Do Nonprofits Have to Report to the IRS?
Most nonprofit organizations must file an annual tax return with the IRS to maintain their federal tax-exempt status. This is done by submitting Form 990, which provides transparency into the organization’s mission, fundraising activities, revenue, and expenses for the prior fiscal year.
While it may seem counterintuitive that nonprofits need to file taxes at all, they are required to file annual tax returns to demonstrate they are operating in accordance with their charitable purpose and merit continued tax exemption. Filing Form 990 also builds public trust by making key information about the nonprofit’s finances and governance available to donors, foundations, and the general public.
Who Is Exempt from Filing a Tax Return?
Most nonprofits are required to file an annual return, but there are a few exceptions:
- Churches, interchurch organizations, and church-affiliated organizations
- Government corporations and state institutions
- Subordinate organizations included in a group return filed by a central organization
When Do Nonprofits Have to File Taxes?
Form 990 must be filed by the 15th day of the 5th month after the end of their tax year. So for a nonprofit with a fiscal year ending December 31st, the Form 990 filing deadline would be May 15th.
If more time is needed, nonprofits can request an automatic 6-month extension by filing Form 8868 before the original due date (except for Form 990-N). This would extend the filing deadline to November 15th for calendar year filers. In certain cases, the IRS may also grant an additional extension for reasonable cause.
What Happens If a Nonprofit Does Not File Taxes on Time?
If a nonprofit organization files its tax return late, it may face a penalty of up to $10,000 or 5% of its gross receipts, whichever is less. This penalty also increases by $100 each day the return is late. This is an avoidable penalty when you partner with the right team for guidance.
When filing Form 990-N, there’s no penalty for submitting it late, as long as it’s filed within 5 months and 15 days after the end of your nonprofit’s fiscal year.
If a nonprofit fails to file a return for 3 consecutive years, it will automatically lose its tax-exempt status. The organization would then need to refile for tax exemption and pay income taxes until its status is reinstated. As you can imagine, significant late filing penalties and loss of tax exemption could be devastating for a nonprofit, so it’s critical to understand and comply with IRS filing requirements.
