In recent years, thousands of tax-exempt organizations have lost exemption status for failure to file a Form 990 for three consecutive years. In this article, we write about the filing requirements under the tax law because we believe this tax information is especially important for nonprofits to know. This is not legal or tax advice, and is not a substitute for the need to seek professional advice.
This article for the most part, pertains to organizations required to file either a Form 990, 990-EZ or 990-N. The first consideration with respect to the Form 990 is the type of tax exempt organization. There are several types of organizations that qualify for tax exempt status under Code Section 501. Some organizations that are tax-exempt are not required to file based upon its exempt purpose. For example, a church and its integrated auxiliaries are not required to file. There are many other similar examples of religious and political organizations that are not required to file, which are not mentioned here – another reason organizations in doubt should have their situation reviewed by a legal or tax professional.
In general, organizations that must file a Form 990, 990-EZ or 990-N are:
- Code Section 501(c)(3) charitable organizations (not including private foundations);
- Code Section 501(c) subsection organizations except (c)(21), Black Lung Trusts;
- Code Section 501(e) cooperative hospital service organizations;
- Code Section 501(k) child care organizations; and
- Code Section 501(n) charitable risk pools
The next consideration regarding the filing requirements is the minimum income and asset thresholds.
- Organizations with gross receipts of $200,000 or greater and assets of $500,000 or greater must file a Form 990.
- Organizations with gross receipts greater than $50,000 and less than $200,000 and total assets less than $500,000 must file Form 990-EZ or a complete Form 990.
- Organizations that generally have gross receipts less than $50,000 must file a Form 990-N or a complete Form 990 or 990-EZ.
Gross receipts generally are the total sum of all amounts received by the tax-exempt organization from all sources during the period covered by the return. The organization is not permitted to offset expenses in calculating its gross receipts for purposes of determining the filing requirement. According to the instructions in Form 990, the organization must also account for amounts received using the same method of accounting used to keep the organization’s books or financial records. Hence, if the organizations uses the accrual method, it must calculate gross receipts using the accrual method.
This article provides general information only. Thus, it is important for organizations to seek appropriate tax advice regarding its filing requirements from a professional who can review the organization’s facts and circumstances and exercise appropriate judgment regarding the organization’s situation.
Do you feel overwhelmed by IRS Form 990? We want to provide helpful information for newly formed nonprofit organizations that are required to file IRS Form 990 Informational Returns. There will be several parts to this blog entry where we discuss certain aspects of Form 990 and steps that nonprofits can take to cut costs in its preparation. In this first segment, we will discuss the need to maintain proper bookkeeping practices. Yes, maintaining accurate financial data that is properly compiled is essential. Proper bookkeeping practices will result in cost or time savings in the long-run and should be at the top of every organization’s list of priorities when it comes to the financial operation of the organization. If the organization uses an outside preparer, ask the preparer if they also provide bookkeeping services and whether the organization can receive a reduced fee for its Form 990 preparation if the preparer performs year long bookkeeping.
If the organization properly maintains its financial data within an accounting software program, then the organization will also have the ability to produce financial statements. Of course proper setup of the accounting program along with accurate transaction reporting is necessary to achieve accurate financial statements. For instance, the nonprofit organization’s chart of accounts must be set up properly to generate reports that conform to Generally Accepted Accounting Principles. Hence, seeking accounting or bookkeeping advice in advance of preparation of Form 990 is warranted. Once the accounting software is set up properly and transactions are entered accordingly, then the organization can produce financial records such as a Statement of Activities and a Statement of Financial Position.
The Statement of Activities has several parts that identify the income and expenses of the organization for a specified time period such as an annual period. An organization’s Statement of Activities has strong importance not just for assisting a preparer with Form 990 preparation, but also the statement is extremely useful for budgeting, forecasting and other operational analysis purposes. Again, the organization must enter its transaction details accurately in order to receive ascertainable results.
Other transaction details will be reported on the Statement of Financial Position also known as a Balance Sheet. This information includes details about the organizations fixed asset mix, asset depreciation, liquidity, and stability. If balance sheet information is collected and reviewed overtime, the various data points can will also say something about the organization’s growth and growth potential. Two other financial statements – Statement of Cash Flow and Statement of Net Assets are also essential in providing a complete picture of the health of the nonprofit organization.
One should not take shortcuts when it comes to the financial health and viability of the nonprofit organization. Maintaining accurate financial data throughout the year in an accounting system with proper reporting of transaction history is the first step in potentially cutting the cost of Form 990 preparation. It also in the long run will pay off by yielding financial data necessary to improve efficiencies of the organization.
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Midsized and small nonprofits need sustainable funding to make a stronger impact, which can be achieved through well developed major gift strategies and proper grant compliance/management. Our latest video emphasizes the following key points regarding this issue: 1) small and midsized nonprofits cannot afford to do business as usual becuase the nonprofit climate is changing. The Urban Institute reported that the number of nonprofit organizations rose twenty-five percent (25%) between 2001 and 2011, from 1,259,764 to 1,574,674. There are more nonprofit organizations today than ever, which means there is stronger competition for limited funding; 2) Small and midsized nonprofits must diversify their funding mix to include sustainable and variable funding. Variable funding is funding that is uncertain, whereas sustainable funding resulting from a well-executed planned giving program is predicable and stable. Nonprofit organizations need both types of funding to be successful and grow; 3) By implementing the right funding strategies and engaging in proper grant management/compliance smaller nonprofit could make even a stronger impact.
Watch our new video and send us your comments at email@example.com.
At last, we are scheduled to have a June Meet & Greet Luncheon to get to know each other better. We have been working hard in organizing the details of the event and are very excited about having this time to listen to a great speaker. We are bringing in Steve Beecham who will talk about why we need to deepen our professional and social relationships and how we can go about accomplishing this task. We thought Steve’s message is an excellent fit because major gift fundraising is primarily about relationships. Although it is true that we have many wonderful ways to communicate and remain in touch with our friends, family and professional acquaintances, how much do we use social media as a crutch? Steve is going to address relationship building the old fashion way, and we cannot wait to hear his message. The event is also going to take place at the beautifully restored and historic Atlanta Women’s Club -The Wimbish House. The ambiance of the historic home is just stunning and the home itself is full of great history. All in all, we believe it is going to be a nice event and a great way to share more about who we are while learning more about our attendees in the nonprofit sector. By the way, we also would like to extend a special invitation to our blog readers. If you live in Atlanta and enjoy reading our blog, please come join us. You will need to send us an e-mail at firstname.lastname@example.org and ask to be placed on our Blog RSVP list. Unfortunately, space is limited for the event, so we cannot accommodate everyone, but hope to meet some of you who wish to join us. Finally, specific details regarding the event can be found by visiting http://majorgifts.scottpractice.com.