Tax-exempt organizations are required to file 990 Forms with the IRS on an annual basis. This is a critical piece of their tax-exempt status with the IRS. Key financial information and operations information is required on their 990 Form.
Failing to file on this form can have big consequences. Fines can add up and losing your tax-exempt status should be avoided at all costs. Here are the 990 penalties that your organization could face and most importantly, how to prevent them.
How Are Penalties Determined?
Before we get into the monetary amounts for penalties, let’s cover how the IRS doles them out. They do this based on the size of your organization. Your size is determined based on your gross receipts. This is all the money that you receive annually before mission-related programs and operational expenses. Here is how the IRS categorizes small and large organizations.
An organization is considered small if its gross receipts for the tax year are less than $1,000,000.
An organization is considered large if its gross receipts for the tax year are over $1,000,000.
Penalties For Failing To File/Incomplete Returns
According to the IRS, a small organization that fails to file or files their 990 return with incorrect information will be fined $20 per day. The maximum penalty that the IRS will charge a small organization is $10,000 or 5% of their gross receipts.
A large organization will have a larger fine to contend with, $100 per day that the Form 990-EZ is late. The maximum penalty can be as high as $50,000.
These penalties are not limited to organizations that fail to file completely. Organizations’ returns are deemed incomplete if there is so much as a requested line item missing or a required schedule and an organization can’t prove a reasonable cause for late or incorrect filing.
Hiring a paid preparer is fine, but keep in mind that the IRS will still hold your organization liable for any mistakes or late filing. Be sure that you are using a professional that is requitable and can be trusted to file your form accurately and on time.
If by chance your paid preparer doesn’t follow through and file your form or they file it with errors, the IRS will penalize your organization, not the paid preparer. This penalty is $10 per day if the Form is late or incorrect. The total maximum penalty for only one Form 990-EZ return can total up to $5,000.
Avoid Automatic Revocation is Crucial
The last two words that you want to hear from the IRS are “Automatic Revocation”. This is bad news for your organization. This means that your tax-exempt status has been revoked. Not only will there be a process to reinstate your tax-exempt status, but this sends a bad message to your donors.
You want your donors to feel that you are responsible and transparent financially. Donors don’t want to contribute to an organization that can’t prove they are a good steward of these contributions.
Organizations that fail to meet their IRS e-filing requirements for two consecutive years will automatically lose their tax-exempt status.
Use ExpressTaxExempt For Accurate 990-EZ E-filing
As an IRS Authorized E-file Provider, ExpressTaxExempt is able to transmit your form to the IRS instantly and you will receive status updates letting you know that it has been accepted by the IRS. In the case that a form is rejected, you can update and retransmit it at no additional cost.
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