2022 Nonprofit Tax Filing Obligations

Your organization is required to report certain data to the IRS, even if you don’t owe tax. Failing to file could put your tax-exempt status in jeopardy.

The tax-filing deadline for 2022 is looming for many nonprofit organizations that operate on a calendar-year basis: May 15, 2023. If your organization does not operate on a calendar-year basis, you must file by the 15^th day of the fifth month following the close of your nonprofit’s fiscal year. Regardless of the deadline, you can avoid disruptions to filing on time by organizing your tax records and turning them over to your tax preparer.

Why File?

Most 501(c)(3) organizations are required to file an annual tax return with the IRS. However, there are a few exceptions:

• Nonprofits with annual incomes of $25,000 or less
• Subsidiaries covered under a general return filed by their parent organization
• Certain government corporations
• State organizations that provide essential services
• New organizations that haven’t yet applied for tax-exempt status
• State institutions that provide essential services (such as universities)
• Religious congregations and faith-based organizations

Confirm with your tax advisor that your organization is not required to file a return.

If you don’t owe tax, why would your organization need to file? Form 990 contains valuable information relating to your organization’s mission, activities, and financial status. This information helps the IRS confirm that you’re complying with rules for tax-exempt organizations. Also, Form 990 information can be accessed by potential donors and grant makers, as well as members of the public.

Which form should your organization file? There are four variations of Form 990:

1. The standard Form 990 is used by nonprofits that:

• Have gross receipts of $200,000 or more or total assets of $500,000 or more,
• Are sponsoring organizations of one or more donor-advised funds,
• Are controlling organizations described in Section 512(b)(13),
• Operate one or more hospital facilities,
• Are nonprofit health insurance issuers described in Section 501(c)(29), or
• Are central or parent organizations filing a group return on behalf of subordinate organizations under a group exemption.

2. Form 990-EZ is a shorter version of Form 990 for organizations that have annual gross receipts of less than $200,000 and less than $500,000 in total assets at the end of their tax year.
3. Form 990-N (EZ Postcard) is an even simpler form that may be used by organizations with gross receipts of less than $50,000 annually
4. Form 990-PF is for private foundations.

What if you make errors or file late?

Errors or omissions of information in a filed Form 990 will typically result in the IRS returning the form along with a letter requesting the accurate or missing information. It could potentially assess penalties.

Filing Late Can Also Result in Penalties

An organization’s annual gross receipts generally determines the penalty amount. Failing to file your nonprofit’s return results in a maximum penalty of the lesser of 5% of your gross receipts or $10,000 for the year. If you have more than $1 million in gross receipts annually, the penalty is equal to $100 per day to a maximum of $50,000.

Warning: If your organization fails to file its required return for three consecutive years, the IRS will automatically revoke your tax-exempt status. Should your nonprofit lose its exempt status, it becomes liable for federal income tax (and generally state income tax) on revenue. Also, donors will no longer be able to deduct their charitable contributions.

Your nonprofit can obtain an automatic extension for Form 990, Form 990-EZ and Form 990-PF (but not Form 990-N) by filling out Form 8668, Application for Extension of Time to File an Exempt Organization Return by your regular filing date to receive a six-month extension.

This means that if your filing deadline is May 15, 2023, your new deadline would become November 15, 2023.

What About UBIT?

All of this assumes that your nonprofit doesn’t owe tax. But it’s possible that you’re liable for unrelated business income tax (UBIT) on income generated by activities outside the scope of your charitable mission. Separate rules apply to filings involving UBIT. For example, the tax must be reported on Form 990-T. Talk to your tax advisor for guidance on paying UBIT and avoiding activities that might trigger this tax.

Compliance is Important, and Brady Ware can help.

Nonprofits that don’t follow the rules potentially face fines and loss of their tax-exempt status. Meet with your nonprofit tax advisor ensure your 990 is filed correctly and on time.