Form 990

Definition

Form 990 is an annual information return that certain tax-exempt organizations in the United States must file with the IRS. It provides detailed financial information about the organization, including revenue, expenses, and executive compensation, serving as a transparency tool for the public and the IRS. This form is essential for ensuring compliance with federal tax regulations and helps maintain public trust in not-for-profit entities.

5 Must Know Facts For Your Next Test

1. Form 990 is required for organizations that are classified as tax-exempt under Section 501(c)(3) of the Internal Revenue Code.
2. The form includes various schedules that provide additional detail on specific aspects such as governance, fundraising activities, and financial performance.
3. Filing Form 990 is crucial for not-for-profits as it allows them to demonstrate accountability and transparency to donors and the public.
4. Failure to file Form 990 can result in penalties, including the loss of tax-exempt status.
5. Public access to Form 990 allows stakeholders to assess how funds are being utilized by the organization, promoting better stewardship of resources.

Review Questions

• How does Form 990 contribute to transparency in not-for-profit organizations?
  • Form 990 enhances transparency in not-for-profit organizations by requiring them to disclose detailed financial information, such as revenue sources and expenditures. This disclosure allows the public, donors, and regulatory bodies to understand how funds are being used and ensures that organizations are held accountable for their financial practices. By providing a comprehensive overview of an organization’s financial health, Form 990 fosters trust and encourages informed giving.
• What are the potential consequences for a tax-exempt organization if it fails to file Form 990?
  • If a tax-exempt organization fails to file Form 990, it can face significant consequences, including penalties from the IRS and potential loss of its tax-exempt status. The IRS requires compliance with filing deadlines to ensure accountability among nonprofit organizations. If an organization does not file for three consecutive years, it automatically loses its tax-exempt status, which can severely impact its ability to operate and fundraise effectively.
• Evaluate the importance of Form 990 in maintaining public trust and how it impacts donor decisions.
  • Form 990 plays a vital role in maintaining public trust by offering a transparent view of a non-profit's financial activities and governance. Donors often rely on the information provided in Form 990 to assess an organization's efficiency and effectiveness before contributing. A well-prepared Form 990 can positively influence donor decisions by showcasing fiscal responsibility and effective mission execution. Conversely, inconsistencies or lack of transparency can deter potential donors, highlighting the form's critical impact on fundraising efforts.

Related terms

Tax-Exempt Organization: A type of organization that is exempt from federal income tax due to its charitable, educational, or religious purposes.

IRS (Internal Revenue Service): The U.S. government agency responsible for tax collection and tax law enforcement.

Charitable Contribution: A donation made to a qualifying organization that is tax-deductible for the donor under IRS regulations.