990 Threshold: Determining Your Filing Requirement
Understand how your non-profit's financial activity dictates its Form 990 filing requirement, ensuring accurate reporting and continued IRS compliance.
Most organizations exempt from federal income tax must file an annual information return with the Internal Revenue Service (IRS). This return, Form 990, helps the IRS ensure organizations are adhering to tax-exemption rules and provides financial transparency to the public. The specific version of Form 990 an organization must file is dictated by its financial activity. Two metrics, gross receipts and total assets, determine the filing obligation for a given tax year.
Determining Your Filing Requirement
The IRS has established a tiered system for Form 990 filing, with different forms corresponding to the size of the organization. The smallest entities may file Form 990-N, also known as the e-Postcard, if they have annual gross receipts of $50,000 or less. This simplified electronic notice requires only basic identifying information.
For mid-sized organizations, the requirement is to file Form 990-EZ. This form is available to organizations with annual gross receipts of less than $200,000 and total assets of less than $500,000 at the end of their tax year. Both of these conditions must be met. If an organization’s gross receipts are below $200,000 but its assets exceed $500,000, it cannot use Form 990-EZ and must file the more comprehensive Form 990.
The standard, or “long,” Form 990 is the default return for larger tax-exempt organizations. An organization is required to file this version if its annual gross receipts are $200,000 or more, or if its total assets are $500,000 or more. This form requires a detailed breakdown of the organization’s finances, governance structure, and program service accomplishments. An organization that qualifies for a simpler form can voluntarily choose to file the full Form 990.
For Form 990 purposes, “gross receipts” refers to the total amount of income an organization receives from all sources during its annual accounting period, before any costs or expenses are subtracted. “Total assets” represents the value of everything the organization owns, which is reported on its balance sheet at the end of the tax year.
Special Considerations and Exceptions
An organization’s filing requirement is not always based on a single year’s financial data. The IRS allows for a three-year averaging rule for gross receipts to account for fluctuations in income. An organization that is at least three years old can determine its filing requirement by averaging its gross receipts for the current tax year and the two preceding years. For example, if an organization’s receipts were $210,000 this year, but $180,000 and $170,000 in the two prior years, its three-year average would be $186,667, potentially allowing it to file Form 990-EZ instead of the long Form 990.
Special rules apply to new organizations that do not have a three-year history. An organization in its first year of existence can file Form 990-N if it received or was pledged $75,000 or less. If an organization has been in existence for one to three years, it can file Form 990-N if it averaged $60,000 or less in gross receipts during its first two tax years.
Certain types of organizations are entirely exempt from the annual Form 990 filing requirement, regardless of their financial size. Prominent examples are churches, their integrated auxiliaries, and conventions or associations of churches. Other exempt entities include certain state institutions whose income is excluded from gross income, and corporations organized under an Act of Congress that are U.S. instrumentalities.
It is important to distinguish public charities from private foundations. Private foundations are subject to a different filing requirement. They must file Form 990-PF, Return of Private Foundation, regardless of their gross receipts or asset levels. The financial thresholds discussed for the Form 990 series do not apply to these entities.
Consequences of Incorrect Filing or Non-Filing
Failure to comply with Form 990 filing requirements can lead to financial penalties. The IRS can assess a penalty for filing late without a reasonable cause. For an organization with gross receipts of $1,274,000 or less, the penalty is $20 per day for each day the return is late, with a maximum penalty of the lesser of $12,500 or 5% of the organization’s gross receipts. For an organization with gross receipts exceeding $1,274,000, the penalty increases to $125 per day, with a maximum of $63,500.
Penalties are not just for late filing. Submitting an incomplete return or the wrong version of the form based on financial thresholds can also trigger penalties. If the IRS sends a notice indicating an incomplete or incorrect return, the organization has a short window to submit a corrected and complete form to avoid penalties. A responsible person within the organization who fails to comply with a request for information may also be subject to a daily penalty of $10, up to a maximum of $5,000.
The most severe consequence of non-compliance is the automatic revocation of an organization’s tax-exempt status. If an organization fails to file its required Form 990 series return for three consecutive years, its tax-exempt status is automatically revoked on the due date of the third required filing. This means the organization would be required to file corporate income tax returns and pay taxes, and it would no longer be eligible to receive tax-deductible charitable contributions. The IRS maintains a public list of all organizations whose status has been automatically revoked.