top of page

Your Guide to State and Federal Annual Compliance

At the core of nonprofit tax compliance is Form 990, an essential document that provides transparency about an organization's finances, operations, and governance.

In May 2020, during the global pandemic, the IRS revoked the tax-exempt status of more than 30,000 nonprofits for failing to file their tax returns. Forbes 

Understanding Form 990

Form 990 is more than just a tax return for nonprofits; it's a comprehensive disclosure document that offers insights into an organization's mission, programs, and finances. While several variations of Form 990 are tailored to specific types of nonprofits, the most common versions are Form 990N e-postcard and Form 990. 

Deciding Which Form to File

One of the first steps in nonprofit compliance is determining which version of Form 990 to file based on revenue. Here's a simplified breakdown:

  • Form 990-N (e-Postcard): For organizations with annual gross receipts normally less than or equal to $50,000. This form is a simple electronic submission that requires basic information about the organization.

  • Form 990-EZ: This form is for organizations with annual gross receipts less than $200,000 and total assets less than $500,000 at the end of the tax year. It provides a middle ground between the simplicity of Form 990-N and the comprehensive reporting of Form 990.

  • Form 990: This form is for organizations with annual gross receipts normally greater than or equal to $200,000 or total assets greater than or equal to $500,000 at the end of the tax year. It is the most detailed, requiring extensive information about the organization's finances, activities, and governance.

Note: Private foundations, established by individuals or corporations, file Form 990-PF annually to disclose financial activities. If misclassified, they can seek correction with Form 8940, ensuring compliance with tax laws.

Where to File

  • Form 990-N (e-Postcard):

    • You can do it yourself!

    • The IRS website allows you to file Form 990-N (e-Postcard) for free. However, it is less user-friendly. 

    • If you prefer an alternative, I recommend Tax 990 (formerly known as express tax exempt). It offers a more user-friendly interface, allows you to track your filings, and receives annual email notifications, which the IRS website lacks.

  • Form 990-EZ:

    • CPA Recommended 

    • If you file Form 990-EZ yourself, you can still utilize Tax 990 (formerly express tax-exempt) or similar online platforms.

    • It is advisable to engage a Certified Public Accountant (CPA) for assistance, especially given the complexities involved and increased financial transactions. 

  • Form 990:

    • CPA is highly recommended (mandatory, in my opinion).

    • Form 990 involves comprehensive financial reporting and compliance requirements. It's strongly recommended that you do not file this form yourself. Seeking professional assistance from a CPA or tax advisor specializing in nonprofit organizations is highly advisable to ensure accuracy and compliance with IRS regulations.

Note: Always double-check the latest IRS guidelines and regulations before filing any tax forms.

Navigating State Compliance

Nonprofit compliance extends beyond federal tax obligations to include state-level requirements. While Form 990 satisfies federal reporting obligations, nonprofits must also adhere to state-specific regulations, which may vary significantly. 

State Compliance Checklist

  • Confirm that the organization files annual reports or other required documents with the state's Secretary of State or similar regulatory agency.

  • Check with your state for annual Charity Registration or Solicitation of Charitable Contributions.

  • Some states also have sales tax exemptions, most of these renew automatically or require renewal every five years. 

Hiring a Consultant

Navigating nonprofit compliance can be daunting, but it doesn't have to be. One crucial piece of advice for nonprofit leaders is to seek assistance from professionals well-versed in nonprofit tax law and compliance. While many certified public accountants (CPAs) are skilled in tax preparation, not all have expertise in nonprofit compliance. Therefore, finding a CPA or tax advisor with specific experience in nonprofit accounting and compliance is essential.

Nonprofit Compliance is not merely a bureaucratic requirement; it promotes transparency, accountability, and trust within the nonprofit sector. 

Access to this blog is for reference only. It was not created by a law firm or a substitute for legal advice. It does not offer legal advice, explanations, opinions, or recommendations regarding legal rights, remedies, defenses, options, or strategies. 

85 views0 comments


bottom of page