Nonprofit Tax Returns: A Simplified Form 990 Filing Solution

Organizations that meet the requirements under IRS Section 501(c)(3) qualify for tax-exempt status and are not required to pay federal income taxes.

Organizations that exist solely for a “charitable purpose” are defined by 501(c)(3) and are eligible to apply for tax-exempt status.

Religious activities, Charitable activities, Scientific activities, testing for public safety, literary, or educational purposes, fostering national or international amateur sports competition [or] the prevention of cruelty to children or animals are all considered “charitable purposes”.

While the Internal Revenue Service (IRS) recognizes more than 30 types of nonprofit organizations, only those that qualify for 501(c)(3) status are considered tax-exempt.

Most organizations that may be eligible for 501(c)(3) designation fall into one of these categories:

• Charitable Organizations
• Education Institutions
• Churches and Religious Organizations
• Private foundations

To be eligible for Recognition of Exemption Under Section 501(c)(3), an organization should be elected by the IRS under one of the following business types. These organizations are

• Trust
• Corporation
• Association

If the organization falls under any one of the categories above, you can start applying for
tax-exempt status:

• Gather your organization’s documents
  • Articles of incorporation for a corporation
  • Articles of organization for a limited liability company
  • Articles of association or constitution for an association
  • Trust agreement or declaration of trust
• Determine your state’s registration requirements
• Obtain an employer ID number (EIN) for your new organization
• Finally, submit your Form 1023 or Form 1023-EZ with the IRS to apply for exempt status.

Organizations with tax-exempt status are eligible for many benefits:

• Tax-exempt organizations are eligible for federal exemption from payment of corporate income tax.
• Organizations that are exempt under Section 501(c)(3) are eligible for public and private grants.
• These organizations are eligible to receive tax-deductible gifts under IRC section 170 and have a high possibility of being exempt from state and local taxes, not to mention bulk postage rates.
• Exempt organizations have limited liability, i.e., the founders, directors, members, and employees are not personally liable for the nonprofit's debts.

Even though the organization is exempt from paying taxes, it must file an annual tax return to the IRS to report its financial and fundraising activities, donors and contribution information, and more related to the nonprofits conducted during the tax year. This is done using the 990 Series forms.

The IRS makes 990 returns available to the public. This information is used by donors to ensure that they are donating to organizations that are good stewards of their funds. Organizations must report contributions details on Form 990 returns.

Tax-exempt organizations that fail to file their 990 tax returns on the deadline can be charged an IRS penalty. Organizations that fail to file their 990 for three tax years in a row will have their tax-exempt status automatically revoked.

If a charitable nonprofit is determined to be an incorporated entity, it must follow state law requirements for annual or periodic registrations. Each State’s registration process will differ.

• Nonprofit corporations must periodically confirm or update their basic contact information, such as mailing address, names of responsible parties, and registered agents.
• If a charitable nonprofit has employees, there are initial and periodic employment forms to file with the state Department of Labor.
• In some states charitable nonprofits need to apply for sales/use or property tax exemptions, separately from other corporate registrations.
• In addition, the majority of states require charitable nonprofits that are engaged in soliciting donations to register with the state to report on the nonprofit’s fundraising activities.

Annual state filing requirements for nonprofits