Tuesday September 6, 2022
Any accounting business and tax advice contained in this podcast is not intended as a thorough in depth analysis of specific issues. Nor is it a substitute for format information. Nor is it sufficient to avoid tax related penalties. If you have specific questions that you need advice for, be sure to schedule a strategy session and not solely rely on information in this podcast.
This season is all about the IRS form 990. What is the IRS 990? It is an informational return telling the IRS what your organization is doing. It allows for standardization across nonprofits in general. The IRS 990 is due five months and 15 days after the year end. So if you have a December 31 year-end that means your return is going to be due May 15. You can definitely file an extension.
It'll be a six month extension. Meaning that if you were initially going to be due on May 15 you are now due on November 15. So when people say 990 I realized that it can be very vague and they're not really sure what they mean. For example I was talking to an organization and they asked me, well have you filed your 990 and they said yes, but what they really meant was they filled out the 990-N.
So the 990-N is a postcard. It is the simplest of all types of 990s. It is for organizations that typically bring in less than $50,000 and you can only file it online. The reason why this return exists is because sometimes your organization is small, there's too much happening and you just want to be able to say, yes, we still exist.
We are doing what we said we were going to do and move on. When grantors are asking for a copy of your 990 or asking if you filed a 990 though, they're typically talking about a 990-EZ or a regular 990. So a 990-EZ is for those organizations who have less than 200,000. Well $200,000 or less of revenue and $500,000 less or less of assets.
So buildings, cash, all that good stuff. Those are the forms that really give you that informational standardization that I mentioned. It is going to be what sets you apart. The postcard doesn't really say anything other than I exist where you're doing a 990-EZ, you're saying, Hey, this is what we did during the year. These are some highlights.
That's one of the reasons I appreciate the 990. Is that it allows nonprofits to highlight and shine a light on the things that they've done. What are some of their major accomplishments? It's not just about, we brought in some money, it's about putting some qualitative information out into the public.
And then there's the 990. So the 990 is for those who have more than $200,000 of income. They have more than $500,000 of assets. This return is also available to be filed via paper or electronically and I would always recommend filing electronically. That makes it easier in the process. Your software could help you catch some of the things that you might be doing as you submit and really no one really wants to do paper. Like let's be honest, unless you like typing up on a PDF, I would definitely recommend using electronic forms.
The other common form is the 990-T. So the 990-T is a taxable return. It's about your taxable income. So if you are saying, Hey, we exist to provide healthy foods to the community and you also sell t-shirts, the t-shirts may fall into that non-exempt purpose because you don't exist to clothe the community. You exist to feed the community and selling these other shirts that they could get somewhere else doesn't tie into your exempt purpose.
That does happen quite a lot. But if it's worth it for your organization, for that revenue part, you just have to be willing to pay the tax. A little bit more about the form. It is available to the public for three years after filing. Remember as a nonprofit, you have a high degree of transparency and so your information needs to be available and that includes amendment.
So an amendment being, Hey, I need to fix this thing. You need to make sure that that is also available. How will people get to see your forms? Well you can say, Hey, I have it online or you can tell people that they could even put in a request or where they can come to your site and see it. If they come to your site and they come to your site, they can take notes, they can make photocopies and they can also request a copy of your form 990 directly from the IRS. They don't actually have to ask you. They could go right there.
A third place that people can go to get a copy of your 990 is to GuideStar. Guidestar.Org is a database where nonprofits can upload their information. GuideStar can also get your information. You don't have to provide it to GuideStar, they can get it from the IRS as well.
Remember anyone can request from the IRS. Do note though that GuideStar doesn't count as you making your form available. So you need to make your form available in those other ways are online by request or onsite.
The IRS 990-PF. This is for private foundations. What is a private foundation? A private foundation is a nonprofit by designation but they don't get a lot of public support. They're getting more of their support from people within the family, from people who are like, Oh the five of us are just going to keep this running and so they are going to be classified as a private foundation. So I want to be sure we got those different types. For the most part though, when I'm saying IRS 990 I'm referring to the 990-EZ or the full 990. Some organizations choose to file a 990 even when they don't have to.
The 990 is a long form. The 990-EZ is a little bit shorter and the 990-N is just the postcard. There are organizations who can do 990-N or they can do a 990-EZ and they choose to file a longer form or they can do a 990-N and they choose to file 990-EZ. Well why would you do that?
Well, the reasons you want to do that is because you want to have a level of transparency. Remember the purpose of this form is for informational purposes and standardization. So being able to complete the form adds that level of transparency, especially if you're applying for grants. You want to be able to say, yes we did file it and we filed the full form so they look it up but they see it and it doesn't seem like, well what are you talking about?
You might also want to file a 990 full form, if your state has its own filing requirements, like Virginia has its own tax form and it takes the information from your 990. So by doing a full form you can better reply to the responses on that state form. Another reason is for your organization's history, the full 990 has comparative history and so you can see, Oh compared to last year, this is how the organization is doing.
Then you want to think about consistency in your returns. So if you are filing a 990 you're going to end up filing the same form over and over and over again each year. But what happens is if you start off with an EZ, when you move to the 990 unless you're doing it manually, you're going to lose some information so you lose that comparison. So if you're using, if you're automatically though, if you're automatically filing the 990, though, you get to keep that comparison information.
The 990-T has a statute of limitations. So if you are telling the IRS every year, Hey, this is the things we were doing. You're fully disclosing what activities you're taking part of. If you don't file, the IRS can always say, well, you didn't file we're now going to start penalizing it. We're going to get our money and some fees..
But if you did disclose that, Hey, we're also doing these other things. Again, it's for transparency information. If you say, we did, we've been doing this and they don't say, Oh, that actually should be tax. The IRS is less likely, not that they won’t, but they're less likely to go back and retroactively charge you for anything that they say, Oh, that's not technically within your business for purpose.
One thing to note though when we're thinking about filing a full 990 is if you're doing it electronically, you may have to work with your system to force it to give you a 990 because some organizations will say, Hey, you actually only need to do an EZ and it'll just automatically populate that way. And so you may need to look at the software instructions to say, we actually want to do a full form so we can have that comparative information.
I mentioned earlier that some forms you can file electronically or paper. Let me tell you about when you're required to file electronically, you're required to file electronically if you have more than $10 million of assets. So a lot of assets. So a lot of things. If you are filing more than 250 returns for the year, and when they say returns, they're thinking about, Oh, how many W2's did you file? How many 1099s, how many 941s. Those are your employment types. How many income tax returns are you going to file? How many excise tax returns you're going to file and then when you're thinking about the number of returns, if you need to do a correction or amendment, those don't count towards your 250 returns. So most people can file a paper return. Again, my best practice recommendation is to do it electronically.
Your software will allow you to see when it's been submitted to the IRS and when it gets accepted and that's a lot easier than when you do the paper one. But the paper one you just wait until they tell you you did it wrong, onto did it wrong though.
Some of the reasons why 990s get returned is because some of the schedules are missing, so schedules that could be missing are your schedule B, which is about who gave to your organization. It's like okay, these are our big donors, type of deal. I guess before B comes A. Schedule A is going to be the one that talks about, Hey well this is our charitable status and this is how much we get in public support and that is typically where people like, Oh we got, we have to get at least this much in public support.
So those are the forms that you want to make sure you have. I know this episode now that I've done it, seems a lot more intense than I anticipated and so I'm really happy that I decided to break it up.
Our next episodes are going to be broken up based off of those foundation blocks that I mentioned, the mission, priorities, tools and storytelling and how the 990 fits into those pieces. So making it a little bit more digestible.
But for those of you who just wanted a high level type view, this was the episode for you. So please be sure to join me next week when we go through how does the 990 play into your mission? Super excited for this season. And of course, if you have any questions about the podcasts or about the topic in general, do send me a message on whatever social media you use. We are on Instagram, Twitter, LinkedIn and Facebook @CNRGadvisory