The process of navigating IRS tax compliance is a challenge, particularly when you have to file the proper version of Form 990. If you’re running a modest grassroots project or have an established foundation, understanding which form 990, the 990-EZ, 990-N or 990-PF will apply to your business is crucial. We at Parr & Ibarra CPA, make these decisions easier and ensure that accurate filings comply with IRS requirements, while also promoting the long-term health of your finances and transparency.
Form 990
Form 990, or Return of an Organization Exempt from Income Tax is submitted by the majority of mid-sized and large companies that are exempt from tax on income in accordance with IRC Section 501(a). An organization must complete Form 990 if it has either.
- gross receipts that exceeds or equal to $200,000, or
- total assets equal or greater than $500,000 by the conclusion of tax year.
The basic form 990 is a 12-part form that includes an additional 16 schedules. requirements to fill out is contingent on the specifics of the company. In general, gross receipts are the sum of the funds the company was able to receive from all sources during the tax year, not including any expenses or costs.
This filing requirement is applicable to the following tax-exempt entities:
- Organisations as defined as such in IRC Section 501(c)(3) (other exceptions to private foundations, which have to complete Form 990-PF) as well as
- Organizations that are described in different IRC Section 501(c) subsections (other than black lung benefit trusts, which must file Form 990-BL).
Tax-exempt entities that are affiliated or related to each other do not have to file a consolidated return form 990. The general rule is that when a tax-exempt entity possesses its own Employer Identification Number (or EIN) the organization should submit its own Form 990.
Form 990-EZ
The Form 990-EZ Short Form Return of Organization exempt from income tax, can be viewed as a smaller and a bit simpler form of Form 990 that could be used by smaller companies in lieu of the Form 990. Form 990-EZ is a 4-page return that comes with a variety of attachments based on the nature of work of the business.
In general, if a business has gross earnings under $200,000 and the total assets at the close of the tax year is less than $500,000, it may decide to file the Form 990-EZ.
Some organizations with gross receipts and total assets in the range of the thresholds above are able to file 990-EZ. Donor-advised fund sponsors (as as defined by IRC Section 4966(d)(1)) and those that run an hospital; companies which are recognized as such by IRS for being IRC Section 501(c)(29) NFP health insurance issuers, and certain controlling organizations as defined by IRC Section 512(b)(13) must be filing Form 990, not Form 990-EZ, regardless of the size of their gross earnings and assets. Additionally, Form 990-EZ can’t be employed by private foundations which are required to file Form990-PF and return of Private Foundation.
Practitioners often confuse Form 990 with Form 990-EZ. One way to recognize the distinction — since both forms’ filing requirements mention the amount of gross receipts as $200,000 as well as $500,000 of assets by the conclusion in the year of tax you should take into consideration the following.
To complete the Form 990-EZ, which is a short one and to file it, both the gross earnings and assets test must be completed and both must be lower than (not less than or equivalent to) the threshold stated. If one of the tests is not met (both do not meet) it is the case that Form 990 must be submitted (disregarding the $50k or less in gross receipts exemption to the e-Postcard for Form 990-N to be explained in the next section).
Form 990-N
Small tax-exempt businesses with annual gross revenues of $50,000 or less must electronically submit Form 990-N. electronic notice (e-Postcard) for tax-exempt entities. Not required to file Form 990, except if they decide to file a full Form 990 or Form990-EZ instead.
The key word is usually. A company’s gross revenues are typically at $50,000 or less if the company is less than one year old and received or pledged to give to donate $75,000 or less in the first tax year of its existence or between 1 and 3 years old, and had an average of minimum $60,000 of gross revenue for each of its first two tax years; or three years old or older and has averaged less than $50,000 in gross receipts during the preceding three year tax returns (including the tax year in when the return will be submitted).
The need to submit a Form 990-N strictly a test for gross receipts and doesn’t consider any other asset level. So, if a company typically has gross receipts of less than $50,000 then it can complete a Form 990-N, even if its assets are at least $1,000,000.
The process of filling out the e-Postcard is easy. The form 990-N is required to fill in the following eight pieces of information that are essential:
- Employer Identification Number (EIN) Also known as taxpayer identification number (TIN)
- Tax year
- Legal name and address for mailing
- Other names that the company employs
- Name and address of the principal officer
- Website address, if the company has one.
- Confirm that the business’s annual net receipts are typically $50,000 or less.
- If appropriate, a declaration that the company has been terminated or is closing (going to a different location)
The form must be filled out and submitted electronically. The form is not paper-based.
Even if an organization qualifies to file Form 990-N, it may still choose to file Form 990-EZ or Form 990. However, if an organization eligible to submit Form 990-N or Form 990-EZ chooses to file Form 990, it should file a complete return.
Form 990-PF
Private foundations, which includes trusts that are not exempt and treated by the IRS as private foundations must each year file the Form the 990-PF,return of private foundation. For private foundations the forms 1023 and 990-PF the Request to Recognize exemption (where applicable) are subject to public disclosure.
The tax return hasn’t been significantly altered over the last many decades. It is a document that is public which contains information on the financials and other aspects of the foundation, such as names of officers and trustees along with application details and the complete listing of grant awards. In general, the return will also contain a list of the foundation’s investments.
Selecting the right form for your IRS Form 990 can be not just a legal requirement, it’s an essential element in maintaining the good standing of your business and the public’s confidence. Each variant has specific thresholds, exemptions and specifics that require careful examination. A partnership with seasoned CPAs such as Parr & Ibarra can help you avoid costly errors as well as increase transparency and concentrate your efforts to make an impact. Take the stress out of compliance for nonprofits so that you can focus on the mission you’re pursuing.
