Organizations described in section 501(c)(3) are commonly referred to as charitable organizations. Organizations described in section 501(c)(3), other than testing for public safety organizations, are eligible to receive tax-deductible contributions in accordance with Code section 170. Navigate the complex process of establishing a compliant, tax-exempt nonprofit organization. I have enjoyed connecting with many of you since the first article’s publication, and I invite you to share your experiences, questions, or challenges related to these topics. Your input enriches our discussions and helps tailor this series to your needs, fostering a more informed nonprofit community. Many view it solely as an administrative task – a checkbox to be ticked off each year.

Penalties for Missing Deadlines

Physical copies of critical documents should also be securely stored and systematically organized. Ensure your nonprofit’s compliance with this guide on timely and accurate filing, covering essential requirements and strategies to avoid common pitfalls. Nonprofit organizations should have an EIN, often referred to as a Federal ID Number, even if it has no employees. The EIN acts similarly to a social security number for individuals and may be requested when opening a bank account or during other fiscal operations. Organizations must be incorporated before applying for an EIN and must have an EIN before applying for tax-exempt status.

• Your team will need to track program performance, budgets, grant utilization, and employee hours.
• This post, understanding federal filing requirements, focuses on key forms and concepts, common pitfalls, and strategic practices when it comes to federal filings for nonprofits.
• Some organizations, such as churches and certain church-affiliated organizations, are not required to file annual returns or notices.
• If the activity as a whole is determined to be substantial, the organization’s exempt status may be jeopardized.

Further reading: Nonprofit Financial Statements: Understanding How To Use Nonprofit Financial Documents

Some states may impose additional penalties, such as federal filing requirements for nonprofits suspending an organization’s ability to solicit funds. States have varying rules for annual reports, charitable solicitation registrations, and additional compliance documents. For example, California mandates filing the RRF-1 form with the Attorney General’s Registry of Charitable Trusts. Noncompliance can lead to fines, operational suspensions, or even dissolution.

What form should your nonprofit use to file its annual return with the IRS?

Form 990-EZ is a simplified return option available to nonprofits operating below $200,000 in gross receipts and maintaining assets under $500,000. Implement Document Management SystemsA centralized document management system is vital for maintaining order and accessibility. Cloud-based platforms like Dropbox or Google Drive can store and organize key documents, facilitating collaboration and reducing errors.

Charitable organizations — IRC 501(c)(3)Organizations that are organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, educational or other specified purposes. A .gov website belongs to an official government organization in the United States. This Google™ translation feature, provided on the Franchise Tax Board (FTB) website, is for general information only. Organizations are not required to—and should not—disclose the names or addresses of contributors. If the return is considered “widely available”—for example, if it is posted on a publicly accessible website—the organization may direct the requester to the appropriate Internet address instead of providing a physical copy.

File

• States have varying rules for annual reports, charitable solicitation registrations, and additional compliance documents.
• Even if an organization uses the income from an unrelated activity to help pay for its exempt activities, that income is still UBI.
• The information provided on this website does not, and is not intended to, constitute legal, tax or accounting advice or recommendations.
• Reinstatement of exemption may be retroactive if the organization shows that the failure to file was for a reasonable cause.
• Follow IRS instructions carefully as any errors or omissions can delay processing and potentially affect grant funding.
• Another frequent error is failing to reconcile financial statements with tax returns.

Missing this deadline can result in penalties, including the loss of tax-exempt status, which may have significant financial repercussions. By filing your Form 990 paperwork correctly each year and submitting it on time, you can protect your tax-exempt organization from losing its nonprofit status and avoid IRS-issued penalties. Our team of qualified, expert, certified public accountants can guide you through the process to alleviate the stress and hassle of preparing your annual return. Some nonprofits engage in activities that can generate income that subjects them to UBIT. A typical example is when a nonprofit sells advertising space on its website, in newsletters, or other publications.

In this primer, learn how payroll clearing accounts improve operations, streamline payroll, and can improve your financial efficiency. Since grants often make up a sizable portion of nonprofit income, accurate grant tracking is essential. Now that we better understand the key differences in paying employees in the nonprofit sector, let’s find out about the rules they need to follow. Statements of fact and opinion are the authors’ responsibility alone and do not imply an opinion on the part of PICPA officers or members. The information contained in herein does not constitute accounting, legal, or professional advice.

Maintaining exemption

We cannot guarantee the accuracy of this translation and shall not be liable for any inaccurate information or changes in the page layout resulting from the translation application tool. Organizations eligible to file FTB 199N may choose to file a complete Form 199. It’s important to remember that donor names and addresses do not need to be shared, even if requested. The law protects contributor privacy while still requiring general financial transparency. Additional information with respect to section 6033(i) is available at IRS.gov/charities. Lobbying is activity in support of or in opposition to legislation (think “L & L” — lobbying and legislation).

If the activity as a whole is determined to be substantial, the organization’s exempt status may be jeopardized. Are you starting or involved with a charity or other non-profit organization with 501(c) status? If so, you should be aware that these groups are subject to various IRS filing requirements and, in some cases, must pay tax. The next step involves filing the Articles of Incorporation with the state government. This document establishes the entity and typically includes the organization’s name, its specific purpose, the name and address of its registered agent, and information about the initial board members. If at least 33% of your revenue comes from small donors who give less than 2% of your organization’s overall revenue, you are set up to maintain your status as a public charity.

Staying organized is essential for managing filing requirements and deadlines. Effective organization not only ensures compliance but also streamlines operations. Chief among these is the IRS Form 990, a public document that provides an overview of the organization’s mission, programs, and finances. Depending on size and revenue, nonprofits may file variations such as Form 990-EZ or 990-N.

A nonprofit that fails to meet its annual filing requirements for three consecutive tax years will have its tax-exempt status revoked, leaving it subject to federal (and often state) income tax. If an organization’s tax-exempt status is revoked, it can apply for reinstatement through either a streamlined process, or a more arduous one. While federal forms like Form 990 receive significant attention, state requirements, including unique forms, fees, and deadlines, are sometimes neglected.

Form 990-N (e-Postcard) is for the smallest organizations, Form 990-EZ is for medium-sized nonprofits, and the standard Form 990 is for larger organizations. For instance, Form 990-EZ and the standard Form 990 demand more detailed financial information and narratives about the organization’s programs, unlike the brief e-Postcard. Choosing the correct form is crucial for compliance and accurately reflecting your organization’s financial status. Often a nonprofit misses its filing deadlines because the individual responsible for such filings or the individual listed as the contact person for the IRS and the Secretary of State no longer works for the nonprofit. Regardless of which variation of Form 990 your nonprofit is required to file, late filings and failure to file have significant consequences.