Non-profit organizations are generally tax-exempt and don't need to file revenue forms, but the Internal Revenue Service still requires lots of information — all to be painfully extracted and meticulously organized on IRS Form 990.
Not every tax form requires a payment of tax. Sometimes information is what the IRS is after. For example, Forms 990, 990-EZ, and 990-PF (the three, um, forms of Form 990) are considered information returns or reporting forms. The public uses the information on these returns to evaluate nonprofits and how they operate. On these forms, you can see what a nonprofit's income and expenses are, how much it pays its key people, and other useful information that can help you assess what a nonprofit does.
Form 990 is a fairly critical form for the public disclosure of information because the law doesn't require typical annual reports from nonprofit organizations. Even financial audits by independent accountants aren't required by law (except in special circumstances).
The organizations that must file the Form 990s don't have to pay federal income tax on income that's related to their exempt purposes and programs. However, many private foundations do have to pay an excise tax that's based on their investment income.
After an organization files its completed Form 990 or Form 990-EZ, it's available for the world to see. This public access is required under Section 6104 of the Internal Revenue Code. Form 990-PF (for private foundations) must also be made available for public inspection by the private foundation, but that usually requires an appointment and a trip down to the foundation's main office.
Organizations that must file a Form 990
The IRS wants to know about some groups every year. These groups include the following:
- Private foundations: Every private foundation must file a Form 990-PF, regardless of its size.
- Larger nonprofits: Most nonprofits that have incomes of more than $25,000 generally have to file either Form 990 or 990-EZ.
- Everyone else: Organizations that are tax-exempt under Sections 501(c), 527, or 4947(a)(1) of the U.S. tax code and that don't fall into the exemptions listed in the next section must file a 990 or 990-EZ every year without fail.
Organizations that don't have to file a 990
Some organizations are exempt from filing any of the Form 990s. To be sure that your organization is exempt, check out the following list of exempt entities:
- Small nonprofits: Organizations with annual incomes of $25,000 or less get a free ride, probably because the IRS itself has staffing and cost constraints.
- Faith-based organizations: Just about all faith-based organizations get to skip filing Form 990, regardless of size. Hallelujah!
- Subsidiaries of other nonprofits: The IRS believes in nepotism! Any subsidiary organization whose parent organization or national headquarters filed a 990 for the entire organization gets to skip the formalities.
- Nonprofits that aren't in the system yet: Nonprofits that haven't applied to the IRS for exemption from federal income tax don't have to file a Form 990 because the IRS wouldn't even know who the form is from.
- Religious schools: A school below college level that's affiliated with a church or operated by a religious order doesn't have any Form 990 homework.
- Missions and missionary organizations: This category includes a mission society sponsored by or affiliated with one or more churches or church organizations, if more than half of the society's activities are conducted in or directed at persons in foreign countries.
- State institutions: A state institution that gets a free tax ride because it provides essential government services (a university for example) doesn't have to file a Form 990.
- Government corporations: A corporation organized by an act of Congress that's an "instrumentality of the United States" doesn't have to file a Form 990 because it's an arm of the government and is exempt from federal income taxes under 501(c)(1).