For whatever reason, be it a communication error, a time management issue or just the thought that there are other more important tasks to complete, many nonprofits forget or fail to timely file their Form 990 tax return. This may seem like a simple mistake that will be easily remedied; however, this is not always the case. Penalties for failure to file the Form 990 can be steep – as much as $50,000 for organizations with revenues over $1 million and $10,000 for organizations with revenues below $1 million.
Forms 990 and 990-PF are due the 15th day of the 5th month after the end of the organization’s tax year (May 15 for organizations reporting on a calendar year). Organizations may request two three month extensions to prepare their tax return. However, if the extension requests are not filed or the filing is late, penalties will accrue daily each day the filing is late. This penalty may be charged for either a late filed return, an incomplete return, or both.
Penalties are based on the organization’s gross receipts. If an organization whose gross receipts are less than $1,000,000 for its tax year files its Form 990 after the due date (including any extensions), and the organization doesn’t provide reasonable cause for the late filing, the IRS will impose a penalty of $20 per day for each day the return is late. The maximum penalty is $10,000, or 5 percent of the organization’s gross receipts, whichever is less. For organizations with gross receipts in excess of $1,000,000, the penalty increases to $100 per day, up to a maximum of $50,000.
The Foundation Group provides services for IRS 501(c)(3), 501c3 tax exemption applications, starting a nonprofit, Form 990 and state/federal compliance. The 990-PF is the information return U.S. Private foundations file with the Internal Revenue Service. This public document provides fiscal data for the foundation, names of trustees and officers, application information, and a complete grants list.
Learn more about the information displayed in Forms 990 and 990-PF, as well as processing errors announced by the IRS. Candid displays Forms 990 and 990-PF in the form displayed by the Internal Revenue Service (IRS) as filed by the applicable nonprofit organization. Today, even small nonprofits must file the 990-N if they have gross receipts under $50,000. If income fluctuates year to year, look at the average of receipts over the last three years. If that average is $50,000 or less, file the 990N. Fortunately, the 990-N is easy to file right online.
Fortunately, for nonprofits with reasonable cause for filing late, there is a silver lining. Code Section 6652(c)(3) provides that penalties assessed for late filing may be waived when the late filing was due to “reasonable cause.” Accordingly, the IRS will consider waiving the penalties (but not the interest) where the organization can prove the late filing was due to reasonable cause. The waiver request must be made in the form of a written statement that contains a declaration by an officer or director that the statement is made under penalties of perjury. The statement must set forth all the facts regarding the factors that prevented the organization from timely filing its return including:
What prevented the organization from requesting an extension of time to file its return if an extension was not requested;
How the organization was not neglectful or careless, but exercised ordinary business care and prudence; and
What steps have been taken to prevent the same situation from occurring in the future?
The statement should be filed as an attachment to the 990 and should include appropriate documentation. Alternatively, the request can be submitted in response to the penalty notice.
While the IRS does offer abatement in certain cases, organizations should not assume that penalties will be abated. The IRS can be stingy with penalty abatement requests, particularly if its not the organization’s first offense. The best way for a nonprofit to avoid IRS penalties is to be aware of when its tax return is due and take care to ensure an extension is requested or the return is filed by the deadline.
Ellis Carter is a nonprofit lawyer licensed to practice in Washington and Arizona. Ellis advises tax-exempt clients on federal tax matters nationwide.Rapidweaver 8 1 4 x 4.
New Requirements for Small Exempt Organizations: Form 990-N (e-Postcard)
Beginning in 2008, small, tax-exempt organizations will have a new requirement--to file the new IRS Form 990-N. Tax-exempt organizations that normally have annual receipts of less than $25,000 and are not required to file Form 990 or Form 990-EZ are now required to electronically file Form 990-N (also known as an “e-Postcard”). Failure to do so may lead to forfeiture of tax-exempt status. Paperless 2 3 2 – digital documents manager.
The Pension Protection Act of 2006 requires small tax-exempt organizations with gross receipts of $25,000 or less to file an annual e-Postcard with the IRS for tax periods beginning after December 31, 2006. Starting in 2010, organizations whose annual gross receipts are under $50,000 will be eligible to use the e-Postcard, thereby exempting those organizations from having to file a Form 990 or Form 990-EZ. There is no fee for filing the e-Postcard.
The e-Postcard is due by the 15th day of the fifth month after the close of the organization’s tax period. For example, if an organization’s tax period ends on December 31, 2007, the annual e-Postcard is due May 15, 2008. Filing the e-Postcard late will not incur a fee, but failure to file for three consecutive years will cause automatic forfeiture of the organization’s tax-exempt status. The e-Postcard must be filed electronically; there is no paper form.
There are a number of limited exceptions to the e-Postcard filing requirement. Antivirus one pro 3 4 0 2. Exceptions to this requirement include: (i) organizations that are included in a group return; (ii) private foundations required to file Form 990-PF; (iii) § 509(a)(3) supporting organizations required to file Form 990 or Form 990-EZ; and (iv) churches, their integrated auxiliaries, and conventions and associations of churches.
Organizations that are required to file an e-Postcard should be prepared to provide the IRS with the following information:
New File Creation 5 990 Download
the organization’s legal name
any other names the organization uses
the organization’s mailing address
the organization’s Website address (if applicable)
the organization’s Employer Identification Number (EIN)
the name and address of a principal officer of the organization
the organization’s annual tax period
confirmation that the organization’s annual gross receipts are normally $25,000 or less
whether the organization has terminated or is still in business.
The IRS is in the process of setting up a Website which will publicly disclose all of the information filed on the e-Postcard.
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For further information on this new filing requirement for small tax-exempt organizations that have annual gross receipts of $25,000 or less, please contact our Tax Planning Practice Group or go to www.irs.gov/eo.