Form 990: What It Is and How Non-Profits Can Avoid Increased IRS Scrutiny

If you run a tax-exempt non-profit organization, odds are you will have to file a Form 990 with the IRS. IRS Form 990 is an informational tax form which tax-exempt organizations—like §501(c)(3) public charities—must file annually. This form provides the IRS with details of the organization’s activities, governance and financial information. Additionally, to ensure an organization qualifies for tax-exempt status after it is granted, Form 990 includes an area for organizations to detail their accomplishments in the prior year. Form 990 also provides the public with financial information about certain non-profit organizations.

Tax-exempt non-profit organizations should file a complete and accurate Form 990 in a timely manner in conjunction with their information tax returns; Form 990s are due on the 15th day of the 5th month after year end. If a Form 990 or an extension is not submitted by the due date, penalties and interest can be imposed on a non-profit organization. Those who do not file on time will likely face a higher level of scrutiny from the IRS. Additionally, if an organization does not complete a Form 990 filing for three consecutive years, it will lose its tax-exempt status. Read on to learn more about who should file a Form 990 and how to avoid increased IRS scrutiny.

Who Needs to File a Form 990?

Tax-exempt non-profit organizations which have assets worth at least $500,000, or gross receipts of at least $200,000, need to file a Form 990 every year. Certain non-profit organizations, including political and religious organizations, do not have to file a Form 990.

If a non-profit organization consistently has revenues of less than $50k, they can file a 990-N online. A 990-EZ is required if assets are less than $500k and revenues are less than $200k.

How to Avoid IRS Scrutiny

The IRS monitors Form 990 filings to determine which information tax returns to audit. In this way, the IRS can determine how to best allocate its resources. This allows them to address matters which have the highest rate of risk for noncompliance and potential impact, as they cannot audit every tax-exempt non-profit organization.

As previously mentioned, if a tax-exempt non-profit does not file a complete and accurate Form 990 with their information tax returns in a timely manner, their tax returns will likely face a higher level of IRS scrutiny. Below are a few ways non-profit leaders can avoid drawing attention from the IRS:

  • Encourage good governance.
  • Keep in mind even small non-profits can be audited by the IRS.
  • Stay up-to-date on Form 990 changes.
  • Make sure you understand and adhere to Form 990 instructions.
  • Review your Form 990 drafts to ensure nothing reported could be seen as a “red flag.”
  • Know that Schedule O (Form 990) allows you to supplement the information reported in the main Form 990.
  • Ensure the information included in your Form 990 is in line with narratives and supporting data on your organization’s website and communications materials.
  • Use Part VI of Form 990 as a “checklist” for governance concerns.

This article is a brief overview of Form 990 and how it can affect your non-profit organization. If you have additional questions about Form 990, reach out to a KerberRose Trusted Advisor today!

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