Government compliance documents can be complicated and confusing for nonprofit board members. Perhaps what makes them even more challenging is that the laws and regulations are always changing. That makes it difficult for boards to complete them properly, especially when there have been multiple changes in the board directorship. Nevertheless, it’s the board’s responsibility to ensure that compliance documents get filled out and turned in on time. The IRS Form 990 is one of the most important documents nonprofit board members are responsible for.
Despite the complicated terms and questions that are inherent in Form 990, it serves a very important purpose for the government and the public at large.
What is Form 990 used for? The information detailed in the document allows the IRS and the general public to evaluate the strength and viability of nonprofits. Your Form 990 can be an important public relations tool to demonstrate that you have a well-run nonprofit.
What Is Form 990?
What is IRS Form 990? In simple terms, it’s a federal tax document that’s intended to provide the public with financial information about your nonprofit. Do nonprofits pay taxes? Not generally, but the federal government is still interested in how nonprofits manage their money.
Form 990 is an important compliance responsibility for nonprofit boards even though nonprofits don’t pay federal taxes. The form has a secondary purpose of preventing nonprofits from abusing their tax-exempt status.
Essentially, the federal government recognizes the value that nonprofits bring to their communities. To that end, the IRS requires the form to make sure your nonprofit is operating in ways that are lawful and responsible. Your board is responsible for ensuring that Form 990 gets filled out accurately and that it gets filed on time every year.
It’s important to make your Form 990 public because the information you put on it holds your organization accountable to donors and stakeholders for the work you’re doing. It tells them what programs and activities you offer, where you get your revenue from, and how sustainable your nonprofit is. They use the information to help them decide which charities they want to support.
Also, potential employees may also review your Form 990 to see how well your nonprofit pays top employees. Board member candidates will likely also check out your Form 990 to see who else is serving on your board and how strong your cash reserves are.
What Is a Nonprofit Board’s Responsibility Related to Form 990?
Since the nonprofit Form 990 is such an important compliance responsibility, your board should learn the answers to these questions:
- What is Form 990 used for?
- Who must file Form 990?
- Who is exempt from filing Form 990?
- When is Form 990 due?
- Where do you send Form 990?
Those are all good questions. In most cases, the executive director will fill out the form, but the board or a board committee can do it as well. In either case, it’s the board’s responsibility to review Form 990 carefully and make sure it gets submitted before the deadline.
After that, boards need to make their 990 IRS form available to the public. Here are a few ways to do it:
- Make it available on your website.
- Make it available at one of your facilities.
- Refer to your listing on GuideStar, an organization that lists information on nonprofits.
Be aware that you have to make your Form 990 and your tax-exemption application available to the public during regular business hours. It’s not legal to charge a fee for it. Interested groups and individuals can also view your Form 990 at the IRS website.
Which Nonprofits Have to File a Form 990?
The term nonprofit is a broad term that umbrellas over different categories of nonprofits. Not all nonprofits are required to submit a Form 990.
Here’s a quick guide to who is required to file Form 990:
- Private foundations (Form 990-PF, regardless of income)
- Most tax-exempt organizations that have gross receipts of $200,000 or assets of at least $500,000
- Large nonprofits with gross receipts of over $50,000 (Form 990 or Form 990-EZ)
- Smaller nonprofits with gross receipts of $50,000 or less (990-N which is an e-Postcard)
- Organizations that qualify for Section 501(c), 527, or 4947(a)(1) of the U.S. tax code that don’t fall under an exemption
There are a few exceptions to the rule for filing Form 990. The following types of nonprofits are exempt from having to file the form:
- Churches and most faith-based organizations (religious schools, missions, missionary organizations-IRS Publication 1828 outlines the criteria)
- Subsidiaries of other nonprofits (the parent group files Form 990 on their behalf)
- State institutions such as universities.
- Government organizations
If any board member is uncertain about whether your organization is required to file Form 990, be sure to check the list of exceptions and document it in your board meeting minutes. Failure to file the proper IRS forms could cause your nonprofit to lose its tax-exempt status.
The Importance of Timeliness for Form 990
It’s crucial for nonprofit board members to know the timeline for filing Form 990. When is IRS Form 990 due? It depends on when your nonprofit’s fiscal year ends.
Nonprofits that file Form 990, 990-EZ, 990-N, or 990-PF must file their returns by the 15th day of the 5th month after the end of the accounting period. With the exception of 990-N filers, the IRS will allow two 90-day extensions if you need them.
Nonprofits that fail to file their Form 990s for three years in a row are subject to automatic revocation of their nonprofit status by the IRS. Revocation could cost your nonprofit income taxes, user fees, and additional paperwork, and you won’t have a chance for an appeal.
Beyond the legal requirements and consequences of overseeing Form 990, nonprofit boards should consider that the time for the annual filing serves a few other important purposes. It serves as a place to clarify your organization’s mission and document the success of your programs and activities.
As noted earlier, nonprofit boards have a responsibility to keep informed about new laws and regulations related to nonprofit organizations. Recently, Form 990 was revised to require additional information including the disclosure of conflicts of interest, board and executive compensation, fraud, and other financial details. It’s always possible that more changes could be forthcoming.
In light of the importance of Form 990 and other board duties and responsibilities, nonprofit boards need the tools to get organized, store documents, and manage their responsibilities. A BoardEffect board management system offers all the features that boards need to manage their board calendars, board books, meeting minutes, and much more in 2021 and beyond. With all the right documents and data at your fingertips, your board will be able to oversee the Form 990 filing and submission process with confidence.