Time for a quiz. True or false – 501(c)(3) tax-exempt organizations do not have to file a tax return?
False! Tax-exempt organizations do not have to pay taxes on the money that they raise, but the IRS still wants to keep its eye on these groups, including how much money they are raising and what they are spending it on.
It wasn’t always this way, however. Reporting your income as a 501(c)(3) wasn’t required until Congress passed the Pension Protection Act of 2006 (https://www.gpo.gov/fdsys/pkg/PLAW-109publ280/pdf/PLAW-109publ280.pdf) making it mandatory that the IRS collect financial information from all tax-exempt organizations. Much of the reason was to keep an updated record of these organizations – things like address changes and contact information – and allow the IRS to delete inactive organizations from its master list of tax-exempt organizations.
What is Form 990 and when is it due?
When you and I file our personal taxes, we use some variation of Form 1040; a for-profit corporation files Form 1120. A tax-exempt group files a Form 990 and there are three types: 990N, 990EZ, or 990 full. All 990’s, no matter which you file, are due on the 15th day of the 5th month following the end of your fiscal year. For example, if your fiscal year runs January to December, your 990 tax return is due on May 15th; if your fiscal your runs from June to July, your 990 return is due December 15. Failure to file a 990 by its due date for three consecutive years will result in the IRS revoking your tax-exempt status.
Which form do I file?
The determining factor for which form to file is your gross income - the total amount your organization receives from all sources during its fiscal year, without subtracting any expenses.
- If your organization raises $50,000 or less, you file Form 990-N, also known as e-Postcard.
- For organizations with gross receipts above $50,000 but less than $200,000, and total assets are less than $500,00, form 990-EZ is used.
- A Full 990 is required if the gross receipts are over $200,000, or your total assets are over $500,000.
What other information is reported on the 990?
The IRS wants to ensure the organization is worthy of sustaining its tax-exempt status. The form 990 requests information on how the organization is operated, the names of the officers, and anyone involved in its supervision. It’s in your best interest to keep a keen eye on your expenses, documenting if the purpose the expense supports your tax-exempt purpose or was a fundraising or administration expense.
So, the next time you hear someone say, “I don’t need to file a tax return because we are tax-exempt”, you can tell them in your deepest, darkest, scariest voice, “No one hides from the IRS. Not even tax-exempt organizations.”