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.
Healthcare providers are confronted with a heighted regulatory landscape since the enactment of the Affordable Care Act. Congress has been patently devoted to prosecuting provider practices that conspicuously overbill Medicare or Medicaid. The ability to prosecute providers under the False Claims Act has significantly changed in recently years including recent legislation under the Fraud Enforcement and Recovery Act of 2009 and the formation by the Department of Justice and Health and Human Services of the Health Care Fraud Prevention and Enforcement Action Team (“HEAT”). On the State level, Section 6031 of the Deficit Reduction Act of 2005 created a financial incentive for States to establish legislation to prosecute individuals or entities who submit false or fraudulent claims to the Medicaid program.
In addition to these dramatic changes in the law, language in the Affordable Care Act ushered in a new era of enforcement against fraud, waste and abuse. This new era includes enhanced use of technology such as sophisticated data mining, and other fraud detection methods which has resulted in the Federal government becoming more efficient in identifying false claims. Nevertheless, the government still greatly depends on qui tam relators (private citizens who initiate false claim actions and report such claims to the government for investigation and possible prosecution). Provider liability under the Act can be massive, with penalties between $5,500 to $11,000 per false claim, plus three times the total loss to the government. Qui tam relators, can receive fifteen to thirty percent of the total recovery. Moreover, recent amendments to the False Claims Act enacted under the Affordable Care Act has widened the scope of potential claims that can be successfully initiated and sustained by qui tam relators, especially given the whistleblower protections afforded to these potential claimants. This means, in essence that there is a more definite probability of claims being initiated by past and present employees of health practices under the False Claims Act.
In the last couple of years, Congress has increased funding as part of its committed effort to fight fraud, waste and abuse in the Federal healthcare programs. Approximately $350 million through 2020 has been allocated under the Affordable Care Act toward investigation and prosecution of fraud, waste and abuse. To be found liable under the act, no proof of specific intent is required. Providers can be found liable under the act for knowingly making a false statement to have a Medicare or Medicaid claim paid or approved. The term “knowingly” can mean that the provider or entity acted in deliberate ignorance or reckless disregard of the truth of information submitted to receive payment. If a provider is accused of knowingly submitting a false claim, the provider could see all of their Medicare and Medicaid payments for care suspended by CMS if there is deemed to be a “credible allegation of fraud” as defined by the Department of Health and Human Services.
What this means is that provider practices should be diligent in their billing practices and institute and evaluate periodically proper controls regarding their revenue cycle. The penalties are too severe not to have proper policies and procedures in place. In addition, provider practices regardless of size should implement a compliance program in response to these changes in the law and heightened government enforcement actions. For more information, please contact our firm at firstname.lastname@example.org.
Know what role your volunteers will have. Even if your organization has numerous tasks that it just cannot get to, planning is essential to an effective volunteer program. As such, the first step is to think about what suitable tasks and responsibilities are needed that match the organization’s strategic goals. In other words, is the work suitable for a volunteer and will it advance the organization’s strategic goals.
Know compliance requirements and regulations applicable to your industry and be prepared to share your organization’s written policies and procedures with your volunteers.If required by law or advised by legal counsel, have volunteers sign written acknowledgements.Federal grants now require that nonprofit organizations protect personally identifiable information. Check with a legal professional to find out:
If volunteers should adhere to your organization’s confidentiality agreements
Whether volunteers should receive training on applicable laws such as HIPPA or other privacy laws
Whether volunteers are covered by your organization’s insurance in the event of a claim of liability
Does the work require the volunteer to undergo a background check or health assessment
Answers to other compliance requirements under either state and federal laws or funding requirements that may impact the volunteer program
Identify staff members with sufficient time to oversee the volunteer program. Don’t assume that HR or a program manager would be the obvious choice for oversight of any portion of the volunteer program. A proper volunteer program will require time and effort to run properly.
Develop a framework for recruiting, training, promotion, recognition and retention. It’s not enough to just seek out helpers and put them to work. An effective volunteer program requires cultivating if you want to retain volunteers.
Select the best channels for recruiting potential volunteers. The organization continues to brand itself even during the recruitment process. Therefore, the organization should solicit volunteers that are consistent with the organization’s brand and mission. Finding volunteers who match the mission and objectives is equally important. Finally, the type of work involved, general timeframe for completion and any indirect costs to the organization are important considerations.
There is a rising effort to protect personally identifiable information (PII). For instance, the OMB provided new guidance under 2 CFR Chapter Part 200 which requires entities receiving federal grant funds to take reasonable measures to safeguard such information. The new reforms define PII as information that can be used to distinguish or trace an individual’s identity, either alone or when combined with other personal or identifying information that can be linked to a specific individual. However, there is no silver bullet with respect to whether any given information is in fact PII. Certain instances will require a case-by-case analysis based on the facts and circumstance of the situation. All in all, these newer requirements on grantees may require grantees to implement tighter controls.
Organizations that are required to file an IRS Form 990, 990-EZ or 990-PF or submit an annual electronic notice on Form 990-N are subject to automatic revocation if the exempt organization fails to file for three consecutive years. The consequence of automatic revocation can be economically devastating for struggling non-profit organizations since the organization may be required to file a Form 1120 corporate income tax return or Form 1041 Estates & Trusts return and pay applicable taxes on income received.
Organizations previously eligible to file Form 990-EZ or Form 990-N for each of the three prior consecutive years that have lost their tax-exempt status may be eligible for retroactive reinstatement by filing for recognition of tax exemption on the required Form 1023 or Form 1024 and paying the appropriate user fee no later than 15 months of the date on the organization’s Revocation Letter (CP-102A) or the date the organization appeared on the Revocation List on the IRS Website, whichever is later. This process is called the “Streamlined Retroactive Reinstatement Process”.
The IRS will not impose a penalty for failure to file annual returns for the three consecutive taxable years that caused the revocation if the organization is successfully reinstated under the Streamlined Retroactive Reinstatement Process and files paper Forms 990-EZ for all 3 previous taxable years. For organizations eligible to file Form 990-N, the organization is not required to file a prior year Form 990-N or Form 990-EZ to avoid penalties if reinstated.
Organizations should contact a qualified attorney as soon as possible if they do not qualify for or need assistance complying with the requirements under the Streamlined Retroactive Reinstatement Process.