Return of Organization Exempt from Income Tax Overview

What is Form 990: Return of an Organization Exempt from Income Tax?

Even organizations exempt from federal income tax must report their activities annually to the Internal Revenue Service (IRS). This IRS requirement is detailed in the Internal Revenue Code (IRC). Some tax-exempt organizations are required to use Form 990: Return of an Income Tax-Exempt Organization for their annual report.

Organizations using Form 990 are exempt under the tax categories described in IRC Section 501(c), Section 527, and Section 4947(a). These organizations are generally classified by the IRS as nonexempt charities, political organizations, or charitable trusts. Private foundations are not required to file Form 990 because they have their own annual filing requirement: Form 990-PF.

Key takeaways

  • Form 990 is a form that certain tax-exempt organizations are required to submit to the Internal Revenue Service (IRS) as part of their annual report.
  • Organizations that use Form 990 are exempt from federal income tax in the tax categories described in Section 501(c), Section 527, and Section 4947(a) of the Internal Revenue Code ( IRC).
  • Unlike federal tax returns which are private, Form 990 is open to public inspection.

Form 990 must be filed by an exempt organization, even if it has not yet filed Form 1023 with the IRS to receive official approval of its tax-exempt status. However, some organizations are exempt from completing the form. Unlike private tax returns, this form is accessible to the public.

How to Read Form 990: Return of an Organization Exempt from Income Tax

Form 990 is intended to provide the government and interested members of the public with an overview of the organization's activities for that year. It is possible that some donors base their giving decisions on what they can discern from Form 990. The IRS requires a large amount of information from the organization; the instructions on how to complete the 12-page form are 100 pages long. Additionally, the organization may be subject to a significant penalty if it fails to file on time.

Form 990 consists of 12 different parts:

  • The first part is a summary of the organization. It requires information about the organization's activities and governance (e.g., its mission, number of employees and volunteers, etc.), revenues, expenses, and net assets or fund balances.
  • Part II is the signature block in which an officer of the organization certifies under penalty of perjury that the information is true, correct and complete to the best of his or her knowledge.
  • Part III is a statement of the organization's accomplishments, including its mission statement and the expenditures and revenues of the organization's three largest program services.
  • Part IV is a checklist of annexes that must be completed and accompany the form (explained later).
  • Part V concerns statements regarding other IRS filings and tax compliance. For example, if the organization can receive tax-deductible contributions, it must disclose whether it has provided donors with the required justification for their donations.
  • Part VI requests information about the governing body and management of the organization as well as its policies.
  • Part VII lists compensation paid to officers, directors, trustees, key employees, key employees, employees receiving more than $100,000 in compensation, and up to five independent contractors receiving more than $100,000 in payment from the organization.
  • Part VIII is a statement of the organization's income from related or exempt funds and unrelated business income, which requires filing Form 990-T; this income is not exempt.
  • Part IX is used to report the organization's expenses.
  • Part X is the balance sheet of the organization.
  • Part XI is a reconciliation of the organization's net assets.
  • Part XII explains the organization's financial statements and reporting (for example, whether it uses cash accounting, accrual accounting or another reporting method to prepare the form and whether its financial statements have been compiled and examined by an independent accountant).

In addition to the form, the organization may be required to attach various annexes – A through O and R – to the form in order to provide additional information. The organization can determine which times it should use based on the answers to the questions asked throughout the form. One of the most common schedules used by organizations to provide additional information to Form 990 is Appendix O.

All pages of Form 990 are available on the IRS website.

Special Considerations When Filing Form 990: Return of an Organization Exempt from Income Tax

Instead of filing Form 990, an organization may be eligible to file a simplified version of Form 990, called Form 990-EZ: Abbreviated Income Tax Exempt Organization Return Form. It is a four-page form, instead of a 12-page form, and requires some of the same information as Form 990. It can be used by an organization with gross receipts. of less than $200,000 and total assets of less than $500,000 at the end of its taxation year. Like Form 990, Form 990-EZ is also made public.

The essential

Because organizations required to file Form 990 are tax-exempt, their annual activities may be subject to greater scrutiny by the IRS. Form 990 allows an organization to fully disclose all of its activities each year. Due to the large amount of information required by the form, it will likely require the assistance of a tax professional familiar with tax law.

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