Tax Form 990 Revealed

What Nonprofits Need to Know

Form 990, a crucial tax form that all tax-exempt nonprofits in the United States must file annually with the Internal Revenue Service (IRS), plays a significant role in maintaining transparency. It helps the IRS ensure compliance with tax obligations and provides a clear financial picture to the public, including donors, partners, and other stakeholders. However, it’s important to note that there are different types of 990 forms, and the one you file depends on your organization’s size and type.

In this blog, we’ll discuss the four primary versions of Form 990: 990-N, 990-EZ, 990-PF, and 990-T, including what each form entails and when your organization must file it.

What is Form 990?

Form 990 is an annual tax form that nonprofits must submit to the IRS. It provides crucial information on the organization’s mission, programs, and finances. It helps the IRS and the public evaluate whether the nonprofit complies with its tax-exempt purpose. Filing the correct version of the 990 form is critical, as failing to file can result in penalties and even the loss of tax-exempt status, which can significantly impact the organization’s operations and reputation.

1. Form 990-N (e-Postcard)

Form 990-N, often referred to as the “e-Postcard,” is the simplest version of the 990 forms. It’s designed for smaller nonprofits with $50,000 or less gross receipts, offering a quick and easy electronic filing process. This ensures that even the most minor organizations can maintain transparency about their operations without feeling overwhelmed by the filing process.

What Does It Include?

The 990-N requires minimal information, including:

  • The organization’s legal name and mailing address
  • Employer Identification Number (EIN)
  • Tax year
  • A confirmation that the organization’s gross receipts are $50,000 or less

Example: 

A local animal rescue nonprofit that raises less than $50,000 annually through small donations and local fundraising events would file Form 990-N. The organization has limited assets and minimal financial complexity, so the e-Postcard provides a simple way to stay compliant with the IRS without needing to file detailed financial statements.

2. Form 990-EZ

Form 990-EZ is for medium-sized nonprofits with gross receipts less than $200,000 and total assets less than $500,000. It requires more information than the 990-N but is less complex than the complete Form 990. This version is ideal for growing organizations that don’t yet meet the filing requirements for the full Form 990.

What Does It Include?

The 990-EZ includes more detailed financial and operational information, such as:

  • Revenue and expenses
  • Assets and liabilities
  • Program service accomplishments
  • Information on board members and key employees

Example:

A youth development nonprofit that brings in $150,000 annually through grants and program fees and has assets of $400,000 would need to file a 990-EZ. The organization’s financial operations are more extensive than those of smaller nonprofits, and a 990-EZ allows the IRS and the public to get a clear picture of how the organization uses its funds.

3.Form 990 Standard (aka long):

The standard Form 990 is for larger organizations with gross receipts exceeding $200,000or total assets at the end of the tax year greater than $500,000. It provides an in-depth view of the organization’s finances, governance, and activities. Organizations who are eligible to file a 990N or 990EZ may still file a 990 Standard if they are planning to apply for grants which require copies of 990 Standard filings.

What Does It Include?

The 990 Standard more detailed financial and operational information, such as:

  • Revenue and expenses
  • Assets and liabilities
  • Program service accomplishments
  • Information on board members and key employees
  • The IRS may also require you to attach additional documents through Schedules. There are 16 Schedules available on form 990.

4. Form 990-PF

Form 990-PF is specifically for private foundations, regardless of their financial size or revenue. Private foundations differ from public charities in that they typically have a single primary source of funding (such as an individual, family, or corporation) and are often subject to different tax rules.

What Does It Include?

The 990-PF discloses financial details about the foundation’s investments and grants, and it includes:

  • Detailed financial statements
  • A list of grants and contributions made during the year
  • Information on officers, directors, trustees, and key employees
  • Calculations of net investment income and minimum distributions required by law

Example:

A family foundation that provides grants to education and environmental causes, funded primarily by a single donor, would need to file a 990-PF. Even if the foundation has modest assets, this form ensures that the IRS tracks its grantmaking activities and investment income to ensure compliance with foundation regulations.

5. Form 990-T

The Form 990-T requirement applies to nonprofits that generate unrelated business income (UBI) of $1,000 or more. Even though nonprofits are tax-exempt, they must pay taxes on income generated from activities unrelated to their tax-exempt purpose. These are considered “unrelated business activities,” and their income is taxable.

What Does It Include?

A 990-T includes sections for reporting:

  • Gross income from unrelated business activities
  • Expenses associated with generating that income
  • Calculation of any taxes owed

Example:

A nonprofit hospital runs a parking lot open to the general public for a fee. Since the parking lot generates income that is not directly related to the hospital’s mission, the income would be classified as unrelated business income, requiring the hospital to file Form 990-T to report and pay taxes on the revenue.

Conclusion

Understanding the different types of Form 990 is crucial for nonprofits to maintain compliance and protect their tax-exempt status. Each form—the 990-N for small organizations, the 990-EZ for mid-sized nonprofits, the 990-PF for private foundations, or the 990-T for unrelated business income—serves a specific purpose in ensuring transparency and accountability.

Need help with your nonprofit’s Form 990 filing?

At 501(c)(3) Center, we specialize in providing expert guidance to nonprofits of all sizes navigating IRS reportingrequirements. Whether you’re unsure which form to file or need assistance to avoid penalties, we’re here to provide the support and expertise you need to confidently navigate the filing process.

The Importance of Filing the 990-N for Small Nonprofit Organizations

What is IRS Filing 990-N?

990-N Detailed Overview

While nonprofits with 501(c)(3) tax exemption status might not pay federal taxes, they still must file their nonprofit’s IRS Tax Form 990 or Form 990-N for nonprofit organizations. Filing this form ensures that nonprofits conduct their charity business in a way that complies with their public nonprofit responsibilities. In addition, filing the IRS 990 Form provides the IRS with an overview of your activities throughout the last fiscal year. Filing IRS Form 990 also provides transparency to current and potential donors, as IRS Form 990 helps donors understand how your nonprofit Organization operates and is managed.

There are five versions of the IRS Nonprofit Form 990. The 990-N allows organizations with less than $50,000 in gross revenue to qualify to file Form 990-N. The IRS sometimes refers to 990-N as the e-Postcard. The 990-N is the most basic report for organizations, but there are better choices than the 990-N.

Only tax-exempt organizations with less than $50,000/year in annual revenue receipts can submit Form 990-N. However, there are a few exceptions for newer organizations. It’s essential to ensure your Organization meets these criteria before filing the 990-N.

Your Organization can file the 990-N if it:

  1. It has existed for one (1) year or less and is reporting less than $75,000 in revenue.
  2. It has existed for 1-3 years and is reporting less than $60,000 in revenue.
  3. Exists for 3+ years and has reported less than an average of $50,000 in annual revenue over the most recent three (3) years (including the current year)

What information is needed to complete 990-N?

The information included on Form 990-N includes:

  1. The legal name of the Organization
  2. Provide all registered trade names, DBA, or Doing Business As.
  3. The current Mailing address of the Organization
  4. Name and address of the principal officer
  5. Whether or not the Organization is still operating
  6. Federal Employee ID Number (EIN)
  7. Attestation from the authorized officer that the Organization meets the requirements (Less than $50,000 or less in gross receipts.
  8. If applicable, provide a statement of whether the Organization has been dissolved/terminated or is in the process.

Why Filing the 990-N is Crucial

  1. Why Filing the 990-N is Crucial: maintaining Tax-Exempt Status Failure to file the 990-N for three consecutive years can automatically revoke a nonprofit’s tax-exempt status. Losing the 501(c)(3) designation can devastate small organizations that rely on donations and grants. This underscores the critical importance of timely and accurate filing. Transparency and Accountability: Filing the 990-N enhances transparency and accountability, demonstrating to donors, funders, and the public that the Organization is adhering to regulations and, therefore, building trust and support from the community.
  2. Avoiding Penalties: Nonprofits that miss the filing deadline may face penalties and fees, which can strain their limited resources. Timely filing helps organizations avoid these extra costs.
  3. Access to Funding Opportunities: Many grant-making organizations require proof of compliance with IRS filing requirements. Having an up to date 990-N is often a prerequisite for accessing valuable funding opportunities.
  4. Improving Organizational Management: Preparing to file the 990-N encourages nonprofits to maintain accurate and transparent financial records, ultimately strengthening their financial management.

Can we file the 990-N ourselves?

Yes, the 990-N is straightforward to complete on your own. We understand that the process may seem daunting, but we assure you it’s more straightforward than it appears. However, we have shared a few reasons to consider outsourcing to a tax or accounting professional, such as a 501(c)(3) Center.

  1. The first step is registering and creating a login with the IRS, which requires an ID verification process. Once you have your login credentials, you can proceed with filing.
  2. It’s reasonable that a nonprofit could handle filing Form 990-N on its own. However, if you have a third-party tax professional, you can enjoy the peace of mind of knowing the filing is complete.
  3. The cost to outsource is remarkably low, generally between $100 and $300. This affordability ensures that even nonprofits with limited resources can benefit from professional assistance, providing a sense of financial security. 501(c)(3) Center is $200.
  4. Ensure it’s done correctly and not put your tax-exempt status at risk.
  5. We see a lot of board turnover, and the 990-N fails to get filed. If this happens for three consecutive years, it often results in losing 501(C)(3) status. We want to make sure you’re aware of this risk so you can take the necessary precautions.

If the process is straightforward, why should I hire a 501(c)(3) Center?

Filing with 501(c)(3) Center provides peace of mind. Here are some additional reasons to partner with 501(c)(3) Center to file your 990-N.

  • The professional team oversees the process to ensure completeness.
  • Our technology will file directly with the IRS. You don’t need to sign up; review the verification process and monitor with the IRS.
  • Our team reviews your other compliance needs and brings any deficiency to your attention.
  • Confirm filing receipt with the IRS.
  • It’s a small price and lets you focus on other things. We will have it done quickly and efficiently.

Summary

Filing the 990-N is not just a regulatory obligation for small nonprofit organizations but a vital component of sustainable operation and growth. By staying compliant, these organizations can safeguard their tax-exempt status, increase transparency, avoid penalties, access funding opportunities, and enhance their financial management practices. Small nonprofits must treat this obligation with the seriousness it deserves to ensure their mission continues to thrive.

Check the Status of Your 501(c)(3) Application (Form 1023 and Form 1023EZ) with Ease!

The IRS currently offers two ways to apply for the 501(c)(3) Tax Exemption: the standard 1023 form or the 1023EZ online form. The 1023 form is more comprehensive and suitable for larger organizations, while the 1023EZ form is simpler and quicker, designed for smaller organizations with less complex financial structures. Each application has vastly different timelines.

1023EZ Application:  The 1023EZ is a more straightforward, less complicated form that takes 2-4 months for the IRS to review and approve. It’s designed for smaller organizations with less complex financial structures. Filing a 1023 EZ application has a much quicker review process for qualified organizations.  Not all organizations can qualify for the 1023-EZ. In our experience, it’s about a 50/50 ratio of who qualifies.

1023 Standard (long): The 1023 standard, also known as the long form, takes a predictable 6-9 months for the IRS to review and approve. However, this timeline can be longer based on macro events, such as a government shutdown or events such as COVID-19, which impacted the day-to-day operations of the IRS. Understanding the difference in the form timelines will help you set proper expectations as you wait for the confirmation of your 501c()(3) status.

How to Check the status of your 501(c)(3) Tax-Exempt Application!

The IRS receives more than 95,000 applications for tax-exempt status each year. If you’ve already applied and submitted your 1023EZ or 1023 standard application, we’ve conveniently provided the following guidelines for when you can expect to hear from the IRS.

There is no need to call.Check to see if the IRS has begun processing your application: Click here to check to see if the IRS has started working on your 1023 tax-exempt application!

IRS Organizational Look-Up Tool

Once Approved, how can I find my organization on the IRS website?

You can search existing 501(C) organization on the IRS website here: https://www.irs.gov/charities-non-profits/tax-exempt-organization-search

What else can I find using the IRS look-up feature?

You can also search for information about an organization’s tax-exempt status and filings, including:

  1. Check out current status
  2. Form 990 Series Returns
  3. Form 990-N (e-Postcard)
  4. 78 Data
  5. Automatic Revocation of Exemption List
  6. Determination Letters

If you hired the 501(c)(3) Center to file your 1023EZ application and have additional questions, please email us at [email protected]. We are here to provide the support you need and will be happy to answer them.

501(c)(3) Nonprofit Bylaws Demystified

What are 501(c)(3) Nonprofit Bylaws?

Many first-time nonprofit leaders and founders ask questions about what nonprofit bylaws are. Think of your bylaws as the “constitution” of your organization. Once you’ve assembled your nonprofit board members, you’ll establish the organization’s bylaws to guide the board and staff on how your nonprofit will operate. Understanding the state and local laws about nonprofits is essential before creating bylaws for a 501c organization, as you must comply with all municipal regulations.

Bylaws are not just a set of rules, but the very foundation of how a nonprofit organization operates. They are the IRS-mandated guidelines that a 501c3 tax-exempt nonprofit must adhere to. These bylaws are more than just words on paper; they are the internal operating rules that define who does what, how they do it, and when they do it, empowering you with the knowledge of how your organization functions.

What is the Purpose of Bylaws for Nonprofits?

Now that you have a better understanding of nonprofit bylaws, let’s delve into their purpose. Nonprofit bylaws are not just a set of rules; they are a roadmap that guides your board’s actions and decision-making process. By outlining rules around authority levels, board member and employee rights, and performance expectations, these bylaws play a crucial role in preventing disagreements, giving you the reassurance and confidence that your organization is on the right track.

Nonprofit bylaws are not just legal documents; they are the backbone of your organization’s governance. They are not to be taken lightly, as failure to adhere to these bylaws can result in serious consequences. Board members can be held liable for breach of duty, highlighting the gravity of not following the established rules.

Top 5 501(c)(3) Bylaws Best Practices

  1. Get help.
    501c bylaws are legal documents, and their requirements vary from state to state. When drafting this document, consulting a qualified nonprofit professional with experience with charitable organizations is crucial. This step will ensure that your bylaws are comprehensive and in compliance with all legal regulations. Remember, not all legal professionals have nonprofit experience, so if they don’t know what nonprofit bylaws are or how to write them, you might look elsewhere!
  1. Make your bylaws public
    While nonprofit bylaws can be internal documents, making them available on your organization’s website is a powerful way to demonstrate transparency. This practice increases your transparency and builds trust with your stakeholders, which is crucial when it comes to fundraising and securing grants.
  1. Stick to the fundamentals
    Bylaws should only address the nonprofit’s governance structure. For instance, they should include information about the board’s composition, roles, and decision-making processes. On the other hand, details about specific projects or programs, such as marketing campaigns or job descriptions, should not be included in the bylaws as these are subject to change and may not be relevant in the long term.
  1. Personalize.
    While it might be tempting to download templated bylaws from a legal documents website, resist the urge! Good nonprofit bylaws will align with your organization’s mission and culture. They should be custom-made to meet the needs of the nonprofit to be most effective.
  1. Schedule regular review.
    Bylaws must accurately reflect your organization, so it’s important to schedule regular reviews and updates. Over time, your organization may evolve, and laws and regulations may change, making it necessary to update your bylaws. Aim to review and update your bylaws every two years to ensure they remain relevant and effective in guiding your organization’s operations.

Checklist: How to Make Bylaws for Nonprofits

While the nonprofit should tailor the 501c bylaws, this general checklist will help you develop each required section.

  1. Name and purpose
    This section can appear as written in the organization’s Articles of Incorporation.
  2. Election, roles, and terms of board members and officers
    Describe the board’s qualifications, term limits, and duties, including election, termination, resignation, and procedures.
  3. Membership
    If your organization has members, provide details about eligibility, dues, rights, and termination process. In addition, provide information about your annual meeting, special meetings, and meeting notices.
  4. Quorum guidelines and board structure
    Many states specify the minimum and maximum number of board members and the number of present board members required for a quorum, so check your state’s regulations.
  5. Compensation and indemnification
    The nonprofit bylaws must disclose Compensation for directors, officers, and employees. In addition, in some states, nonprofits must indemnify or protect the board and directors from loss or harm resulting from risk. Check your state’s regulations to ensure compliance in this area.
  6. Role of the executive director
    While the board is responsible for hiring an executive director, the nonprofit bylaws should contain language about the board’s termination authority, including the number of votes needed to approve the removal of the executive director.
  7. Amendment of bylaws
    Organizations change over time, so ensure your nonprofit’s bylaws are flexible enough to be amended. Amendments to the bylaws can be made by vote at a routine board meeting.
  8. Dissolving the organization
    Most nonprofit bylaws need a dissolution clause unless specified by state law. If required, you must determine how your organization’s assets would be distributed to other tax-exempt organizations, as the IRS requires for tax-exempt purposes should you relinquish tax-exempt status and dissolve.

Articles of Incorporation Explained

What are Articles of Incorporation?

The organizing document for the company; it states the organization’s specific purposes, incorporators, etc. Think of the Articles of Incorporation as the official birth certificate of the organization. It confirms the data of formation of the organization, along with important organizational details. The outline will vary from state to state. Here is a common framework of the articles:

What Do Articles of Incorporation Look Like?

Each state requires its own unique language and terms in the 501(c)(3) Articles of Incorporation. Below we have provided a basic sample outline of what Articles of Incorporation will look like, but it is a general example and may not adhere to the requirements of your state.

Article I: Name

The name of the corporation is: _________ .

Article II: Duration

How long will your organization run? Odd question, right? Did you know that the IRS rarely grants tax exempt status to organizations that do not state that their organization’s duration is perpetual?

The period of duration of the corporation is perpetual.

Article III: Purpose

The purpose of your organization must align with 501(c)(3) guidelines. In this area of your Articles of Incorporation, you can include information you’ve drafted in your mission statement here. Heads up! Don’t be too specific in this clause, because if your nonprofit organization expands in the future, you may have to amend this language.

Said corporation is organized exclusively for charitable, religious, educational, and scientific purposes, including, for such purposes, the making of distributions to organizations that qualify as exempt organizations under section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code.

Article IV: Nonprofit Nature

This section includes a dissolution clause and a personal liability statement. In the eyes of the IRS, this is perhaps the most important clause in the 501(c)(3) Articles of Incorporation.

Article V: Board of Directors

The IRS states you must have a minimum of three board members, with their names listed. If you aren’t finished gathering your Board of Directors, that is okay. Insert the names and titles of the individuals you have assigned, and you can amend this area later.

Article VI: Membership

Although most nonprofits do not have members because they rely on their Board of Directors and bylaws for governance, you still need to include a clause with specific language as to whether or not you will have members in relation to the nonprofit’s governance.

(Organization’s name) shall have no members. The management of the affairs of the corporation shall be vested in a board of directors, as defined by the corporation’s bylaws.

Article VII: Amendments

Eventually, you will make amendments to your 501(c)(3) Articles of Incorporation; therefore, you must include language as to how amendments will be added.

Amendments to the Articles of Incorporation will be adopted with a ⅔ approval from the Board of Directors.

Article VIII: Addresses

Include the address of your organization in this clause. If your physical address is different from your mailing address, include both.

Article IX: Registered Agent

A registered agent is a person or entity that has been appointed to handle mailing and any arrangements on behalf of the organization. It is usually someone from the Board of Directors or a staff member in the organization. This individual’s address must be in the state in which you are operating.

The registered agent of the corporation is:

(Name and address)

Article X: Incorporator

The incorporator is the individual who signs and dates your 501(c)(3) Articles of Incorporation. It does not need to be a board member or a person who has an affiliation to your organization. Their name, address, and date of signature should be included in this clause. If this is your last clause, include the name and signatures of your Registered Agent and Board of Directors as well. 

Simplify the Process

The 501(C)(3) Center specializes in helping organizations navigate the 501(c)(3) application process.

Navigating nonprofit formation can be complex, but nonprofit leaders do not have to do it alone. At 501(C)(3) Center, we simplify the process by handling incorporation, 501(c)(3) applications. By leveraging the expertise of the 501(c)(3) Center, nonprofit leaders can focus on building a successful nonprofit while we handle the paperwork.

Key Legal Steps for Starting a 501(c)(3) Nonprofit

What Future Nonprofit Leaders Need to Know

Starting a nonprofit is noble; however, navigating the legal and administrative requirements can feel overwhelming. From filing key documents to ensuring compliance with state and federal laws, understanding the necessary steps is critical to laying a solid foundation for your organization. This article will break down the essential documents, filing requirements and legal steps for starting a nonprofit successfully, at both the state and federal level.

1. Define The Nonprofit’s Purpose

Every nonprofit starts with a clear and compelling mission. Before filing paperwork with the state and IRS, articulate the organization’s purpose and how it will serve the community.

Action Steps:

Take the time to craft a compelling mission statement that outlines the goals and beneficiaries and inspires and focuses the efforts.

Research similar organizations to ensure the mission fills an unmet need.

2. Choose a Compelling Name for The Nonprofit

The nonprofit’s name should reflect its mission and be unique and memorable. Once you have a short-list, bounce the naming ideas off other business leaders, family and friends to gather feedback and guidance. Conduct a name search to ensure the name is not already in use. Don’t be afraid to let the creativity shine during the name brainstorming process.

Checklist:

  • Verify name availability with the state’s business registry.
  • Secure the nonprofit’s domain name for its website.
  • Ensure the name complies with state naming conventions.

3. File Articles of Incorporation

The Articles of Incorporation establish the nonprofit as a legal entity and include basic information about the organization. Think of it as the official birth certificate of the organization.

Key Inclusions:

  • The nonprofit’s name and address
  • The purpose of the organization (aligned with IRS requirements for tax-exempt status)
  • Information about the registered agent and incorporators

Tip: Filing requirements and fees vary by state, so check the state’s nonprofit incorporation guidelines.

4. Draft Bylaws and Appoint a Board of Directors

The nonprofit’s bylaws govern its operations, and the board of directors is crucial in overseeing its activities and ensuring accountability. This structure should give officers, board members, and any other stakeholders confidence in the nonprofit’s operations.

Steps to Take:

Outline the nonprofit’s structure, decision-making processes, and policies in the bylaws.

Recruit board members with diverse expertise in fundraising, legal, and community engagement skills. The IRS states you must have a minimum of three board members, with their names listed. Family must not make up more the 49% of the board members.

Pro Tip: Many states require nonprofits to adopt bylaws during the incorporation process.

5. Apply for an EIN (Employer Identification Number)

An EIN is a federal tax ID issued by the IRS, and it is required to open a bank account, hire employees, and file tax forms. An EIN application can be completed online through the IRS website at no cost. Think of the EIN as the social security number of the organization.

6. File for 501(c)(3) Tax-Exempt Status

The IRS requires filing IRS Form 1023 or Form 1023-EZ to secure the 501(c)(3) tax-exempt status. Approval allows the nonprofit to receive tax-deductible donations and access other benefits.

Requirements for Filing:

  • A detailed description of the nonprofit’s activities
  • Financial projections or current financial data
  • A copy of the Articles of Incorporation and bylaws

Simplify the Process: The 501(C)(3) Center specializes in helping organizations navigate the 501(c)(3) application process.

7. Register for State and Local Compliance

Depending on the state, additional registrations may be required to solicit donations or operate legally.

Common Requirements:

  • Charitable solicitation registration
  • Sales tax exemption applications
  • Local business licenses or permits


Simplify the Process

The 501(C)(3) Center specializes in helping organizations navigate the 501(c)(3) application process.

Navigating nonprofit formation can be complex, but nonprofit leaders do not have to do it alone. At 501(C)(3) Center, we simplify the process by handling incorporation, 501(c)(3) applications. By leveraging the expertise of the 501(c)(3) Center, nonprofit leaders can focus on building a successful nonprofit while we handle the paperwork.