10 days of the date on the IRS’s letter can result in penalties.

Note that the date the IRS receives your correct and complete return is the date they consider your return to be “filed,” which can result in a late filing status.

Frequently Asked Questions

Are there any organizations that are exempt from having to file a Form 990 annual return?

The following tax-exempt organizations do not have the responsibility of filing an annual information return:

  • Organizations that are affiliated with a church
  • Government organizations

Additionally, an organization with receipts and assets at or below $50,000 may be required to file an annual electronic return (an e-postcard) but isn’t required to file a regular Form 990 or a 990-EZ.

What can happen if my Form 990 is filed late?

If your charity or nonprofit’s gross receipts are less than $1,000,000 and you file after the due date, the IRS will issue a penalty of $20 per day up to $10,000 or 5 percent of your gross receipts.

If your gross receipts are greater than $1,000,000 and you file past the due date, the penalty grows to $100 per day with a $50,000 maximum penalty.

Additionally, if your organization does not file the correct required 990 form or an e-postcard (for those who qualify) three tax years in a row, you will lose your tax-exempt status.

My tax-exempt organization is small. Do I need to file an annual return?

If your annual gross receipts are typically $50,000 or below, you can meet your annual reporting requirements by submitting Form 990-N electronically if you have decided not to file Form 990 or Form 990-EZ. You can learn more about filing requirements for smaller charities and nonprofits here.

By filing your Form 990 paperwork correctly each year and submitting it on time, you can protect your tax-exempt organization from losing its nonprofit status and avoid IRS-issued penalties. Our team of qualified, expert, certified public accountants can guide you through the process to alleviate the stress and hassle of preparing your annual return.

It’s time to focus on what matters most: your charitable work. Let us manage your Form 990 filings so you can get back to your passions. Contact us today to learn more.