Nonprofit Help Desk FAQ: The 411 on Form 990
April 15th may be circled in red on the calendars of individual tax payers, but for nonprofits, when to file with the IRS depends on what fiscal year the organization follows. With the deadline for many nonprofits coming up in just a few weeks, here are answers to frequently asked questions about Form 990.
When should we file?
- If your fiscal year follows a calendar year, you must file Form 990 or the appropriate variant by May 15th (or August 15th if you file for an automatic three month extension)
- If your fiscal year ends June 30th, your Form 990 (or variant) will be due by November 15th (or February 15th if you file for the extension.)
Which form is right for our nonprofit?
There are three basic forms available to nonprofits, and which one to file is based on your organization’s financial activity:
- 990-N e-Postcard: This form was introduced in 2008 for organizations whose annual gross receipts are normally $50,000 or less. (Some organizations of this size choose to file one of lengthier versions of Form 990 instead.)
- 990–EZ: This form is for organizations with annual gross receipts between $50,000 and $200,000, whose total assets are less than $500,000. (Some organizations of this size choose to file the lengthier Form 990 instead.)
- 990: Required for organizations whose gross receipts are greater than $200,000, or total assets are greater than $500,000.
Are there any recent changes?
In 2008, the IRS overhauled Form 990 and has made some additional adjustments effective for the 2012 tax year in order to clarify some confusion that arose after the 2008 revisions. Revisions in effect beginning in tax year 2012 include, but are not limited to:
- Nonprofits no longer need to supply the addresses of key employees, officers, and directors.
- When reporting the average number of hours for key employees, nonprofits must include the number of hours worked for any related organizations as well as for the filing organization.
- When nonprofits tally the figures for the amount they spend on professional fundraising services, they should include preparation of applications for grants and other assistance.
The IRS has provided a summary of all of the changes.
What should we document about our compensation setting processes?
The 990 requires disclosure of the process that a tax-exempt organization uses to determine appropriate compensation for key employees. In Part VI, the IRS asks if the process for determining compensation includes:
- a review and approval by independent persons,
- comparability data, and
- contemporaneous substantiation of the deliberation and decision.
If you check “yes” for either the “CEO, executive director, or top management official” category or the “other officers or key employees” category (and “no” is an obvious bad choice), then you must describe the process in Schedule O. The IRS is particularly interested in whether or not your process includes the following components:
- Review/approval by the executive board
- No involvement of persons with conflicts of interest
- Collection and use of compensation data for similarly qualified persons in comparable positions at similarly situated organizations
- Contemporaneous documentation and recordkeeping
A “rebuttable presumption of reasonableness” is a phrase used by the IRS to describe the situation where an organization has used an appropriate process and therefore the compensation is presumed to be reasonable. The above conditions meet the standard outlined by the IRS.
Samples of executive compensation policies and articles and guides for setting compensation policies are available in MANP’s searchable online Answer Center.
What policies should we have in place to comply with Form 990?
Form 990 asks organizations to indicate which written policies they have adopted. While these policies are not required, they are certainly recommended and the IRS may increase their scrutiny of returns from organizations that have not adopted the recommended policies.
Samples of the following policies are available in MANP’s searchable online Answer Center, along with other articles on these topics.
- Conflict of interest policy: Governs when and how conflicts/potential conflicts are identified, disclosed and managed.
- Whistle-blower policy: Procedures for addressing complaints from employees regarding financial improprieties or misuse of organization resources.
- Document retention and destruction policy: Guidelines for storage and destruction of electronic and hard-copy files, including backup procedures.
- Expense reimbursement policy: Governs appropriate usage of corporate assets and the process for expense reimbursement (which must require receipts.)
- Non-standard gift acceptance policy: Guidelines for the acceptance of any contribution that is not expected to further the organization’s tax-exempt purpose, for which there is no ready market to convert the asset to cash and the value of the asset is difficult to ascertain. These policies are usually very specific to the organization.
There are some additional policies only applicable to certain organizations:
- Charity care policy (hospitals): Policies must include that the hospital will provide free or discounted care to medically indigent and not include a per-patient limit on care funded out of reserve for indigent patients.
- Written debt collection policy (hospitals): Provisions on the collection practices to be followed for patients who are known to qualify for charity care or financial assistance.
- Policy regarding chapters and affiliates: Ensure activities and operations of affiliates are consistent with those of the parent organization.
- Joint venture policy: These guidelines would set forth the procedures that an organization should utilize in evaluating a potential joint venture with a taxable entity in order to prevent any adverse impact on the organization’s tax-exempt status.
What happens if we forget to file?
Organizations that do not file are subject to certain penalties until they do, and nonprofits that fail to file with the IRS for three consecutive years will have their tax-exempt status automatically revoked. If your organization is on the hook for a late filing fee, review these suggestions for appealing the penalty.
While there is no way to file the 990-N e-postcard for prior years (and there is no penalty as long as there has not been failure to file for three consecutive years), both the 990 and 990-EZ form may be filed for past tax years. We recommend that you consult your accountant. MANP’s Yellow Pages have a variety of attorneys and accountants that serve the nonprofit sector.