One Form Every Ministry Has to File

By Raul Rivera

*Please note that churches are exempt from filing Form 990

Several years ago, a couple dreamed of establishing a ministry in the inner city community of their town to provide at-risk teenagers with a safe environment for hanging out and to also provide support in helping those teens achieve their personal goals. Excited about their dream, the couple created a nonprofit corporation in their state and obtained an FEIN so that they could begin fundraising immediately.

After a few months of exhilarating planning, they felt during a prayer time one evening that God was calling them to begin a church. It was completely unexpected, but in obedience to God they set aside their teen home plans and moved forward with the church. The church did well and four years later in a church board meeting, the pastor mentioned how it was still in his and his wife’s heart to start the teen ministry. By the end of the board meeting, the church had agreed to run after this dream and re-launch the teen ministry.

The pastors worked with their board to revive the use of the old corporation and apply for 501(c)(3) status. However, 3 months after submitting the 1023 application for federal tax-exempt status, they received a letter stating that their tax-exempt status was revoked! What? How could the IRS revoke their tax-exempt status before they had even obtained it? This dilemma has caused a lot of grief in recent years.

IRS rule concerning tax-exempt status

The answer to this question is found in section 6033(a)(1), which requires nonprofit organizations to file annual 990 tax returns even if they do not engage in any activities or have not applied for their 501(c)(3).  Moreover, section 6033(j)(1) automatically revokes any organization that fails to file a Form 990 for three consecutive years. That is exactly what happened to this couple’s ministry. Every month hundreds of organizations, like the teen home mentioned above, receive a letter from the IRS stating that their tax exempt status has been revoked even if they have yet to apply for their 501(c)(3) status. This revocation is costly because all donations received after revocation are no longer tax-deductible to donors. Furthermore, the organization will be required to pay taxes on all income received after its revocation.

The annual 990 tax return

The annual return listed above is called Form 990. It is an informational return that the IRS requires of tax-exempt organizations to ensure that they are continually complying with nonprofit requirements in order to remain tax-exempt.

Form 990 specifically requires financial information from these entities, which helps the IRS determine whether nonprofits are continually meeting financial support requirements, not operating for private benefits of individuals, and that they are still organized for charitable purposes that allow them to maintain their tax-exempt status.

Churches are exempt from 990

Many pastors ask if their churches are supposed to file 990 tax returns and the answer to that question is, “NO.” Section 6033(a)(3)(A)(i) exempts churches, their integrated auxiliaries, and conventions of churches from filing Form 990. That raised the brow of the Freedom From Religion Foundation so that they filed a lawsuit claiming that section 6033(a)(3)(A)(i) gave churches preferential treatment, thus constituting “discrimination on the basis of religion in violation of the Establishment Clause.” Of course, because of a previous Supreme Court ruling, the case was dismissed.  So for now, churches do NOT have to file annual 990 tax returns.

Steps you can take to file on time

You do not have to be caught off guard with a revocation as the couple did in our story above. They mistakenly believed that because they had never applied for 501(c)(3) status and did not begin the activities for their teen ministry, all was well. However, you can be equipped to handle the 990 filing requirements successfully and protect your non-profit’s tax-exempt status by using the following guidelines.

1. Determine if your organization is required to file Form 990. Remember, churches do NOT have to file 990 tax returns. However, all Christian non-church (para-church) ministries are required. Private foundations are always required to file a particular 990 specifically for private foundations no matter how much they receive in donations. 

2. Determine what type of 990 you are responsible for filing. There are several variations for the Form 990 annual informational return. They are listed below.

• 990N (the e-Postcard): A 990N is an electronic notice. Organizations with gross receipts of normally $50,000 or less will file this electronic notice. 
• Form 990 EZ: Form 990EZ is also referred to as the short form. Organizations with gross receipts of normally more than $50,000 but less than $200,000, and whose assets are valued at less than $500,000, are required to file this form. 
• Form 990, also know as the long form: Organizations whose gross receipts are on average $200,000 or greater, and whose assets are valued at $500,000 or greater, are required to file Form 990.
• Form 990 PF: All private foundations are required to file Form 990 PF. 
• Form 990 T: All non-profits, including churches, must file a 990 T if they have unrelated business income; that is, income from conducting an activity unrelated to their tax-exempt purpose. This also applies to churches that provide health insurance to their employees and qualify for the small business health care tax credit. The majority of churches providing health insurance for their employees will most likely qualify for this tax credit and can receive up to a 50% refund on all health insurance premiums that they pay.

3. Be sure to file by the deadline. All 990 filers are required to submit their returns by the 15th day of the 5th month of their fiscal year. For instance, if your fiscal year ends on December 31st, you are required to file Form 990 by May 15th of the next year. If your fiscal year ends June 30th, you are required to file Form 990 by November 15th of the same year.

Conclusion

If you need guidance in learning for which 990 you should file or if your status has been revoked for failure to file Form 990, do not be dismayed. Our trained staff of experts can guide you in learning what you need to do in order to stay compliant with this IRS requirement. If you have lost your exempt status, we can guide you to getting back on track. 

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