September 1, 2015
This guest post is from Maribel Kruepke at Wegner CPAs. To learn more about Wegner CPAs, contact Yigit Uctum, CPA, CFE, MBA, Senior Manager at email@example.com.
An accurate 990 doesn’t only safeguard your association’s tax-exempt classification, it can help promote your mission and showcase the benefits derived from membership in your organization.
Having worked with the nonprofit community for over six decades, we’ve seen our fair share of 990 slipups. But when an innocent mistake could lead to $50,000 in penalties, it’s worth taking the time to get it right.
We’ve compiled a list of the most common mistakes to avoid when preparing your 990:
1. Understand which return(s) you need to file
- 990-N: For those organization’s with annual gross receipts of $50,000 or less. Supporting organizations under Section 509(a)(3) are ineligible to file a 990-N.
- 990-EZ: For those organization’s whose total annual gross receipts are below $200,000 AND total assets below $500,000.
- 990: For those organization’s with total annual gross receipts of $200,000 or more OR total assets of $500,000 or more.
- 990-T: If you have over $1,000 in annual unrelated business income. If this is applicable to you, the 990-T must be filed in addition to the basic 990 return.
2. Make sure you meet your deadlines
Returns are due on the 15th day of the 5th month following your association’s fiscal year-end. Breaking that down:
- If your year-end was 12/31/14, your return is due by 5/15/15
- If your year-end was 6/30/15, your return is due by 11/15/15
- Need an extension? While there are no extensions available for the 990-N return, 990-EZ, 990, and 990-T returns can be extended for up to six months.
3. Avoid an incomplete return(s)
Tax schedules are additional forms the IRS requires organizations to complete in addition to the core Form 990. Missing any of the required schedules results in an incomplete return, triggering late filing penalties of up to $50,000. Commonly completed tax schedules that should be attached to Form 990 include:
- Schedule A: Required of all public charities
- Schedule B: Associations that received donations/sponsorships of $5,000 or more
- Schedule C: Report lobbying and/or political activities
- Schedule D:Report fixed assets, endowment funds, escrow funds, and/or audited financial statements
- Schedule G: Required if the association had over $15,000 in gross income from either fundraising events or gaming activities
- Schedule R: Required if the association was related to any other organizations or if it owns 100% of a disregarded entity
4. Report all unrelated business income
Most of your association’s activities will fall under the organization’s mission and is related to your exempt purpose. For associations, the most common sources of unrelated business income are advertising, sales of merchandise to non-members, rental revenue from debt-financed properties, sale of mailing lists, insurance programs, and job-posting fees. All unrelated business income needs to be recorded in your Statement of Revenue.
5. Report political and/or lobbying activities
Failing to report political activities can lead to penalties imposed on your association and board members. Remember, associations classified as exempt under 501(c)(3) are prohibited from engaging in political activities.
6. Update your mission statement and program activities
Mission statement and program activities should relate to your association’s exempt purpose, whether that’s charitable, educational, etc. You should use this section to highlight your accomplishments. Wherever possible, try to use quantitative data such as number of people served, number of members, number of people who attended your events, etc.
7. Small, but no less embarrassing, errors
Sometimes it can be the little things that catch you out. While it may seem obvious, we recommend taking some time after you have prepared all of your information to check for:
- Incorrect contact information: address, phone number, website
- Typos throughout the form
- Outdated board list
- Information that is contradicted by your website
An accurate 990 not only helps safeguard your association’s exempt status, it allows the organization to promote its mission and recruit new members and sponsors. Ultimately, it is management’s responsibility to ensure the association’s 990 return is accurate and portrays the organization in the best light possible.