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May 23, 2017

Compliance Checklist: How Not-for-Profits Can Meet Their IRS Filing Requirements (article)

Not-for-profit organizations have no shortage of pressure to submit accurate and complete year-end reporting. Annual information filings with the IRS, which include the Form 990, help ensure not-for-profit organizations keep their tax-exempt status. More importantly, these filings provide valuable information to stakeholders and the general public about the organization and its activities.   

For 2016, many of the filing requirements for exempt organizations have remained largely the same as previous years’ requirements.  Nevertheless, organizations should double check their Form 990 and other IRS filings for compliance. The following is a brief checklist to use for annual returns.

File the Correct Form 990

The annual information return comes in several varieties that depend on the size and financial activity of the organization.

Status

Form to File

Gross receipts normally ≤ $50,000

 990-N, 990-EZ or 990

Gross receipts < $200,000, and
Total assets < $500,000*

990-EZ or 990

Gross receipts ≥ $200,000, or
Total assets ≥ $500,000

990

Private foundation

 990-PF

*See instructions for restrictions on sponsoring organizations filing the form 990-EZ.

File the Form 990 on Time

Deadlines for the Form 990 coincide with the organization’s tax year end. Organizations that do not file their annual returns will be subject to penalties, and if they fail to file for three consecutive years, organizations will automatically lose their tax-exempt status.

Failure to file is one of the top compliance issues the IRS has with not-for-profit organizations. In 2016, the IRS’s Exempt Organizations (EO) division completed 6,440 examinations, and nearly half of those examinations had primary issues related to filing, organizational and operational compliance. Many of the filing-related examinations involved verifying exempt activities and securing delinquent Form 990 returns.

Given the history of compliance issues and the steep consequences for not filing, organizations will want to ensure their reporting is submitted on time to the IRS. For the 2016 tax year, a one-time six month extension is available by filing the Form 8868 before the initial Form 990 due date.

Unrelated Business Income

Organizations with income-generating activities that are unrelated to their core not-for-profit mission may be subject to additional filings. If unrelated business activities generate more than $1,000 in gross income, organizations must file an unrelated business income tax return—the Form 990-T. Unrelated business income taxes that exceed $500 will require organizations to pay an estimated tax on that amount. The Form 990-T is generally due at the same time as the Form 990, and its due date may also be extended by filing the Form 8868.

Employment Taxes

Employment taxes are another key compliance point for not-for-profit organizations. In more than 25 percent of the IRS’s EO examinations from the 2016 fiscal year, employment tax issues were the primary issue examined. The EO found that not-for-profit organizations’ employment tax issues were most frequently tied to  unreported  compensation, tips, accountable plans, worker reclassifications and noncompliance with Federal Insurance Contributions Act (FICA), Federal Unemployment Tax Act (FUTA) and back-up withholding requirements. Organizations should verify that their employment tax reporting is complete and accurate.

Private Foundations

Private foundations file the Form 990-PF, a variation of the Form 990 that includes reporting on investment income and the private foundation’s charitable activities. Errors with the Form 990-PF tend to fall in the following core areas:

  • Blank Spaces

    Even if aspects of the Form 990-PF are not applicable, private foundations should answer each question with the appropriate yes, no or N/A response, providing an explanation where required.

  • Incomplete Schedule B

    Private foundations must specify whether they are required to complete Schedule B in Line 2 of the Form 990-PF. Organizations complete Schedule B if they received assets or property valued at more than $5,000 from one individual, fiduciary, partnership, corporation, association, trust or exempt organization.

  • Incomplete Part XV, Line 3

    Organizations that complete Part 1, line 25 (Contributions, gifts, grants paid) must also provide supplementary information in Part XV, Line 3. If the organization only makes contributions to predetermined charities and does not accept unsolicited requests for funding, it should indicate that in Part XV, Line 2.

  • Incomplete Reporting on Assets

    Organizations should also complete the balance sheets on Part II.

  • Incomplete Part X

    Organizations operating under 4942(j)(3) and 4942(j)(5) must complete Part XIV of the Form 990-PF.

  • Unauthorized Signature

    Only officers of the organization are authorized to sign the Form 990-PF. Private foundations that are trusts must be signed by the authorized trustee(s).

Be Thorough

Because not-for-profit organizations have their information filings available to the public, they should be particularly vigilant in their year-end reporting. Professionals may also be able to assist your organization in meeting its reporting requirements. For more information about the Form 990, please contact us.

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Copyright © 2017, CBIZ, Inc. All rights reserved. Contents of this publication may not be reproduced without the express written consent of CBIZ. This publication is distributed with the understanding that CBIZ is not rendering legal, accounting or other professional advice. The reader is advised to contact a tax professional prior to taking any action based upon this information. CBIZ assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

CBIZ MHM is the brand name for CBIZ MHM, LLC, a national professional services company providing tax, financial advisory and consulting services to individuals, tax-exempt organizations and a wide range of publicly-traded and privately-held companies. CBIZ MHM, LLC is a fully owned subsidiary of CBIZ, Inc. (NYSE: CBZ).

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