If you are a tax exempt organization with gross receipts less than $200,000 or total assets less than $500,000, you must file a Form 990-EZ with the IRS annually. Failing to file this form or filing this form incorrectly can become a big issue for tax exempt organizations.
This form reports important information to the IRS and filing to file 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 penalties that your organization could face and 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.
A small organization is one with less than $1,067,000 in gross receipts.
A large organization is one with more than $1,067,000 in gross receipts.
Penalties For Failing To File/Incomplete Returns
A small organization that fails to file or files their Form 990-EZ 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, $105 per day that the Form 990-EZ is late. The maximum penalty can be as high as $53,000.
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.
Penalties For A Paid Preparer
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 requiable 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 that the Form is late or incorrect. The total maximum penalty for only one Form 990-EZ return can total up to $5,000.
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 This means that your tax exempt status has been revoked.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.
For more information about reinstating your tax exempt status, click here.
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