Organizations that are considered to be under “non-profit law” are mostly under tax exempt status, and they need to be distinguished as such to make sure that they are recognized as a corporation with tax-exemption. However, even though these organizations are filed under 501c3, they still have some employment taxes, local taxes, unrelated business income tax, and excise taxes to take care of, depending on the situation.
Form 990, Return of Organization Exempt from Income Tax and Form 990-EZ
The forms that these non-profit organizations need to file are the following: Form 990-N also called Short Form Return of Organization Exempt from Income Tax, Form 990 also called Return of Organization Exempt from Income Tax, Electronic Notice (e-Postcard) for Tax-Exempt Organizations not Required To File Form 990 or 990-EZ, and Form 990-EZ.
When it comes to these forms, the kind that the organization needs to submit is only determined by the financial activities of the said organization. For instance, if the receipts of the organization go beyond twenty five thousand dollars but do not go over one hundred thousand dollars they may file a Form 990-EZ. It is also applicable for organizations whose assets by the end of the year amount to under two hundred fifty thousand dollars. If you do not know how to calculate the total amount of your receipts, there is an instruction found in the Form 990 to help you out. However, if the receipts go beyond the one hundred thousand dollar mark, the file to be submitted is the Form 990. For companies whose total receipts are under twenty five thousand dollars, the file to be submitted is Form 990-N.These are applicable to those who are under the 501c3.
Keep in mind that the Form 990 and the Form 990-EZ are to be filed and submitted on the fifteenth day five months after the yearly accounting period of the company has ended. You may apply for an extension in case you cannot file it on the due date. All you need to do is to submit a Form 8868 called the Application for Extension of Time To File an Exempt Organization Form. This should be submitted before the due date. If you still cannot file it on the due date, you can file for another three months through the same form but this time you should include a valid reason for why it was not submitted on time.
Forms 990 and 990-EZ Filing Exceptions
There are certain rules wherein an organization of non-profit activities may be exempted to file Form 990 or the Form 990-EZ. These include those who are affiliated with churches or those who are organizations from the church, corporations affiliated with certain government departments, corporations that file together as a group ruling, and those corporations whose receipts only amount to under twenty five thousand dollars.
If your organization belongs to any of these exemptions, you are not required to submit a tax return even if the Internal Revenue Service gives a Form 990. However, if your organization chooses to file the forms for 990 or 990-EZ, you should be able to submit everything or you need to submit the entire Form 990-N.
Special Requirements for Supporting Organizations
The non-profit corporations that are supporting organizations must file and submit a Form 990 or 990-EZ even if they only have a total receipt of fewer than twenty five thousand dollars. This is described in the 509a3 section and is effective after the date of August 17, 2006.
If you have a religious corporation or one that is affililated with the church, you do not need to submit the Form 990 or 990-EZ even though you have a total receipt of fewer than five thousand dollars. But you will be required to file and submit the Form 990-N. When it comes to supporting corporations, there is an additional requirement and this is to indicate whether what type of supporting corporation they are.
They can simply write in the type (Type 1, 2, or 3) or simply state and prove that they are not under the control of any person who is disqualified. If you think it is quite complicated, you can always refer to the Schedule A of the Form 990 and 990-EZ to help you know which type of supporting corporation your organization is. You can also seek advice form the Notice 2006-109 to know the process that your corporation needs to complete or any non-profit attorney who is knowledgeable in the issues of 501c3 and tax exemption.
Schedules A and B of Form 990
If your non-profit organization is required to submit a Form 990 or a form 990-EZ, you are also required to submit Schedule A. This pertains to the details about the salary of the directors, contractors, officers, and the major employees of your organization. It also includes the classification of your corporation and why it is classified as such. Other details such as the different expenditures and the activities of the organization must also be included when filing such forms.
The instructions are included in Schedule A if you need more details about the process. If you run a private institution or school, there is a special instruction for you on Schedule A. It mostly consists of questions that you need to answer. If your corporation has other contributions and you are filing a Form 990 and 990-EZ, you should also submit the Schedule B. To guide you through the process, there are instructions found on the Guidelines for Meeting the Requirements for Schedule B.
Reporting of Excess Benefit Transactions
Whenever your organization of non-profit nature has an unreasonable advantage or benefit to anyone who influences the corporation and its activities, you can file it through the Form 990 or 990-EZ. It is Section 4958 of the Code that determines these circumstances. There are some details and instructions in the Form 990 and 990-EZ.
Other Forms– Electronic Notice (e-Postcard) for Tax-Exempt Organizations not Required To File Form 990 or 990-EZ, Form 990-N
When your tax period belongs to after the date of the 31st of December 2006 and you are not to file a Form 990 or 90-EZ due to your total receipts amounting to fewer than twenty five thousand, you have to submit a Form 990-N, Electronic Notice (e-Postcard) for Tax-Exempt Organizations not Required To File Form 990 or 990-EZ. This is governed by the Section 6033(i) of the code.
The filing for the Form 990-N must be completed and submitted by the fifteenth day of the month after your tax period ends or closes. For example, if your tax period is only until the 31st of December, 2007, you should be able to submit the Form 990-N on the fifteenth of May on the next year.
If you are to file for a Form 990-N, you must include the following in your submission: the name of your corporation, the alternative names and other known names, the correct address of the office of your organization, the web address of your corporation if you have put up a website, the TIN of your corporation, the head officer and his or her complete name and address, your yearly tax period, and a proof that your total receipts only amount to fewer than twenty five thousand dollars. There is an option in the Form 990-N for those who want to inform the IRS that they are terminating.
Requirements for e-filing
Non-profit organization, those of whom are earning or who have assets worth ten million dollars and above are required to file the Form 990 through electronic means. it also applies to corporations that file up to two hundred and fifty tax returns in a year. This includes any employment taxes, income taxes, excise taxes and other forms like the W-2 or 1099.
Filing Penalties and Revocation of Tax-Exempt Status
If you do not file the required forms like the Form 990 or 990-EZ, there are penalties. The Internal Revenue Services will charge twenty dollars every day until you submit your documents. this penalty, however, will not exceed five/ percent of your total income or receipts, or more than ten thousand dollars. Non-profit organizations that have more than one million dollars in income will pay for a penalty of one hundred dollars everyday until the file is submitted or until the penalty reaches fifty thousand dollars. There may also be additional penalties depending on the nature of fault when it comes to filing these forms and returns.
If your non-profit organization fails to file and submit the forms that are required of them for three years already, your tax-exempt status will be revoked. When this happens, you need to submit a reinstatement through another Form called 1023. This also means that you need to pay a user fee. However, if you are able to prove that the cause for not being able to file your returns was valid, you may get your tax-exempt status back. This is all governed under the Section 6033(j) of the Code.
The Form 8734, Support Schedule for Advance Ruling Period
If your organization has been newly founded and you still cannot give a proof that your organization should be classified as a charitable organization for tax-exempt, you can file for advance ruling of public charity status. The advance ruling period typically lasts for five tax years. You have to file a Form 8734 ninety days after this period. Without this information and other required documents, your organization will be determined as a private organization.
Form 990-T – The Exempt Organization Business Income Tax Return
When your organization has not been required by law to submit a 990 or 990-EZ, you have to file the Form 990-. It is also called as the Exempt Organization Business Income Tax Return. This is only applicable for those who have receipts or income of more than one thousand dollars from activities which are unrelated to the business in nature. These said activities are only taxable if they comprise a trade or some business, if they are constantly scheduled and done, or if they are not related to the organization’s goals and activities.
There are those who are required to pay for their tax on a quarterly basis. If your tax amounts to about five hundred dollars or more, you are one of those organizations that should file quarterly. You can check the Estimated Tax on Unrelated Business Taxable Income for Tax-Exempt Organizations or Form 990-W for these additional or required payments.
Some Exceptions to the Rules for Tax-Exempt Organizations
If your organization has some activities that earn extra profit but are of unrelated nature to your organization’s goals, these are not a part of your organizations’ own income. They are also not related to the unrelated business income tax. These exceptions include your income if the activities are done by volunteers only, if the activities are done to benefit the members of the organization, the students of the school, patients or the employees of the organization, if they are tradeshows, or sponsored activities.
Those that are considered as “passive” are also not included in the computation for unrelated business activity. For instance, if you have investments such as rents from properties, deposit certificates, stock dividends, royalties, or savings accounts.
There are, however, exceptions to profit that is from real estate or other properties that were paid using funds loaned or borrowed. This is what we refer to as the debt-financed profit. This is now a part of the unrelated business income tax.
Employment Tax Returns
Just like any other corporation, those organizations of non-profit nature who hire the services of employees in their company must pay employment tax with federal income tax withholding. This also includes Social Security and Medicare taxes. If an employee is being paid one hundred dollars or more,then the organization must withhold the federal income tax from employee income. The amount of income tax to withhold can be determined through the help of the Form W-4 or the Employee’s Withholding Allowance Certificate for each and every employee. There is also a required Employer’s Quarterly Federal Tax Return or Form 941. If these forms are not filed and submitted on time, there will be penalties filed on the organizations.
For independent contractors, organizations that are non-profit do not have to withhold income tax for their income. However, there may be other requirements to be fulfilled. Employment taxes may apply according to some situations.
Employment Taxes and Churches
Churches and organizations affiliated to them do not need to file employment taxes or Form 990. However, they may be required to file income tax withholding. Other exemptions may include the filing of FICA tax. Church ministers are exempted from employment tax purposes because they are not considered as regular law employees. If you need more information about the tax exemptions about the church and church related employees and organizations, you can find the details in Publication 517 as well as the Social Security and Other Information for Members of the Clergy and Religious Workers.