In a previous post, we discussed how a nonprofit can apply for tax-exempt status. One common misconception that many nonprofit owners have that, once they achieve this status, they don’t have to take any further action. This misunderstanding can land nonprofits in real trouble.
In today’s article, we discuss the requirements for nonprofits to maintain their tax-exempt status.
Annual reporting and filing
Tax-exempt status means that an organization is not required to pay taxes. However, besides a few exceptions to the rule, tax-exempt organizations are still required to file annual tax returns. This requirement allows the IRS to verify that such organizations continue to qualify for their tax-exempt status over time.
Charitable organizations must submit their tax returns by May 15th of each year, using Form 990 or a variation thereof:
- Form 990 or 990-EZ: for organizations grossing more than $50,000 per year
- Form 990-N: for organizations grossing less than $50,000 per year
- Form 990-PF: for private foundations
In addition to submitting Form 990 to the IRS, charitable organizations must also make this form—along with their original application for tax exemption—readily available to the general public for inspection. Such organizations may keep copies of these documents accessible during business hours or post copies on their website.
Failing to submit Form 990
Any charitable organization that does not file a tax return for three years in a row will automatically lose its tax-exempt status. There is no appeals process for this type of revocation.
Therefore, even if you believe your organization may not have to file Form 990, it is still worth verifying this with an experienced tax attorney. If your interpretation of the law turns out to be wrong, it could cost you dearly.