Creating Financial Transparency with Your IRS 990 Series (and Maintaining Tax Compliance)

Your finance office is driven by deadlines. Pay these bills by Friday. Close the books by the 10th. Pull these reports for the quarterly board meeting. These deadlines provide a consistent rhythm to your week, month, and quarter.

And then there is your annual IRS 990 series filing deadline.

With an ever-changing landscape of fundraising, economic conditions, and tactics for expanding mission-related programming, finding time for IRS tax reporting and filing 990 Series returns can be beyond challenging.

Tax compliance can be an intimidating topic, so in this article, we’ll be re-framing the process. Instead of giving you a checklist of tips to avoid IRS penalties or consequences, we’re giving you a checklist to empower your organization to reinforce its mission through efficient and transparent filing of your 990.

Misconceptions About IRS 990 Filing Requirements

It is a common misconception that because nonprofits are not taxed, they have limited interactions with the IRS. This couldn’t be more inaccurate! While it is true that nonprofits are not taxed as a traditional for-profit, they are required to complete and submit intricately detailed tax returns with the IRS annually. Returns in the 990 Series are arguably more in-depth and complex than a typical business tax return.

It’s also a common misconception that tax-exempt status is given to an organization for its entire lifetime. This is definitely untrue. Let’s get the bad news out of the way first: incorrect filing or failing to file can have consequences. For this reason, many nonprofit leaders fear their annual requirements. This is understandable, as the idea of the IRS stripping their organization of tax-exempt status is overwhelming.

However, this is the worst scenario. This process is called Automatic Revocation, and it only goes into effect when an organization fails to file its 990 returns for three consecutive years.

Now, let’s get into all the benefits of your organization’s 990 returns. The 990 returns that 501(c)(3) organizations file with the IRS become public record, meaning that donors, volunteers, and grant-providing organizations have easy access to them. Filing your organization’s annual return is an opportunity to show them that you are a responsible steward of funding and are committed to the mission statement.

Based on the size and structure of your organization, you will be required to files one of the following 990 returns:

Reinforcing Your Mission with Financial Transparency:

Annual 990 returns don’t have to be a stressful annual chore. While filing 990 returns demands organization and precise financial reporting, these annual filings offer a chance to demonstrate to your community how you transform contributions into meaningful programs.

A 990 return is a snapshot of your organization’s financial health.

Why Financial Transparency Matters to Donors

According to the IRS’ most recent statistical report for nonprofit organizations, nonprofits received a collective $551.3 billion in contributions, with over half of this amount coming from the public. Your community is the biggest stakeholder in your organization, and for them, your 990 return shows that your organization not only spends contributions in good faith but also stretches dollars when it comes to forwarding the mission. Donors will most likely be interested in:

Why Financial Transparency Matters to Grant-Providing Organizations

According to the same IRS study, at the end of the 2019 tax year there were a total of 1,365,744 nonprofit charitable organizations in the U.S. This number only continues to grow. With so many organizations seeking funding for a variety of deserving causes, transparent financial reporting can be the difference between obtaining or losing a grant opportunity. Funding organizations will focus on the financial information provided on 990 returns during the decision-making process, including:

The 990 Schedules also contribute to financial transparency. Organizations are required to attach certain schedules to their 990 returns based on their financial activities, such as Schedule B (Schedule of Contributors), Schedule I (Grants and Other Assistance to Organizations, Governments, and Individuals in the U.S.), and others.

Creating a Timeline for Annual 990 Filing

Just like kickstarting a fundraising campaign or implementing a new program or service, your organization’s annual 990 filing process must begin with a cohesive plan. As the organization’s finance leader, you will play a major role in putting this plan in place whether you plan to tackle this task on your own or delegate it to your team or board.

The filing process starts with gathering financial information. Coordinating with your organization’s bookkeeper, whether this is an employee, volunteer, or board member, is a must. Then comes the filing process. Be sure to put checks in place. Requiring board members and/or the Executive Director to review and approve the form before filing is an excellent way to eliminate filing errors and maintain accountability.

Of course, every timeline comes with a deadline. For your organization, the 990 filing deadline will depend on its tax year. The IRS requires organizations to file their 990 returns no later than the 15th day following the 5th month following the end of their tax year. For organizations operating on a calendar year, this deadline will be May 15th.

The Importance of Technology in IRS Tax Compliance

Now that the IRS mandates all tax-exempt organizations to file their annual 990 returns electronically, the industry is embracing a more modern filing process. The IRS’s efficient processing of electronic returns further enhances financial transparency in the nonprofit sector.

When it comes to enhancing the efficiency of your organization’s reporting process, choosing strong, consolidated accounting software is a great option for maintaining accurate financial information. Additionally, choosing an IRS-authorized e-file provider can modernize how you complete your return and enable you to collaborate with your team for a secure reporting process.

Whether you are in the middle of your filing preparation or need some help getting started, check out our webinar, A Checklist for Meeting Your IRS 990 Series Deadline (and Maintaining Tax Compliance). Nikita Sullivent of Tax990 will be giving a detailed look at the process of completing 990 returns and addressing frequently asked questions about the filing process.