So, you’ve recently formed your 501(c)(3) nonprofit. You’re happy, you’re ready to work for the public good, and you’ve already got your hand prepped and ready to wave goodbye to Uncle Sam, forever.
Just follow the yellow-brick road to the land of permanent tax-exemption right?
The IRS doesn’t hand out a free pass to avoid taxes in perpetuity.
Instead, nonprofit businesses must apply for tax-exempt status ANNUALLY by submitting IRS form 990, the most common variation of which is the IRS form 990EZ.
Although the IRS 990EZ form is significantly shorter than the IRS Form 990 (4 pages vs 12), it can be overwhelming for recently established nonprofits to know exactly what to do, and when, in the submission process.
So, From Start to Finish, Here’s What to Expect from the IRS 990 EZ Form.
What is the IRS 990 EZ Form?
The Short Answer:
It’s a government application for nonprofits to claim tax-exempt status for the fiscal year.
Although there are three forms of the IRS 990 (990-N, 990, and 990 EZ) the IRS Form 990 EZ is distinct in that it’s one of the simplest and most common applications of the group.
To apply using the IRS Form 990 EZ, two conditions must be met. The organization must have:
- Gross receipts less than $200,000
- Assets less than $500,000
Another perk of this tax-exemption filing is that the form can be filed physically or digitally compared to the print-only status of the IRS Form 990.
Though filing the IRS form 990 EZ is faster and easier than Form 990, the filing process can remain frustrating.
To start, the IRS Form 990 EZ is 4 pages but the penalties are stiff if mistakes are present—ranging from a return-to-sender for resubmission, or in the case of late filings, an outright loss of tax-exemption status & financial fees.
Where can I get the form?
You can access the IRS form 990 EZ here.
What does form 990 EZ require?
Because the application is designed to provide the IRS with a full accounting of the financials and structure of your organization, detailed financial documents and information about your business’s formation will be requested.
These points of information include:
- Contributions, gifts, and grants received
- Service revenue
- Investment income
- Fundraising and events
- Salaries, benefits, and bonuses of employees
- Cash, savings, and investments
- Total assets and liabilities
- Organizational accomplishments
- A list of officers, directors, trustees, and key employees
…and that’s just on the first two pages.
Depending on the nature of your nonprofit, you may also be requested to give supplemental documents and information called “schedules.” These schedules are essentially “yes or no” questions that are meant to determine if your organization must provide additional information (schedules).
Here are a few examples:
- Schedule of Contributors – a request for a list of all your contributors.
- Schedule D – request to provide more detailed financial statements.
- Schedule F – request to report your organization’s activity outside the United States
- Schedule G – request to describe your organization’s fundraising activities.
As you can imagine, it helps to keep accurate records of your information year round in preparation for filing the IRS Form 990 EZ. It’ll save you a ton of time in the long run and make the process of filing a whole lot smoother.
Lastly, always be honest and thorough with the information you provide. Any missing information, gaps, or inaccuracies may result in your filing submission being sent back to you with a “Letter2695C Returning form 990 due to Missing Information”—yup, that’s a mouthful—which will require you to resubmit your application to avoid penalties and the loss of your tax-exemption status.
How do I file?
Thankfully, the IRS provides some light-reading to get you started with their 100-page instruction manual.
If you’re handling your own paperwork and filing, the IRS will require you to gather all the appropriate forms, schedules, and supplemental documents, then physically mail them here:
Department of the Treasury Internal Revenue Service Center
Ogden, UT 84201-0027
However, if you’d like to file this year instead of 2050, it’s best to work with an IRS-authorized e-filer to walk you through the documentation process and file the form for you.
What happens if I’m late?
Unfortunately, nothing good.
First, assuming you file late and your organization has gross receipts less than $1,000,000 for the tax year:
- You’ll be imposed a penalty of $20 per day for each day the return is late.
- The max penalty is $10,000 or 5% of the organization’s gross receipts—whatever is less.
- Special note: If your organization’s gross receipts exceed $1,000,000, that daily penalty shoots up to $100 per day, with a maximum charge of $50,000.
But if you fail to file for more than three years…
- You’ll lose your tax-exempt status.
- You’ll have to reapply and pay filing fees.
..and that will mean you’re back to paying taxes again.
Here’s how to avoid that:
File the IRS Form 990EZ by one of these two deadlines, depending on your organization.
- May 15th if your organization is following the Calendar Tax Year.
- The 15th day of the 5th month after the last month that concludes your fiscal tax year.
- For example, if your fiscal tax year ended in April, you would file your taxes September 15th)
Also, if you’re strapped for time, feel free to ask for an extension.
If you give the IRS advanced notice by e-filing form 8688 before your deadline, they’ll give you an additional six-months extension on your original deadline.
How long does it to hear back?
The IRS says you should expect to hear from them within 180 days of submitting your application.
What happens when I’m approved?
You’ll be granted tax-exemption for the fiscal year and won’t be taxed federally—and in many cases statewide—on the income you’ve generated.
Then and only then, can you tip your hat to Uncle Sam, and hit the road straight for Emerald city.
If you have any questions on how to file the IRS 990 EZ
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