It seems logical: Your charitable organization doesn’t have to pay taxes, so there is no reason to file a tax return. Unfortunately, many tax exempt organizations fall into this line of reasoning – and it’s one that could cost you. Even if your organization doesn’t pay taxes, you still need to file a return. These returns are usually made public, and many people use them as they decide which charities to donate to.
The IRS expects 501(c)(3) organizations to file information returns that offers information on the money that came into the organization, and where the money was used.
Tax-exempt organizations use Form 990 to file the information about the business. There are four main types of Form 990:
- Form 990: This long form is used by tax exempt organizations with an income of at least $200,000 in the year, or assets totaling at least $500,000.
- Form 990-N: This is sometimes known as a “postcard” information return. It’s short, and is filed electronically. If the non-profit income is less than $50,000, this eight-question online form is all that needs to be filed.
- Form 990-EZ: Use this return if your income is less than $200,000 for the year and your assets total less than $500,000.
- Form 990-PF: This is the form used for private foundations and for non-exempt 4947(a)(1) charitable trusts.
Rather than having a set due date for an information return of this sort, the form is due based on your fiscal year. You are required to file the information return by the 15th day of the 5th month following the end of your fiscal year.
What Happens if You Don’t File?
Filing an information return is vital if you want to maintain your tax exempt status. In 2006, Congress passed a law stating that 501(c)(3) organizations that don’t file an information three years in a row will have their tax exempt status automatically revoked. This means that they can no longer receive tax-deductible contributions. This can be a big blow to some organizations, since many people are encouraged to donate because of the tax exemption they receive.
There are some exceptions to the rule, however. Even with the new law, there are some organizations that aren’t required to file information returns each year. Most of these organizations are faith-based and state institutions. Most churches and interchurch organizations, as well as missions, don’t have to file information returns. Additionally, most state institutions don’t have to file annual information returns. Foreign organizations located in the U.S., as long as they receive less than $50,000 from sources in U.S., don’t have to file, either.
As you prepare your finances for another year, it’s important to remember that your tax exempt status depends on the way you meet certain conditions. One of those conditions is that you should file an information return annually. If you neglect this duty, and neglect it long enough, you might find your status revoked – and that can make it difficult to raise the donations needed to carry out your mission.