Do Nonprofit Organizations Have to File Taxes?

While tax-exempt nonprofits don't pay federal income tax, most are still required to file an annual informational return with the Internal Revenue Service (IRS). This provides transparency and shows that the organization continues to meet the qualifications for tax exemption.

At SSL Associates, our CPAs guide organizations through the complexities of nonprofit tax filings to ensure continued compliance and transparency.

The specific forms and requirements vary based on the size and type of your nonprofit organization, and you might not know the ins and outs of what you need to file. Failing to file required returns can lead to penalties and even revocation of tax-exempt status. To avoid those pitfalls and ensure you understand your obligations, we’ll further explore this topic below.

Do Nonprofits Have to Report to the IRS?

Most nonprofit organizations must file an annual tax return with the IRS to maintain their federal tax-exempt status. This is done by submitting Form 990, which provides transparency into the organization's mission, fundraising activities, revenue, and expenses for the prior fiscal year.

While it may seem counterintuitive that nonprofits need to file taxes at all, they are required to file annual tax returns to demonstrate they are operating in accordance with their charitable purpose and merit continued tax exemption. Filing Form 990 also builds public trust by making key information about the nonprofit's finances and governance available to donors, foundations, and the general public.

Who Is Exempt from Filing a Tax Return?

Most nonprofits are required to file an annual return, but there are a few exceptions:

• Churches, interchurch organizations, and church-affiliated organizations
• Government corporations and state institutions
• Subordinate organizations included in a group return filed by a central organization

When Do Nonprofits Have to File Taxes?

Form 990 must be filed by the 15th day of the 5th month after the end of their tax year. So for a nonprofit with a fiscal year ending December 31st, the Form 990 filing deadline would be May 15th.

If more time is needed, nonprofits can request an automatic 6-month extension by filing Form 8868 before the original due date (except for Form 990-N). This would extend the filing deadline to November 15th for calendar year filers. In certain cases, the IRS may also grant an additional extension for reasonable cause.

What Happens If a Nonprofit Does Not File Taxes on Time?

If a nonprofit organization files its tax return late, it may face a penalty of up to $10,000 or 5% of its gross receipts, whichever is less. This penalty also increases by $100 each day the return is late. This is an avoidable penalty when you partner with the right team for guidance.

When filing Form 990-N, there's no penalty for submitting it late, as long as it's filed within 5 months and 15 days after the end of your nonprofit's fiscal year.

If a nonprofit fails to file a return for 3 consecutive years, it will automatically lose its tax-exempt status. The organization would then need to refile for tax exemption and pay income taxes until its status is reinstated. As you can imagine, significant late filing penalties and loss of tax exemption could be devastating for a nonprofit, so it's critical to understand and comply with IRS filing requirements.

IRS Forms for Nonprofits

The IRS has a variety of forms for nonprofits to file their taxes, depending on factors like the organization's type, tax-exempt status, and how much money it receives annually. Below, we’ve outlined the various forms and when they should be filed.

1. Form 990: Annual Return for Larger Organizations

Organizations exceeding $200,000 in gross receipts or $500,000 in total assets must submit Form 990. This comprehensive return requires detailed disclosure of the nonprofit's purpose, leadership structure, board composition, significant donors, foundation relationships, and specific contribution amounts.

2. Form 990-EZ: Short Form Return

Form 990-EZ is a simplified return option available to nonprofits operating below $200,000 in gross receipts and maintaining assets under $500,000.

3. Form 990-PF: Private Foundation Return

Any private foundation generating annual gross receipts above $25,000 must complete Form 990-PF. This specialized return requires extensive documentation of investment activities and charitable distributions.

4. Form 990-N: E-Postcard

This form is designed for small 501(c) nonprofits with annual gross receipts at or below $50,000. However, certain entities are ineligible regardless of size, including private foundations, supporting organizations, political organizations under section 527, and several other specified groups.

5. Form 990-T: Unrelated Business Income

Form 990-T accompanies standard 990 filings when organizations must report unrelated business activities, handle tax obligations, pursue refunds, or document payments made to investment entities and healthcare providers.

6. Form 1120-POL: Political Organization Return

Organizations engaged in political activities must submit Form 1120-POL when reporting taxable income under section 527 regulations.

7. Form 4720: Excise Tax Return

Form 4720 is a supplemental filing used alongside Form 990-PF by private foundations to document initial tax assessments affecting the foundation itself, its management team, and any disqualified individuals.

8. Form 7004: Extension Request

Form 7004 allows nonprofits to secure a 6-month extension for submitting various business income tax returns and information filings.

9. Form 8868: Extension Request

Tax-exempt entities can use this form to automatically extend their filing deadline by six months. The form also serves trustees who need additional time for Forms 1041-A and 5227 submissions.

How Do Nonprofits File Taxes Successfully?

We’ve provided a breakdown of the key steps to ensure your organization meets its tax obligations and maintains its tax-exempt status.

1. Select the Appropriate Form

Review your organization's size, structure, and financial activity to determine which form best matches your situation. For first-time filers, professional guidance is key to ensuring proper selection.

2. Get Required Documentation

Compile all necessary information, including:

• The organization's mission statement
• Financial data
• Program activity records
• Leadership information
• Documentation of charitable accomplishments

3. Complete Forms Accurately

Follow IRS instructions carefully as any errors or omissions can delay processing and potentially affect grant funding. Complex returns are best reviewed by a professional.

If your Form 990 has errors or omissions, the IRS might send it back with a letter requesting corrections or further information. Here are the common letters you might receive:

• Letter 2694C Returning Form 990 due to Missing Information
• Letter 2695C Returning Form 990-EZ due to Missing Information
• Letter 2696C Missing Information Request to Process EO (Exempt Organization) Return

4. Submit Electronically

Since July 2019, the Taxpayer First Act requires electronic filing for Form 990 returns. If you need additional time, request an extension through Form 8868 before the deadline.