The Most Penalized Form for Ministries

By Raul Rivera

Every year we talk with more than 1,000 leaders who are starting and leading ministries all across America. Many are stepping out in faith and bringing their visions to pass.

While we are helping these ministry leaders in establishing a solid legal foundation for their ministries, we also point out the requirements that various governmental departments have for them.

For instance, we always let ministry leaders know about Form 990.

Yet, for many ministry leaders, when their Form 990 is due we often hear, “I totally forgot about filing that form!”

From my experience in working with ministry leaders all across the country, I have found that many of them are surprised to learn about this requirement, and oftentimes they don’t learn about it until it’s too late!

Neglecting to file Form 990 can lead to costly penalties and dire consequences.

In this blog, I will discuss everything you and your ministry need to know about Form 990, starting with why this form is necessary.

Why is Form 990 necessary?

Form 990 is required by section 6033 of the tax code. The IRS uses Form 990 to ensure that tax-exempt organizations are remaining compliant with the tax code and nonprofit laws in order to maintain their tax-exempt status.

Although section 6033(a)(3)(A)(i)8 exempts churches from having to file Form 990 on an annual basis, it is still best practice for churches to be aware of this requirement.

This is especially so if your church operates, or plans to operate, another tax-exempt entity such as a community development corporation (CDC) and/or holdings corporation.

(Recommended reading: “How Your Church Can Better Serve your Community”)

Consequences of not filing Form 990

Although your ministry may be exempt from paying taxes, it is not exempt from filing taxes!

The harsh truth is that failing to file Form 990 can be costly!

Because of this it is important to be aware of the consequences of not filing Form 990.

Consequence #1: A very pricey fee to pay

IRC section 6652(c)(1)(A) states,

“there shall be paid by the exempt organization $20 for each day during which such failure continues. The maximum penalty under this subparagraph on failures with respect to any 1 return shall not exceed the lesser of $10,000 or 5 percent of the gross receipts of the organization for the year. In the case of an organization having gross receipts exceeding $1,000,000 for any year.... the first sentence of the subparagraph shall be applied by substituting ‘$100’ for ‘$20’.... the maximum penalty under this subparagraph shall not exceed $50,000.”

So, what does that mean?

Essentially, this portion of the tax code is telling us that the IRS will charge a late fee of $20 a day, starting from the due date of your ministry’s Form 990.

This penalty can add up quickly as it can total to more than $7,000 in the course of a year.

Consequence #2: Loss of tax-exempt status

Beyond financial penalties, failing to file Form 990 may affect the ministry’s tax-exempt status. After three consecutive years of not filing your ministry’s Form 990, the IRS will revoke its tax-exempt status. 

The loss of your ministry’s tax exemption is not only costly to you, but it can also affect tax-deductibility of your donors’ donations.

In order to “right” this “wrong”, your ministry would need to go through a reinstatement process. Should you find your ministry in this position, we offer a Reinstatement Service to help you along the way.

Call us at 877-494-4655 for more information, or you can also read more about the reinstatement process here.

When is the Form 990 due?

Your ministry’s Form 990 is due based on its fiscal year.

The IRS states that Form 990 “must be filed on the 15th day of the 5th month after the end of your organization’s accounting period.”

Huh? That’s pretty confusing, but let me explain.

Most organizations’ fiscal year runs from January to December. In this instance, your ministry’s Form 990 filing due date would be on May 15th.

If your fiscal year is something different, for example, from April to March, your due date would then be on August 15th. 

Common reasons Form 990 may not get filed

1. Lack of knowledge

The fact of the matter is that most ministry leaders are simply unaware of the requirement to file a Form 990 for their ministry.

This is especially so for pastors of churches that begin a community development corporation (CDC) or holdings corporation.

These pastors are not used to filing Form 990 since churches are exempt from this requirement. As a result, they don’t think about the Form 990 requirement for their “non-church” non-profit organization(s).

2. Ministers simply forget

With everything that is involved with the day-to-day operations of running and leading a successful ministry, it is easy to see how this requirement can be forgotten amongst the fray of life and ministry.

Forgetting to file your ministry’s Form 990 can easily be avoided by setting up a calendar reminder for yourself.

You can also utilize our invaluable Form 990 Service so you never forget another filing.

How to know which Form 990 your ministry should file

There are three forms to consider, which are dependent upon your ministry’s amount of income and assets. The three forms to consider are as follows:

• Form 990-N: the simplest of the three forms. Organizations with gross receipts of normally $50,000 or less will file this electronic notice. There is no late filing penalty assessment for the e-Postcard/Form 990-N. However, it is important to keep in mind that failure to file the e-Postcard (or any other 990 Form), for three consecutive years will still result in an automatic loss of tax-exempt status.
• Form 990-EZ: 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-Long: Organizations whose gross receipts are on average $200,000 or greater, or whose assets are valued at $500,000 or greater, are required to file Form 990. 

An easy way to never forget your Form 990 filing

The administrative tasks of running and operating your ministry’s nonprofit may at times feel overwhelming. Don’t worry, we can help!

Our trained staff of experts can assist you and your ministry in meeting and maintaining this IRS requirement.

If you have questions or are in need of assistance in filing your ministry’s Form 990, give us a call at 877-494-4655, or click on the link below to learn more about how we can help!

Recommended blogs for you:

• "Do Ministers Have to Pay Estimated Taxes?"
• "Tax Reform Implications for Churches and Ministries"
• "How to Make the Dreams for Your Church Reality"

---