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Understanding Filing Requirements and Non-Compliance Penalties for Exempt Organizations
Navigating the labyrinth of return filing requirements for tax-exempt entities can seem daunting at first glance. However, understanding these requirements is crucial for maintaining your organization's tax-exempt status and ensuring compliance with the Internal Revenue Service (IRS). This comprehensive guide will walk you through the various forms that may need to be filed, their specific requirements, due dates, online filing options, and the consequences of late or non-filing. By the end of this article, you'll have a clearer understanding of the process and how to navigate it efficiently.
Annual Filing Requirements - Tax-exempt organizations are required to file an annual information return or notice with the IRS unless an exception applies. Among the organizations excepted from filing the annual forms are religious organizations, church-affiliated schools under the college level, and certain political organizations. The primary forms involved are Forms 990, 990-EZ, 990-PF, 990-BL, and the 990-N (e-Postcard). The specific form your organization needs to file depends on its financial activity, assets, and type.
Understanding Which Form to File
Form 990 - Form 990, the "Return of Organization Exempt from Income Tax," is required for organizations with gross receipts of $200,000 or more, or total assets of $500,000 or more. It's also necessary for certain other organizations, such as those operating hospital facilities or sponsoring donor-advised funds.
Form 990-EZ – This is the "Short Form Return of Organization Exempt from Income Tax," and is for organizations with annual gross receipts less than $200,000 and total assets at the end of the tax year less than $500,000.
Form 990-N (e-Postcard) - Small organizations with annual gross receipts normally $50,000 or less may file Form 990-N, a simple electronic notice. However, certain organizations, despite their small size, are required to file Form 990 or 990-EZ instead.
Form 990-PF -Every private foundation, regardless of its revenue or assets, must file Form 990-PF annually. This form is the "Return of Private Foundation or Section 4947(a)(1) Trust Treated as Private Foundation."
Form 990-BL - Is for black lung benefit trusts with gross receipts more than $50,000. Those with gross receipts of $50,000 or less may file Form 990-N.
Due Dates and Extensions - The due date for these forms is the 15th day of the fifth month following the end of an organization's tax year. For example, if your tax year ends on December 31, your filing deadline is May 15 of the following year. Organizations can request an automatic six-month extension using Form 8868.
Online Filing Options - The IRS encourages electronic filing for its convenience and efficiency. Forms 990, 990-EZ, and 990-PF must be e-filed. Form 990-N must be filed online using the Form 990-N Electronic Filing System (e-Postcard). The IRS provides resources and links for online filing on its website.
Consequences of Late Filing or Non-Filing - Failing to file the required form for three consecutive years will result in automatic revocation of your organization's tax-exempt status. This is a significant penalty that can affect an organization's operations and donations.
Monetary Penalties for Filing Non-Compliance -Tax-exempt organizations are subject to monetary penalties for not filing their required annual returns or notices, or for filing them late, under various circumstances. Penalty amounts may be adjusted annually for inflation, and the amounts shown below are for returns required to be filed in 2025. The penalties and conditions under which they apply are as follows:
Late Filing of the Return - Organizations with annual gross receipts exceeding $1,274,000 are subject to a penalty of $125 for each day the failure to file continues, with a maximum penalty for any one return of $63,500. This penalty applies from the day after the due date of the return until the return is filed.
Failure to File Electronically - Tax-exempt organizations required to file electronically but fail to do so are deemed to have not filed the return, even if a paper return is submitted. This is considered a failure to file.
Incomplete or Incorrect Filing - If an organization files an incomplete return, such as by failing to complete a required line item or part of a schedule, or if the return contains incorrect information, penalties can also be imposed.
Responsible Person(s) Penalty - If the organization doesn't file a complete return or doesn't furnish correct information and fails to comply within a fixed time after the IRS sends a letter, a penalty of $10 a day can be charged to the person responsible, with a maximum penalty of $6,000 for any one return.
Disclosure Requirements - Exempt organizations that fail to file required disclosures are subject to a nondisclosure penalty of $125 for each day the failure continues, with a maximum penalty for any one disclosure of $63,500. If the IRS makes a written demand for disclosure and the organization fails to comply by the specified date, the penalty is $125 for each day after the date specified by the IRS until disclosure is made, with a maximum penalty for any one disclosure of $12,500.
These penalties highlight the importance of tax-exempt organizations filing their required returns and notices on time and accurately to avoid financial penalties and other consequences such as the revocation of tax-exempt status.
Other Considerations - Beyond the primary forms, tax-exempt organizations may need to file additional forms depending on their activities. For instance:
Employee Payroll Forms - Form 941, the Employer's Quarterly Federal Tax Return, is used by employers to report to the IRS wages paid to employees, federal income tax withheld from employees, both the employer's and employees' share of Social Security and Medicare taxes, and additional Medicare Tax withheld from employees.
Employers must file Form 941 quarterly even if they have no taxes to report, unless they filed a final return, received an IRS notification that they’re eligible to file Form 944 (an annual return), or meet certain exceptions. This form is used to ensure that employment taxes are reported and paid accurately and on time.
Unrelated Business Income - Tax-exempt organizations with gross income from an unrelated business of $1,000 or more must file Form 990-T, Exempt Organization Business Income Tax Return, and potentially pay unrelated business income tax (UBIT) on that income.
Unrelated Business Income (UBI) refers to the income generated from any trade or business that is regularly conducted by an exempt organization and is not substantially related to the performance of the organization's tax-exempt purpose or function, except as a means of producing funds. The concept of UBI is crucial for tax-exempt entities because it determines the extent to which these organizations may engage in business activities without jeopardizing their tax-exempt status or incurring tax liabilities.
Employee Benefit Plan Reporting – If the exempt organization has an employee benefit plan, a series Form 5500 must be filed. The purpose of this form is to assure that employee benefit plans are operated and managed in accordance with certain prescribed standards. It must be electronically filed and is due by the last day of the seventh month after the plan year ends, or typically July 31 for a calendar-year plan. A filing extension of 2½ months is available by filing Form 5558 prior to the due date deadline. Form 5558 may be paper filed.State Filing Requirements - State additional filing requirements may vary.
Staying Informed and Compliant - The IRS offers a wealth of resources to help tax-exempt organizations stay compliant. Their Charities and Nonprofits webpage, along with the StayExempt.irs.gov site, provides interactive workshops, mini-courses, and a free e-newsletter to keep you informed of the latest news and requirements.
Filing requirements for tax-exempt entities are an essential aspect of maintaining your organization's compliance and tax-exempt status. By understanding which forms apply to your organization, adhering to due dates, and taking advantage of online filing options, you can navigate the filing process more smoothly. Remember, staying informed and proactive in your filing obligations is key to avoiding penalties and ensuring your organization continues to thrive.
Contact this office with questions and for assistance meeting your exempt organizations filing requirements and avoiding non-compliance issues.
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