IRS Form 990

Definition

IRS Form 990 is a tax document that nonprofit organizations in the United States are required to file annually with the Internal Revenue Service (IRS). This form provides transparency about a nonprofit's financial activities, including revenue, expenses, and operational information, which fosters accountability and trust with stakeholders such as donors, board members, and the public.

5 Must Know Facts For Your Next Test

1. Form 990 must be filed annually by most tax-exempt organizations and includes detailed financial information such as revenue, expenses, and executive compensation.
2. Nonprofits must make their Form 990 available to the public, which helps maintain transparency and allows stakeholders to assess the organization's financial health and accountability.
3. There are different versions of Form 990, including Form 990-EZ for smaller organizations and Form 990-N (e-Postcard) for very small nonprofits that meet specific criteria.
4. Failure to file Form 990 for three consecutive years can result in automatic revocation of a nonprofit's tax-exempt status by the IRS.
5. The information provided in Form 990 is often used by watchdog organizations, foundations, and potential donors to evaluate nonprofits before making funding decisions.

Review Questions

• How does IRS Form 990 enhance transparency practices among nonprofit organizations?
  • IRS Form 990 enhances transparency by requiring nonprofits to disclose their financial information publicly. This form includes details about revenue sources, expenditures, and how funds are allocated towards the organization’s mission. By making this information accessible, it helps build trust with stakeholders such as donors and community members who want to ensure that their contributions are being used effectively.
• What are the consequences for a nonprofit if they fail to file IRS Form 990 as required?
  • If a nonprofit fails to file IRS Form 990 for three consecutive years, it risks automatic revocation of its tax-exempt status. This can severely impact the organization's ability to operate, as it may lose eligibility for federal funding, donations from individuals who want a tax deduction, and grant opportunities from foundations. The loss of tax-exempt status can significantly hinder a nonprofit's financial viability and sustainability.
• Evaluate the role of IRS Form 990 in stakeholder communication for nonprofits and its impact on donor engagement.
  • IRS Form 990 plays a crucial role in stakeholder communication by providing vital information that stakeholders need to assess a nonprofit's credibility and performance. By sharing detailed financial data and operational insights through this form, nonprofits can effectively engage potential donors who seek transparency before making contributions. This practice not only fosters trust but also encourages informed decision-making among donors. Ultimately, transparent reporting via Form 990 can lead to increased donor confidence and greater financial support for nonprofit initiatives.

Related terms

Nonprofit Organization: A nonprofit organization is an entity that operates for a charitable purpose, rather than for profit, and reinvests any surplus revenues back into its mission.

Tax-Exempt Status: Tax-exempt status refers to the designation granted by the IRS to certain nonprofits that allows them to be exempt from federal income tax, typically under section 501(c)(3) of the Internal Revenue Code.

Transparency:

Transparency in the nonprofit sector refers to the practice of openly sharing information about an organization's operations, finances, and impact with stakeholders to build trust and accountability.