Form 990: Return of Organization Exempt from Income Tax Overview

what is a form 990

The direct method reports cash provided by and used for various activities. The indirect method starts with the change in net assets and then reconciles that amount to the cash provided by or used for operating activities. These organizations must file a form unique to private foundations.

A nonprofit that fails to file for three years in a row may owe income tax, and its tax-exempt status will be automatically revoked. We explain below the basic requirements for filing your nonprofit’s annual information return with the IRS, but you can also rely on excellent information from the IRS website itself. Here is an overview of the annual filing requirements; this IRS webpage explains which form to file, with links to the various forms.

Who must file?

They do not need to submit any of the other 990 forms for nonprofits in addition to this one. There are some organizations that are ineligible to file Form 990-N, including private foundations, Section 509(a)(3) supporting organizations, and IRC section 527 (political) organizations. If you have questions about your eligibility for the Form 990-N, you can review the IRS’s frequently asked questions for this form. In short, a Form 990 is an informational document highlighting your nonprofit’s mission, programs, finances, and accomplishments from the past year. It’s a publicly available filing that the IRS uses to ensure you comply with the laws regulating your tax-exempt status.

A nonprofit’s executive director is often responsible for completing a 990 form, though other finance and operations staff may contribute to the effort. It’s also a good idea to require that your nonprofit board reviews and approves your 990 form before you submit it to the IRS. Having an accountant or someone familiar with IRS regulations on your board can help ensure a complete and accurate submission of all necessary tax forms. If a charitable nonprofit fails to file its Form 990 on time and fails to show reasonable cause why it is late, there can be penalties.

Additional information you might need to file

The method of accounting, unless GAAP is required by an external reporting requirement (typically a result of loans or grants), should be what is most useful to those reading the financial statements. Those users are typically management and the board and may also include donors, grantors, and other stakeholders. All users of the financial statements should be considered when determining the method of accounting to use.

what is a form 990

Expenses of the Organization must be allocated between program services, general and administrative, and fundraising. General and administrative and fundraising costs are called supporting services. Program services may be broken into multiple programs at the discretion of management or the other users of the financial statements. The allocation is a determination made by management and is an estimate. For example, salaries and benefits expense may be based on estimated time and effort spent in each category, while rent expense may be based on square footage used. There is no one required way to allocate costs, but typically time and effort estimates are the most readily available and can be used to estimate allocations for multiple expenses.

What happens if a nonprofit fails to file?

Knowing how to interpret the information our clients provide, however, is key to a thorough and accurate filing. This is a complex section that requires detailed financial recordkeeping during the year. If your books are not tracking expenses by allocation, Form 990 preparation becomes much more difficult for your preparer. Since Form 990 is made publicly available on the IRS website for anyone to review, it’s always important to remember that the public can see what your key people are paid. But it is true for those in leadership and those not in leadership if their pay is more than $150,000, including benefits. This section provides space for a nonprofit to give details about what the organization accomplished programmatically the prior year.

The shortest version of Form 990, the Form 990-N, can only be filed by organizations with gross receipts of $50,000 or less. Form 990-N is referred to as an “e-postcard” since it can only be filed online and requires minimal information. Any organization that fails to file the appropriate Form 990 for three consecutive years risks having its tax-exempt status revoked by the IRS. If you do lose your exempt status by not filing the 990, there is no appeal process with the IRS. Your nonprofit could have to pay income taxes, user fees, and have to file additional paperwork. Donors and grantors want to ensure that the mission is in alignment with their own values and goals.


The only way to see that is to ask lots and lots of questions and to require a lot of disclosure, both numerically and operationally. Management and board members should be reviewing financial statements on a regular basis throughout the year. The timing may be dependent on the activity of the organization, but typically monthly reviews are recommended. The financial statements to be reviewed by management and the board should include comparisons to budget and prior periods when applicable. These internal reports used for management of the organization and fiscal oversight by the board may look different than those that are used for external purposes.

  • The organization can determine the schedules they are required to use based on answers to questions throughout the form.
  • It takes the asset and liability totals from Part X and nets them together for the resulting amount of net assets.
  • The indirect method starts with the change in net assets and then reconciles that amount to the cash provided by or used for operating activities.
  • Other than the 990-PF (which is specifically designed for private foundations), the usually discussed variations of the Form 990 are shorter and slightly simpler than the original form.

I mentioned earlier that Part I summarizes the organization’s income. Section C asks about how your nonprofit makes information such as Form 990 publicly visible. These days, the signatures aren’t your traditional wet ink variety. The IRS requires all Form 990 filings to be electronic now, so this section is now devoid of handwriting in almost all situations. Maybe the least complicated section of this return is the Signature Block. Here are lines for the signature of a principal officer, as well as space to list the professional preparer’s information.

Additional information

For example, if your nonprofit’s fiscal year follows the calendar year, then your 990 form is due on May 15. The one you need to file depends primarily on your total gross receipts and assets. Every year, nonprofits are required to submit their Form 990, which is what allows the organization to maintain its tax-exempt status. As such, the 990 is quite an important document that can cause some issues for your nonprofit if not prepared properly.

  • Essentially, these forms allow for greater transparency in terms of nonprofit finances.
  • And if you want to file your own taxes, you can still feel confident you’ll do them right with TurboTax as we guide you step by step.
  • So, why do we ask our clients for so much information prior to completing Form 990?
  • Nonprofits with annual revenue of less than $200,000 and assets valued at less than $500,000 may file the Form 990-EZ, or may elect to file the Form 990.
  • Nonprofits with incomes below $200,000 and assets of less than $500,000 may file a shorter version of the form called the 990-EZ.

Of course, you should always remember to file your 990 returns on time in order to stay compliant with the IRS. However, you can also use 990 forms to prove both your financial irreproachability and commitment to your community to your organization’s volunteers and donors (potential or otherwise). However, a late return is not the only violation that will result in a penalty. Part IX provides the detailed line items of expenses that will roll up to Part I, as well. Lines are included for grants paid out, payroll and benefits, taxes paid, fees for professionals services, such as legal and accounting, advertising, office expenses, and more. Private foundations must use Form 990-PF to report on their assets, trustees, officers, grants, philanthropy, and other financial activities.

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