Why You Can't Forget to File Form 990

Written by Raul Rivera on May 11, 2021 in IRS Compliance

Pastor Jacob's church had established a nonprofit daycare that was now flourishing and serving 30 children. The daycare recently made $170,000 in income, which was enough to provide a few raises and upgrade the educational materials.

Though the daycare was prospering, the staff was somber on this particular afternoon. They had received a letter from the IRS stating that its Form 990 filing was overdue and that a penalty would be assessed for the late filing.

With the everyday busyness and success of the daycare, Pastor Jacob and his staff simply forgot to file Form 990 for their organization. They worked hard to file as soon as possible but, when it was all said and done, they paid a fee of $2,120 -- a steep "tuition" for the hard lesson learned.

The importance of Form 990

Every year thousands of nonprofit organizations are required to file Form 990. The IRS uses this form so that tax-exempt organizations are continually complying with nonprofit requirements to remain tax-exempt.

Form 990 specifically requires financial information from these entities to help the IRS determine whether nonprofits are:

  • Continually meeting financial support requirements,
  • Not operating for the private benefits of individuals within the organization; and
  • Remaining organized for charitable purposes that allow them to maintain their tax-exempt status

With that said, failure to file Form 990 for three consecutive years will result in an automatic loss of your tax-exempt status. The catch is that the loss begins the moment your ministry becomes incorporated, not when you obtain your tax-exempt status from the IRS.

What about churches?

Pastors often ask if their churches are supposed to file 990 tax returns, and the answer is, "No." Section 6033(a)(3)(A)(i) exempts churches, their integrated auxiliaries, and conventions of churches from filing Form 990.

  • The Freedom From Religion Foundation filed a lawsuit claiming that the tax code gave churches preferential treatment, thus constituting "discrimination on the basis of religion in violation of the Establishment Clause."

However, because of a previous Supreme Court ruling, the case was dismissed. For now, while all other nonprofit organizations must file a Form 990 annually, churches do NOT have to file an annual Form 990 with the IRS.

4 steps you can take to file your Form 990 on time

You do not have to be taken by surprise when it comes to filing Form 990 (like the daycare in our story). Here are four steps you can take to ensure a timely filing of your organization's Form 990:

Step 1: Determine if your organization is required to file Form 990

Remember, churches do NOT have to file 990 tax returns. However, all other 501(c)(3) organizations and other tax-exempt entities must file whether they are religious or not. Private foundations are always required to file a Form 990 specifically for private foundations, no matter how much they receive in donations.

Step 2: Create a calendar reminder

Create an annual calendar reminder to notify your staff of the 990 filing due date. Be sure to add this to your organization's corporate business calendar to ensure that it is not overlooked in the midst of other corporate activities.

If you are a church and operate a ministry that is its own entity (e.g., the daycare mentioned in the story above), it's wise to add a reminder to the church's corporate calendar.

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Step 3: Determine which Form 990 you must file.

There are several variations of Form 990 annual informational return. They are listed below.

  • 990-N (the e-Postcard): A 990-N is an electronic notice. Organizations with gross receipts of normally $50,000 or less will file this electronic notice.
  • Form 990-EZ: Form 990-EZ is also referred to as the short form. Organizations with gross receipts of usually more than $50,000 but less than $200,000 and with assets valued at less than $500,000 are required to file this form.
  • Form 990: Form 990 is also known as the long-form. Organizations with gross receipts are on average $200,000 or greater and with 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 nonprofits, including churches, must file a 990-T if they have unrelated business income, which 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 healthcare tax credit. The majority of churches providing health insurance for their employees will most likely qualify for this tax credit. They can receive up to a 50% refund on all health insurance premiums that they pay.

Step 4: File your 990 by the appropriate deadline.

All 990 filers must submit their returns by the 15th day of the 5th month of their fiscal year. For instance, if your fiscal year coincides with the calendar year ending on December 31st, you must file Form 990 by May 15th of the following year.

However, if your fiscal year happens to end on June 30th, you must file Form 990 by November 15th of the same year.

An easy solution for your annual filing requirements

The administrative tasks of running and operating your ministry's nonprofit may, at times, feel overwhelming. However, it does not have to be that way. With the assistance of our highly trained staff, we can help ensure that you are filing the correct Form 990 for your organization in a timely manner. For more information, please give our office a call today at 877-494-4655! We are honored to assist you!

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Please feel free to comment. We always appreciate good dialogue. However, we do moderate each comment to ensure that it is on topic and not derogatory to other participants. We ask that you keep your comments brief and pertinent to the topic so that others may benefit.

Blessings,
Raul Rivera


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