Filing IRS Form 990-EZ: Steps, Criteria, and Pitfalls

Form 990-EZ is a key document for certain tax-exempt organizations, ensuring transparency and accountability. It is a simplified version of Form 990, designed for smaller organizations with less complex financial activities. Correct filing is essential for compliance with IRS regulations.

Eligibility Criteria

Organizations must meet specific financial thresholds set by the IRS to file Form 990-EZ. Those with gross receipts under $200,000 and total assets below $500,000 at the end of the tax year qualify. These limits accommodate smaller entities, allowing them to report financial activities without the complexity of the full Form 990. It’s crucial to verify these thresholds annually, as they may change.

The type of organization also determines eligibility. Tax-exempt entities such as charities, educational institutions, and certain political organizations typically qualify. However, private foundations and some religious organizations must file different forms, such as Form 990-PF, or may be exempt from filing. Understanding these distinctions is critical for compliance.

Key Sections of the Form

Form 990-EZ simplifies reporting for smaller tax-exempt organizations, but each section requires accuracy. Part I focuses on Revenue, Expenses, and Changes in Net Assets or Fund Balances. Organizations must report revenue streams, including contributions, program service revenue, and investment income, and categorize expenses into grants, benefits paid, and salaries.

Part II requires reporting of Balance Sheets, detailing the organization’s financial position at the start and end of the fiscal year. This includes assets, liabilities, and net assets, which are essential for assessing financial stability. Cross-verifying these figures with audited financial statements ensures consistency.

Part III covers the Statement of Program Service Accomplishments. Organizations describe their primary program service activities, achievements, and related expenses. This demonstrates their impact and helps justify their tax-exempt status.

Part IV lists Officers, Directors, Trustees, and Key Employees, requiring detailed information about individuals who govern or influence the organization, including their compensation and average hours worked per week. This section highlights governance practices and ensures transparency.

Common Mistakes to Avoid

Filing Form 990-EZ requires diligence to avoid errors. A frequent mistake is inaccurate reporting of unrelated business income, as defined by IRC Section 512. Misreporting this can lead to unexpected tax liabilities and penalties.

Incomplete or inconsistent governance disclosures are another issue. The IRS emphasizes transparency, so discrepancies can trigger further scrutiny. Organizations must ensure all governance questions are answered thoroughly.

Incorrect classification of expenses is also common. Misallocating costs between program services, management, and fundraising can misrepresent the organization’s financial picture. Reviewing expenses against the organization’s chart of accounts and past filings can prevent this.

Filing Process and Deadlines

Form 990-EZ must be filed by the 15th day of the 5th month after the end of the fiscal year. For instance, if the fiscal year ends on December 31, the deadline is May 15 of the following year. Missing the deadline incurs penalties: $20 per day for smaller organizations, up to $10,000 or 5% of gross receipts, whichever is less. For organizations with gross receipts exceeding $1 million, the penalty rises to $100 per day, capped at $50,000.

The IRS requires electronic filing for most organizations, which can be done through the Modernized e-File (MeF) system. Using accounting software compatible with the IRS system reduces errors and simplifies the process.

Amendments and Corrections

Organizations may need to amend Form 990-EZ to correct errors or update financial information. The IRS allows amended returns, which must use the same form version as the original filing and be clearly marked as “Amended” at the top.

When amending, organizations should review the original submission to identify discrepancies, such as errors in revenue reporting, asset valuations, or governance disclosures. A detailed explanation of changes should accompany the amended form. Supporting documentation, like revised financial statements or board meeting minutes, is essential for transparency and to address potential scrutiny.

Making corrections goes beyond fixing numbers. It ensures stakeholders remain confident in the organization’s financial integrity. Consulting auditors or financial advisors can provide additional oversight. Organizations should also consider state-specific requirements for amendments, as these may differ from federal rules. With careful attention to detail, organizations can maintain transparency and accountability.