As a nonprofit organization, it’s important to stay compliant with the IRS’ tax filing requirements. This includes filing a 990 return annually on or before the deadline without fail.
If organizations miss their 990 deadline or fail to comply with the filing requirements, they may face penalties from the IRS. Here is everything nonprofits should know about 990 filing penalties.
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What are Common Reasons for Nonprofits to Face 990 Penalties?
There are a number of reasons why nonprofit organizations can be imposed with penalties by the IRS regarding their 990 filings. Here are some common reasons:
Failure to file:
The organization files their 990 return past the due date (including any extensions of time) or fails to file for the corresponding tax year.
Example: An organization following the calendar tax year failing to file form 990 by May 15th (unless it’s a holiday).
Filing with incorrect information:
Organizations that report incorrect details on their forms or fail to provide all of the relevant information.
Example: Reporting incorrect EIN (or) failing to enter the required details about revenues.
Failing to meet additional filing requirements:
Organizations that fails to attach the required Schedules with their main form.
Example: A public charity failing to attach Schedule A with Form 990.
Failing to sign and authorize the form:
Organizations that transmit the returns without a signature and authorization from one of its board members or officers.
Failing to file electronically
Organization that haven’t received an e-file waiver from the IRS must file 990 forms on paper.
What are the Penalties for Filing Form 990 Late?
The IRS has two different penalty rates for filing Form 990 late, which depend on the organization’s
(Gross receipts < $1,129,000)
(Gross receipts > $1,129,000)
A penalty of $20/day for each delayed day will be imposed.
The maximum penalty amount is $11,000 or 5% of gross receipts.
A penalty of $110/day for each delayed day will be imposed.
The maximum penalty amount is $56,000 or 5% of gross reciept.
What are the Penalties for Filing Form 990-T Late?
Organizations that fail to file Form 990-T within the deadline will be imposed with a penalty of 5% of the unpaid tax for each delayed month or part of a month.
The minimum penalty for a Form 990-T delayed more than 60 days is the tax due or $435 (whichever is smaller), whereas the maximum penalty is 25% of the unpaid tax.
What are the Penalties Associated with Tax Payments?
For late tax payment (Applicable For Forms 990-PF and 990-T):
Organizations that fail to pay the associated taxes on time will be required to pay a penalty of 1/2 of 1% of the unpaid tax for each month or part of a month of the tax is unpaid. The maximum penalty is 25% of the unpaid tax.
For failing to make estimated tax payments (Applicable For Forms 990-PF and 990-T):
This penalty applies to an organization that has a tax liability of $500 or more for the tax year and fails to make estimated tax payments of at least the smaller of its tax liability for the corresponding tax year or 100% of the prior year's tax.
For failing to pay trust fund taxes (Applicable For Form 990-T):
Organizations that fail to collect and pay certain excise, income, social security, and medicare taxes is imposed with a trust fund recovery penalty. The amount of penalty is equal to the unpaid trust fund tax.
What are the Penalties for Responsible Person(s)?
After that period expires, the person who fails to comply with the mentioned requirements will be imposed with a penalty of $10/day with the maximum penalty on all persons for failures for any one return not exceeding $5,500.
Is There Any Exception for Penalties?
Yes! The organizations imposed with penalties can request an exception of penalties by providing a reasonable cause for the failure that occurred in their Form 990 filing. The IRS will then determine the organization’s eligibility for a penalty exception which differs on a case-by-case basis, considering all relevant facts and circumstances.
The forgiveness request filed by an organization should include the following details with supporting documents:
The reason why the penalty was charged.
The reason for not requesting an extension of time to file its return (In case of late filing without requesting an extension).
Explanation of how the organization has exercised ordinary business care and management
Steps taken to avoid the same error in the future.
Note: The responsibility of completing the 990 returns accurately is completely on the organization, even if they have employed a tax professional or other paid preparer. They should be aware of what the tax preparer files and should have verified that the return or tax payment was completed on time.
Avoid Unwanted Penalties by Filing Your 990 Return on Time with Tax 990!
Tax 990 is here to make your 990 filings easier and more accurate with various helpful features.
Here are some of them:
Auto-generates the applicable 990 Schedules based on the data you provide.
Form-Based and Interview-Style filing options to make your form preparation easier.
Bulk-upload templates to import your organization’s contributions and grants data quickly.
Internal Audit Check to make sure that your 990 returns are error-free.
Live Customer Support (via phone, email, and chat) to resolve all your queries during and after filing.