Nonprofits must navigate the complexities of tax compliance, including an obligation to file an annual information return with the IRS. Recognized as tax-exempt, these organizations must meet certain criteria and obligations to maintain their status.
Form 990: Compliance and Public Inspection
Form 990 is an annual reporting requirement that nonprofits must file with the IRS. The public can view these tax returns, which ensures transparency in the operations of the nonprofit. Organizations need to comply with IRS regulations by choosing the correct Form 990 based on their gross receipts and category of exemption.
Consequences of Non-Compliance
Failure to file Form 990 for three consecutive years results in automatic revocation of the tax-exempt status. This can lead to penalties, income tax liability, and loss of trust among donors and stakeholders. It’s important to file these forms correctly and on time to maintain tax-exempt status and avoid unnecessary fees.
Obtaining and Using a Tax ID Number
To start the filing process, nonprofits must obtain a Tax ID Number from the IRS by completing Form 1023. This number should be used on all tax documents submitted to the IRS, and nonprofits should follow the IRS guidelines to determine which form best suits their financial situation.
Other Taxes and Exemptions
Nonprofits are not exempt from employee taxes and must follow the same guidelines as for-profit entities. However, they can obtain sales and property tax exemptions by applying under their organization’s name. Nonprofit CEOs receive compensation based on the organization’s size, and such payments must comply with IRS regulations.
Key Deadlines and Financial Responsibility
Nonprofits are required to file their tax returns by the 15th day of the 5th month following the end of their accounting period. It’s crucial to maintain accurate financial records, meet filing deadlines, and share financial statements with donors to ensure transparency. Smaller nonprofits with gross receipts of $50,000 or less must file Form 990-N.
For complete tax-exempt status, organizations must follow the steps of research, business plan development, filing documents, obtaining an EIN, and seeking IRS approval. Timely filing is essential to maintain tax-exempt status, and there is no appeal process for revocations due to non-filing. Charities and nonprofits are distinct in their operations but share the common benefit of being exempt from income tax.