Understanding IRS Form 990: An Essential Guide for Non-Profit Organizations

For example, an organization should check this box when it has ceased operations and dissolved, merged into another organization, or has had its exemption revoked by the IRS. An organization that checks this box because it has liquidated, terminated, or dissolved during the tax year must also attach Schedule N (Form 990). The organization can file an amended return at any time to change or add to the information reported on a previously filed return for the same period. It must make the amended return available for inspection for 3 years from the date of filing or 3 years from the date the original return was due, whichever is later. A public charity described in section 170(b)(1)(A)(iv), 170(b)(1)(A)(vi), or 509(a)(2) that isn’t within its initial 5 years of existence should first complete Part II or III of Schedule A (Form 990) to ensure that it continues to qualify as a public charity for the tax year.

What are the penalties for late filing or incorrect filing of Nonprofit Form 990?

In both Example 1 and Example 2, the organization would need to report the $5,000 value of this contribution on Schedule M (Form 990) if it received over $25,000 in total noncash contributions during the tax year. Enter on line 1g the value of noncash contributions included on lines 1a through 1f. If this amount exceeds $25,000, the organization must answer “Yes” on Part IV, line 29, and complete and attach Schedule M (Form 990). Don’t net losses from uncollectible pledges from prior years, refunds of contributions and service revenue from prior years, or reversal of grant expenses from prior years on line 1. Rather, report any such items as “Other changes in net assets or fund balances” on Part XI, line 9, and explain on Schedule O (Form 990). X gives instructions to staff for the radiology work X conducts, but X doesn’t supervise other U employees, manage the radiology department, or have or share authority to control or determine 10% or more of U’s capital expenditures, operating budget, or employee compensation.

Accounting Periods

• Adhering to good governance practices, such as effective board oversight and contract approval processes, enhances tax compliance and maintains public trust.
• Don’t include on line 6a rental income related to the filing organization’s exempt function (program service).
• The 5% test is applied on a partnership-by-partnership basis, although direct ownership by the organization and indirect ownership through disregarded entities or tiered entities treated as partnerships are aggregated for this purpose.
• If the organization reports a loan payable on this line, it must answer “Yes” on Part IV, line 26.
• The 990 is the tax form the Internal Revenue Service (IRS) requires all 501(c)(3) tax-exempt charitable and non-profit organizations to submit each year.

For each person required to be listed, enter the name on the top of each row and the person’s title or position with the organization on the bottom of the row. The use of a leasing company, common paymaster, payroll/reporting agent, or other payroll service provider doesn’t relieve an employer of its obligation for employment tax liabilities. The IRS strongly suggests that the organization doesn’t change its address to that of its payroll service provider or other third-party payer. Doing so could limit the organization’s ability to stay informed of tax matters, because the IRS sends correspondence regarding problems with an employer’s account to the employer’s address of record. Alternatively, an employer may grant permission for a third-party payer to receive copies of IRS correspondence by using Form 8822-B; Form 2848, Power of Attorney and Declaration of Representative; or Form 8655, Reporting Agent Authorization, as appropriate. If “Yes,” describe on Schedule O (Form 990) the organization’s practices for monitoring proposed or ongoing transactions for conflicts of interest and dealing with potential or actual conflicts, whether discovered before or after the transaction has occurred.

Highlights of IRS Form 990

• All filers can supplement their answers to other Form 990 questions on Schedule O (Form 990).
• For a game to meet the legal definition of bingo, wagers must be placed, winners must be determined, and prizes or other property must be distributed in the presence of all persons placing wagers in that game.
• Coin-operated gambling devices include slot machines, electronic video slot or line games, video poker, video blackjack, video keno, video bingo, video pull tab games, etc.
• Program service revenue also includes income from program-related investments.
• Also, D doesn’t qualify as an independent member of the organization’s governing body because D receives indirect financial benefits from the organization through M that are reportable on Schedule L (Form 990), Part IV.

The organization is required to answer “Yes” on line 29 if it received during the year more than $25,000 in fair market value (FMV) of donations, gifts, grants, or other contributions of property other than cash, regardless of the manner received (such as for use in a charity auction). Also answer “Yes” if, under the circumstances described in the instructions for Part VII, Section A, line 5, the filing organization had knowledge that any person listed in Part VII, Section A, received or accrued compensation from an unrelated organization for services rendered to the filing organization. On Form 990, Part VIII, column A, add line 6b (both columns (i) and (ii)), line 7b (both columns (i) and (ii)), line 8b, line 9b, line 10b, and line 12, and enter the total here. See the exceptions from filing Form 990 based on gross receipts and total assets as described under General Instructions, Sections A and B, earlier. Check this box if the organization has terminated its existence or ceased to be a section 501(a) or section 527 organization and is filing its final Accounting For Architects return as an exempt organization or section 4947(a)(1) trust.

Remuneration paid to a covered employee includes any remuneration paid by a related organization. Answer “Yes” on line 14a if the organization received any payments during the year for indoor tanning services. “Indoor tanning services” are services employing any electronic product designed to incorporate one or more ultraviolet lamps and intended for the irradiation of an individual by ultraviolet radiation, with wavelengths in air between 200 and 400 nanometers, to induce skin tanning. All references to a section 501(c)(3) organization on the Form 990, schedules, and instructions shall include a section 4947(a)(1) trust (for instance, such a trust must complete Schedule A (Form 990), unless expressly excepted). If the calculated member income percentage for a section 501(c)(12) organization is less than 85% for the tax year, then the organization fails to qualify for tax-exempt status for that year, and it must file Form 1120, U.S. Corporation Income Tax Return, in lieu of Form 990 or 990-EZ for the year.

What Happens If an Organization Fails to File Form 990 on Time?

Part of net assets of a not-for-profit entity that is not subject to donor-imposed restrictions. A corporation or partnership is domestic if created or organized in the United States or under the law of the United States or of any state or territory. A trust is domestic if a court within the United States or a U.S. territory is able to exercise primary supervision over the administration of the trust, and one or more U.S. persons (or persons in territories of the United States) have the authority to control all substantial decisions of the trust. Services related to the repayment, consolidation, or restructuring of a consumer’s debt, including the negotiation with creditors of lower interest rates, the waiver or reduction of fees, and the marketing and processing of debt management plans.

For a more detailed description of program service revenue, refer to the instructions for Part IX, column (B). In column (B), report all revenue from activities substantially related to the organization’s exempt purposes. Use of revenue for the organization’s exempt purposes doesn’t make the activity that produced the income (for example, fundraising activity) substantially related to the organization’s exempt purposes.

For a short year return in which there is no calendar year that ends with or within the short year, don’t report any information in columns (A) through (C), unless the return is a final return. If the return is a final return, report the compensation paid to the independent contractor(s) under the parties’ agreement during the short year or the compensation that is reportable compensation on Form 1099 for the short year, whether or not Form 1099 has been filed yet to report such compensation. Report the total number of individuals, both those listed in the Part VII, Section A, table, and those not listed, to whom the filing organization (not related organizations) paid over $100,000 in reportable compensation during the tax year. A “current” officer, director, or trustee is a person that was an officer, director, or trustee at any time during the organization’s tax year. A “current” key employee or highest compensated employee is a person who was an employee at any time during the calendar year ending with or within the organization’s tax year, and was a key employee or highest compensated employee for such calendar year.

Outsourcing accounting and tax services preparation to professionals helps nonprofits manage finances efficiently while focusing on their mission. Tax specialists offer tailored strategies enhancing financial health and operational effectiveness. Their expertise ensures accurate financial records and compliance with tax regulations. Preparing a nonprofit’s tax return requires meticulous accuracy and attention to detail. Correct and timely filing of Form 990 is crucial for attracting donors, funders, and corporate partners, demonstrating financial responsibility and transparency.