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The IRS’s Form 990 collects information about how a tax-exempt organization uses its money and how it’s run. Since Form 990 is available for public viewing, it also helps organizations communicate with their current and potential donors.
This article outlines five common errors to avoid when completing Form 990. Making mistakes with this form can lead to penalties, harm your organization’s reputation and even put your tax-exempt status at risk.
If you need further assistance, reach out to our team who has years of experience assisting nonprofits. (To contact us, complete the form at the bottom of this page.)
Not Filing on Time
Remember, Form 990 is due on the 15th day of the fifth month after your tax year ends. For example, that would be May 15th if your organization’s fiscal year matches the calendar year. If needed, you can request a six-month extension using Form 8868.
Also, be sure to follow all electronic filing requirements. Filing on paper is not enough if your organization is required to file electronically.
Unclear or Irrelevant Explanations
Narrative responses are important for explaining your organization’s activities and processes. Outdated or incomplete explanations can create confusion for the IRS and potential donors. Take the time to carefully review each year’s Form 990 and update the explanations to address the IRS’s questions. (Simply copying and pasting from past years’ responses is not a good practice in many cases.)
Failing to Correctly Report Unrelated Business Income
Even tax-exempt organizations must pay taxes on income when it’s classified as Unrelated Business Income (UBI). Identify all potential sources of UBI, such as advertising revenue earned from your publications or website, and consult with your tax team to ensure accurate reporting. Understanding the rules concerning UBI can be difficult so consider speaking with tax and accounting experts on this topic.
Incomplete Reporting of Board Members
Form 990 requires you to include all voting board members who served during your organization’s tax year, even if only for a short time. Keep detailed records of board rotations to ensure comprehensive reporting on Part VII-A of Form 990.
Incorrectly Categorizing Expenses
Properly categorizing expenses by function is crucial for filing Form 990 correctly and for demonstrating good financial management to donors and grantors. Be sure to develop practices to ensure expenses align with the right categories so you can provide an accurate overview of your organization’s finances.
Morgan & Associates Know Nonprofits and Form 990
Navigating Form 990 can be challenging, but with attention to detail, you can ensure compliance and maintain your tax-exempt status. Morgan & Associates is here to support your financial success. Contact us today for accounting and advisory services tailored to your nonprofit’s needs.
