Small Organizations, Small Task, Big Risk: File Your Form 990 This Week

By Flickr user iowa_spirit_walker (Creative Commons)

US nonprofits that are registered as tax-exempt are required to file a report every year with the IRS. If an organization doesn’t file a report for three consecutive years, its tax-exempt status is automatically revoked. (The tax exemption can be restored, but that’s a convoluted process that no one would get themselves into on purpose.)

Big organizations file a complicated information return called Form 990. Small ones file an “e-postcard” called Form 990-N. If the organization’s fiscal year ends on December 31, then the report is due by May 15th. Friday!

Filing a 990-N is simple; the process is entirely on-line. There is no “paper” version of a 990-N. Lots of information about how to do it is on the IRS website at this link.

2009 is year two of the Form 990-N requirement. As of this week, only 265,000 organizations have filed the required report. There are a lot more groups on the IRS tax-exempt list that haven’t done it yet.

If you’re connected to a nonprofit that has tax-exempt status but normally receives less than $25,000 in revenue each year, you might want to check and make sure the 990-N has been filed. (You can search the list of filings on the IRS website.)

Calendar pages turn over fast. You wouldn’t want to wake up on May 16, 2010, and discover an organization you care about has just lost its tax-exempt status. This is a small task for small organizations, but the risk is a big one. It’s worth a few minutes to make sure the organization you care about is up to date with this filing and can continue to enjoy tax-exempt status for as long as the need exists.

[This blog entry appeared on an older version of Idealist; any broken links are a result of having re-launched our site in Fall 2010.]

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Election Fever: Caution to Politically Sensitive Nonprofits

By Flickr user Talk Radio News Service (Creative Commons)

As the Presidential election in the United States draws closer, people who work at nonprofits are naturally interested. Many nonprofit organizations may have a real stake in the outcome, since nonprofits’ programs are linked in a wide variety of ways to the activities of the federal government.

It’s important to remember that charitable nonprofits in the US are simply forbidden from doing anything with the goal of affecting the outcome of any election, whether for President or for dog catcher. That rule is pretty widely understood. Still, in every election cycle there are complaints that one or another organization has stepped over the line, and the IRS takes such complaints seriously. Even if they turn out to have been groundless, answering their questions can be time consuming, expensive, and stressful. Best just to stand well clear of election excitement and stick to the work that gives meaning to the organization day after day, year after year.

A relatively new cause for concern is the fact that the internet has become such an important part of many nonprofits’ work. If your organization’s site leads a web surfer to a directly partisan one, that’s when you’ll be in trouble. The IRS has just issued a directive on the subject for the officials who investigate complaints. It gives guidance on how to assess whether the rules against participating in campaigning have been broken. The key sentence in the directive reads, “where the facts and circumstances suggest that a section 501(c)(3) organization is using a link between Web sites…to indirectly communicate a message that could well be a violation of the law were it done directly, EO will pursue the case.”

You can download the two-page PDF of the directive here. Web developers and policy staff of organizations that work in politically sensitive areas may want to take a little extra time between now and November to read up on this topic and prevent any appearance of involvement in the election on a charitable nonprofit’s website.

[This blog entry appeared on an older version of Idealist; any broken links are a result of having re-launched our site in Fall 2010.]

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A Refresher: 990s in the Merry Month of May

IRS logo

US nonprofits have to file a report known as Form 990 with the Internal Revenue Service each year. The report is due five months and 15 days after the end of the organization’s fiscal year. Since lots of nonprofits have fiscal years that end on December 31, those organizations will need to file with the IRS this year by Thursday, May 15.

Remember, all 990s are public documents and can be reviewed by anyone. Preparing a complete, accurate and easy-to-read 990 is a simple step in the direction of assuring the community, donors and grant-makers that the organization takes its management responsibilities seriously. Increasingly, organizations are seeing their 990 as an element in their communications planning — it’s technical for sure, and hardly the raw material for a run-away best-seller or an SRO movie, but it’s something anyone can look for online to learn about the organization and its work. That alone makes it worth a second glance before filing, just to be sure it is telling the organization’s story in the most effective way.

There’s been much discussion of change in the Form 990 recently, so a recap of where things stand now may be useful.

  • The Form 990 to use for reporting to the IRS during 2008 is available online at http://www.irs.gov/pub/irs-pdf/f990.pdf. It is not much changed from last year.
  • Organizations with more than $25,000 but less than $100,000 in gross receipts may use Form 990-EZ, which is somewhat simpler to prepare. Form 990-EZ is available online at http://www.irs.gov/pub/irs-pdf/f990ez.pdf.
  • NEW: Organizations with less than $25,000 in gross receipts now must file a simple annual report with the IRS each year. Called the 990-N, this form is available only in an electronic format for e-filing. Read more about the requirements and procedures for Form 990-N at http://www.irs.gov/charities/article/0,,id=169250,00.html.
  • CHANGE: Charitable nonprofits (also known as 501(c)(3) organizations) with more than $1,000 in business income that is not related to their exempt purposes must also file Form 990-T. In the past, the Form 990-T was not subject to public disclosure. Starting in August 2006, the Form 990-T is a public document and organizations must provide a copy to anyone who requests one. Copies can also be requested from the IRS; it recently published guidance for how to make such a request. See http://www.irs.gov/pub/irs-drop/a-08-21.pdf.
  • BIG CHANGES COMING: The Form 990 and the Form 990-EZ are changing. They have both been redesigned for use in 2009 and future years. There are more questions, more data is required, and both forms use a new structure with many schedules that focus on specific data from organizations that do different kinds of work. The redesigned form was published in December 2007. The IRS published draft instructions for the new form on April 7, with a comment period that runs until the first of June. An introduction to the draft Instructions is at http://www.irs.gov/charities/article/0,,id=181089,00.html.

You may want to look at the new instructions and send any comments you have to the IRS before June 1, 2008.

Here are some other things you should be aware of:

  • Transition rules: Because the new forms are complicated and unfamiliar, the IRS is phasing in their use over several years. For the 2008 tax year (returns filed in 2009), organizations with gross receipts less than $1.0 million and total assets less than $2.5 million may file the Form 990-EZ. For the 2009 tax year (returns filed in 2010), organizations with gross receipts less than $500,000 and total assets less than $1.25 million may file the Form 990-EZ. The Form 990-EZ filing thresholds will be adjusted permanently to gross receipts less than $200,000 and total assets less than $500,000 beginning with 2010 tax years. There are also some further transition rules that apply to the use of particular schedules.
  • Electronic filing: Filing your forms online with the IRS increases accuracy, reduces delays, and cuts costs. Congress is encouraging the IRS to bring more and more filing online — and nonprofits are no exception. The 990-N must be filed online; there is no equivalent form that can be printed out and mailed. Certain large organizations are already required to file their 990s online, and the threshold for this requirement is moved lower each year. Any organization is now invited to file online; many firms that prepare 990s use electronic filing programs already. Professionals that prepare 990s and individual organizations may also use the publicly available program at http://www.form990.org, a project of the National Center for Charitable Statistics at the Urban Institute. (There is a sliding scale fee for use of this system with organizations up to $100,000 in gross revenue given access without charge.)

With just over a month before the deadline, I hope you will take the time to make sure your Form 990 tells the story of your organization accurately and well. Good luck!

[This blog entry appeared on an older version of Idealist; any broken links are a result of having re-launched our site in Fall 2010.]

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Shake Up in the Accounting Department: The New 990

US nonprofits of a certain size have had to file a standard form — called Form 990 — with the Internal Revenue Service every year. Until 2006, the design of the 990 and the requirements for filing it changed slowly, if at all, from year to year.

Now, suddenly, nearly everything is new! Only a very few organizations will be able to go ahead and file a 990 covering operations in 2008 without making changes in the way they collect and report the information required. Nearly every organization needs to start preparing now to make sure that the information to meet these new requirements will be ready when the time comes.

The first impact of all this change in the way nonprofits report to the IRS will be in the accounting department. But the impact will quickly spread throughout the field. The accountants will need to ask their colleagues to keep track of everyday information in new ways. Managers will have to get used to new formats for measuring progress and summarizing operations. Outsiders with an interest in the financial operations of nonprofits — whether it’s the one just down the street or statistical profiles of entire industries — will have to learn how to work with the new forms. Journalists and watchdogs, policy makers and researchers, will have lots of new information available to them, and a big chore in connecting the information from 2008 and beyond to what’s already in the history books about America’s nonprofits over time.

During the time the IRS was collecting comments on the proposed changes there was pretty broad agreement that the previous version of From 990 had become unwieldy and disorganized. The new approach streamlines and structures the form in a much more logical way. Making the required changes, though, is going to be a struggle for nearly everyone who prepares, or uses, financial information on America’s nonprofits.

So who gets the easy ride this year? Organizations that normally receive between $25,000 and $100,000 in revenues will file the shorter Form 990-EZ, using a version of the form that is fundamentally unchanged from the recent past. (Private foundations that use Form 990-PF are also going to be using the same familiar document.)

And who gets the hard row to hoe? Organizations with more than $1 million in total revenues or more than $2.5 million in total assets will have to use the new — completely revised — version of the Form 990, which was published on December 20, 2007.

And what about everyone else?

Organizations (with the exception of some churches and church associations) with less than $25,000 in total revenue, no matter how small, are required to file a new form — the 990-N — by the 15th day of the fifth month after the end of their most recent fiscal year. For many organizations, that day will be May 15, 2008. There is no paper version of Form 990-N. It has to be filed electronically using the Internet. The IRS has posted an explanation of this new requirement here. The gotcha here is that an organization that is supposed to file a 990-N and doesn’t do it for three years running will lose its tax-exempt status and have to start over again seeking recognition from the IRS — a complicated and expensive process.

Organizations with more than $100,000 (but less than $1 million) in total revenue will be allowed to use the existing Form 990-EZ this year, instead of the new long-form 990. The 990-EZ may be unfamiliar but it represents a smaller change from previous years than the new full 990 requires.

For those organizations that have to use it, what does the new “big” Form 990 look like?

There is a new “core form” that every filing organization will complete. It includes items that ask for basic information about every aspect of the organization’s work. Along the way, the core form highlights thresholds that, if crossed, require completion of supplemental “schedules” on everything from investment income to proceeds from gambling operations. The idea is that most organizations will need to use only a few of these schedules, and that will cut down on unnecessary paperwork, focus attention on the parts of their operations that are important in understanding their work, and help assure continued eligibility for tax-exempt status. The IRS has said that it will delay implementation of a couple of the schedules because of the complexity of the new record-keeping that is necessary for completing them.

A discussion of the filing rules plus a general outline of the new Form 990 is on the IRS website at on this page.

One other change in the rules about nonprofits’ reporting to the IRS will be important to some organizations. Form 990-T — the form that is used to report unrelated business income and for calculating whether any taxes are due — is now a public document. Filing organizations must make their 990-T returns available for inspection by anyone who asks. (This disclosure requirement applies to returns filed after August 17, 2006, and affects every organization that files a 990-T, even churches, whether or not they file a Form 990 that is subject to public inspection.)

[This blog entry appeared on an older version of Idealist; any broken links are a result of having re-launched our site in Fall 2010.]

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