Nonprofits: Get 990-Ready!


March 1, 2008

Almost ALL nonprofits must now file with the IRS

By James D. Cole, CPA

Nonprofit organizations must pay close attention to all sorts of legislation. One never knows where new requirements might be hiding.

The Pension Protection Act of 2006 included legislation directly impacting smaller nonprofit organizations and these entities must now file annually with the Internal Revenue Service (IRS). The new filing requirement is Form 990-N, also known as the e-Postcard. Until now, hundreds of thousands of nonprofit organizations were exempt from filing annual informational returns with the IRS because their annual revenue was less than $25,000.

No longer.

Any organization with a tax exemption from the IRS should pay attention.

When does this go into effect?

Basically, NOW. The form must be filed for all applicable entities for tax years beginning after December 31, 2006.  

Yes, but what if a nonprofit is very small. It is exempt, right?

Unfortunately, the answer is almost always NO. In fact, the entire purpose of the e-Postcard is to obtain the names, addresses and some other basic information about more than half a million small entities that previously did not have to file any forms with the IRS.

However, there are some limited exceptions:

  1. Organizations filing already as part of a group return
  2. Private foundations required to file Form 990-PF
  3. Section 509(a)(3) supporting organizations required to file Form 990 or Form 990-EZ
  4. Certain other organizations, including governmental entities, churches and their integrated auxiliaries
So, how many pages is the form?

There is no paper form. The information requested is fairly simple, but it must be filed electronically. Form 990-N is an electronic form seeking the following information:
  1. The legal name of the organization
  2. Any name under which the organization operates or does business
  3. The organization’s mailing address and Web site address (if any)
  4. The organization’s taxpayer identification number
  5. The name and address of a principal officer
  6. Evidence of the continuing basis for the organization’s exemption from the additional filing requirements under section 6033(a)(1). Interpreted, that means a statement confirming the organization’s annual gross receipts are normally $25,000 or less, because having revenues above $25,000 would require filing a regular form 990 or 990-EZ instead of the Form 990-N.
What is the due date?

Like the Form 990, the 990-N will be due no later than the 15th day of the fifth month after the end of an organization's tax year. For example, if the entity’s tax period ends on December 31, 2007, the e-Postcard is due May 15, 2008.

What if the nonprofit does not file?

Although there is no monetary penalty for failing to file Form 990-N, the law includes an interesting item. Organizations that do not file (this new form or another applicable 990 form) for three years in a row will simply have their tax exempt status revoked! To be reinstated with an exempt status, an organization would have to file a new exemption application, plus pay the applicable user fee.

Why did this change occur?

In short, Congress and the IRS wanted information. The IRS suggests in its material that Congress imposed this new requirement “because of concerns that small organizations, who have had no annual filing requirement in the past, have not kept the IRS up-to-date on address and other changes.” The IRS asserts that maintaining an up-to-date database is important both for IRS administrative purposes and for donors who seek information about contributing to recognized organizations.

How did the IRS communicate this news?

The IRS announced on July 12, 2007, that it had begun mailing educational letters to more than 650,000 small tax-exempt organizations that could be required to submit the new form. Unfortunately, because part of the problem was that proper address and contact information was often lacking, many small organizations may not have learned of this change. If an entity did not receive a letter from the IRS, the entity is not exempt from the filing requirement.

In a July 12, 2007, press release, Lois G. Lerner, director of the IRS Exempt Organizations division, stated “The new e-Postcard reporting requirement is simple and straightforward, but organizations shouldn’t ignore it, or they risk losing their tax-exempt status … and organizations will be able to submit it free of charge.”

Next steps

Every CPA should communicate the new requirements to each nonprofit client, as well as to any nonprofit entity with which they are engaged, either professionally or personally. Nonprofit entities are encouraged to contact their CPA, who will be well prepared to answer their questions.

More information about the form and the temporary regulations is available on the IRS Web site at www.irs.gov/eo.

Also, the e-Postcard filing site is now online at http://epostcard.form990.org.

James D. Cole, CPA, is CEO of the Masonic Home of Virginia in Richmond. His 27 years of experience with corporations and nonprofits include roles as a founder, officer, consultant and auditor. He regularly speaks and writes on nonprofit topics, and he is a member of the VSCPA Editorial Task Force.

LAST UPDATED 3/1/2008

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