What Should 501(c)(3) Schools Know About Form 990 Filing?
Organizations that operate exclusively for charitable, religious, educational, scientific, or other similar exempt purposes can qualify for tax exemption from the IRS under section 501(c)(3).
This article discusses the eligibility and requirements for Schools to obtain tax-exempt status and their annual tax filing requirements.
Table of Contents
How Does the IRS Define Schools?
The IRS considers Schools as educational organizations that meet the requirements of section 170(b)(1)(A)(ii). The requirements are
Presentation of formal instruction as a primary activity
Maintenance of a regular faculty and curriculum
Having a regularly enrolled body of pupils or students in attendance at the location where the educational activities are carried out
Generally, the organizations that meet these requirements may include,
Colleges and universities
This includes Federal, State, Private, and Publicly supported schools.
Are Schools 501(c)(3) Tax-Exempt?
Yes! Similar to other nonprofit organizations, the Schools that are categorized under section 170(b)(1)(A)(ii) can also qualify as tax-exempt if they fulfill all the 501(c)(3) requirements, which are as follows.
Organized and operated exclusively for religious, educational, scientific, or other charitable purposes.
Any part of earnings should not benefit any private shareholders
Must not attempt to influence legislation through any substantial activities
Must not intervene in political campaigns
Should not carry out any illegal or other activities that violate fundamental policy
Private schools may also have an additional requirement to fulfill in order to be qualified as tax-exempt. They should have a 'Racially nondiscriminatory policy as to students' in place to ensure that students of any race are not subjected to any discrimination by the schools.
How Can Schools Obtain Tax-Exempt Status?
Schools that need to apply for tax-exempt status under section 501(c)(3) are required to file Form 1023, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code.
If the school’s gross receipts are less than $5,000 in a tax year, they can also use Form 1023-EZ based on their answers on the eligibility worksheet.
How to file Form 1023?
Schools can file Form 1023 by following the steps below:
Register for an account on Pay.gov
Enter “1023” in the search box and select it.
Complete the form.
What are the 990 Filing Requirements for Schools?
Schools that obtain 501(c)(3) tax-exempt status must report their financial information, activities, and members’ compensation details to the IRS.
For this purpose, Schools are required to file 990 series forms annually. There are different variants of Form 990 available, and Schools are required to file the applicable one based on their gross receipts, assets, and primary source of funding.
Form 990-N : Schools with gross receipts less than or equal to $50,000
Form 990-EZ : Schools with gross receipts less than $200,000 (and) assets less than $500,000
Form 990 : Schools with gross receipts greater than or equal to $200,000 (or) assets greater than or equal to $500,000
Additional Filing Requirements for Schools
Schools must also file Form 990-T if they generated an income of $1000 or more through unrelated businesses during the corresponding tax year.
Also, Schools that file Form 990 or 990-EZ must include Schedule E and a few other Schedules based on the information they report on their 990 forms. Learn more about Schedules
When is the Deadline for Schools to file Form 990?
The deadline to file Form 990 depends on the school’s tax year. Generally, 990 forms are due by the 15th day of the 5th month after the organization’s tax year ends. For example, schools operating on a calendar tax year must file their Form 990 by May 15th.
Operating on fiscal tax year? Use our due date calculator to find your due date.
Penalties and Automatic Revocation
Tax-Exempt schools that fail to file 990 returns on time may face penalties. The penalty amount ranges from $20/day to $110/day, based on the school’s gross receipts.
Schools that fail to file 990 forms for 3 consecutive years may face automatic revocation of their tax-exempt status. Learn more about 990 penalties
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