The Form 990 is the standard return that a tax-exempt organization must file with the IRS. The Form was redesigned in 2008 with three goals in mind, as articulated by the IRS: increasing transparency, promoting tax compliance and minimizing the burden on the filing organization. The Form requests detailed information about the activities, governance, revenue and expenses of the exempt organization, and, once filed, it is generally available for public inspection. Forms 990-N, 990-EZ and 990-PF are all variations of the standard Form 990.
Small tax-exempt organizations expressed concerns about transitioning to the new Form 990, so the IRS agreed to “phase-in” the Form over the course of three years by increasing the thresholds for filing the 990-EZ and the 990-N. These increased thresholds, relating to gross receipts and total assets, have allowed smaller organizations the option of filing the new Form 990 or one of the other 990 variations. Since the 2008 tax year, the thresholds have decreased each year. For the 2010 tax year, the thresholds have decreased for the final time.
For the 2010 tax year, organizations with gross receipts normally $50,000 or less may file the Form 990-N. The Form 990-N is also known as the “e-Postcard.” It is a truncated, electronic version of the Form 990 consisting of eight questions. An organization’s gross receipts are considered to be normally $50,000 or less if: (i) the organization has been existence one year or less and has received $75,000 or less in its first taxable year, (ii) the organization has been in existence between one and three years and has averaged $60,000 or less in gross receipts in its first two taxable years, or (iii) the organization has been in existence at least three years and has averaged $50,000 or less in gross receipts in the three immediately preceding taxable years.
Organizations with gross receipts greater than $50,000 but less than $200,000 and with total assets less than $500,000 may file the Form 990-EZ. The Form 990-EZ is the short form of the Form 990. Organizations with gross receipts of $200,000 or more or total assets of $500,000 or more must file the long form 990.
Regardless of its asset levels or gross receipts, private foundations must always file the Form 990-PF. Unlike a public charity, which has its broad-base of donors to act as watchdogs, a private foundation’s donor base is usually limited to a small group of individuals—often a single family. For this reason, private foundations are highly regulated and monitored by the IRS. The Form 990-PF requests information about the private foundation’s assets, financial activities, officers and trustees, as well as a complete list of grants.
Organizations should also file a Form 990-T if they have earned unrelated business income during the 2010 tax year. Small tax-exempt organizations that are eligible to receive the small business health care tax credit should use the Form 990-T to claim the credit. To qualify for the small business health care credit, the organization must have contributed at least half of the cost of single health care coverage for its employees in 2010. The organization must also be a “small employer,” which means that it employs fewer than 25 full-time equivalents and pays wages averaging less than $50,000 per employee per year. The number of an employer’s full-time equivalents is calculated by adding the hours of service for which the employer pays wages during the year and dividing the total by 2,080. The credit is awarded on a sliding scale, with the full amount of the credit available to employers with 10 or fewer full-time equivalents and who pay wages averaging less than $25,000 per employee per year. The maximum amount that a tax-exempt organization may receive is 25% of its contribution toward its employees’ health insurance premiums. It is a refundable credit, so even if the organization receives no taxable income, it may still receive a refund. The IRS has issued a new Form 8941, on which the organization may calculate the amount of the credit it is entitled to receive. The organization should then include the amount of the credit on Line 44f of Form 990-T.
Certain organizations, such as churches, are exempt from the annual filing requirements. Other organizations must file annual returns in addition to the Form 990, due to excise taxes or employment taxes, for example. It is important to identify an organization’s filing requirements and strictly adhere to all filing deadlines. If an organization fails to file the proper return or notice for three consecutive years, it will automatically lose its tax-exempt status, which means that the organization would be required to pay income tax, and donors’ contributions would not be tax-deductible. If there is any doubt as to what an organization is required to file with the IRS, it is best to consult a tax professional.