April 17, 2025

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What is the IRS Form 990 and what does your organization need to know about it? What follows is a brief explanation of a specific section of the Form 990 and its relevance to nonprofits.1

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1. What is Form 990, and what is its relevance to nonprofits?

In a nutshell, Form 990 is the IRS’s way of gathering the information that it needs to ensure that an organization is doing what is necessary for it to retain its 501(c)(3) tax-exempt status. The IRS states that the purpose of Form 990 is for “tax-exempt organizations, nonexempt charitable trusts, and section 527 political organizations to provide the IRS with the information required by section 6033.” In large part, Form 990 tracks the money that comes into the organization, the money that flows out of it, and why.

There are different versions of Form 990: the 990-N, the 990-EZ, and the full 990. These have different revenue thresholds and associated complexities. Form 990-N can be filed by small tax-exempt organizations whose annual gross receipts are generally $50,000.00 or less; supporting organizations cannot file one. It is filed electronically; there are no paper forms.  

Form 990-EZ can be filed by organizations with gross receipts of less than $200,000.00 and total assets of less than $500,000.00 at the end of their tax year. Form 990-EZ cannot be used by private foundations, which are required to file Form 990-PF. Sponsoring organizations of donor advised funds (as defined in section 4966(d)(1)), organizations that operate a hospital facility, organizations recognized by the IRS as section 501(c)(29) nonprofit health insurance issuers, and certain controlling organizations defined in section 512(b)(13) must file Form 990 rather than Form 990-EZ regardless of the amount of their gross receipts and total assets.  

A section 501(c)(3) or section 4947(a)(1) organization should refer to the Instructions for Schedule A (Form 990), Public Charity Status and Public Support, to determine whether it is a private foundation. Form 990 must be used to file a group return, not Form 990-EZ.

An organization’s 501(c)(3) status is very important. In addition to exempting the organization from having to pay federal income tax, a 501(c)(3) designation often also exempts the organization from having to pay associated state taxes, permits donors to deduct their contributions,² and qualifies the organization for other exemptions (such as exemption from a state’s charitable-solicitation registration requirement).

Retaining 501(c)(3) status generally requires the organization to file Form 990 by the 15th day of the fifth month after the close of the organization’s fiscal year. For calendar year organizations whose fiscal year ends on December 31, Form 990 will be due on May 15. Form 8868, which allows for a six-month extension, asks for basic information about the organization and an explanation of how it will avoid filing late in the future.

An organization can lose its 501(c)(3) status if the organization (1) uses funds for private benefit, engages in campaigning or substantial lobbying, or generates excessive income beyond the organization’s exempt purpose; or (2) fails to file Form 990 for three consecutive years. The consequences of failing to timely file Form 990 include late penalties of up to $100.00 per day, depending on the organization’s size and, as mentioned above, the automatic revocation of an organization’s 501(c)(3) status after three consecutive years of failing to file.

Once lost, 501(c)(3) status is difficult, but not impossible, to recover. While there is no appeals process, there are two ways for an organization to get its 501(c)(3) status reinstated: the streamlined process and the standard reinstatement process. At a very high level of generality, the streamlined process allows the restoration of an organization’s 501(c)(3) status dating back to the date of revocation, which renders the revocation as though it never happened, whereas the standard process is not retroactive. You will definitely want to work with an experienced tax attorney or CPA if your organization finds itself in this predicament. For more information on the process of reinstatement if an organization’s 501(c)(3) status is revoked, check out Napa Legal’s resource on the topic here.

One of the most common ways that organizations lose their tax-exempt status is through inadvertent negligence due to personnel turnover. Often, when someone who was responsible for timely filing the organization’s Form 990 leaves the organization, the filing unfortunately falls through the cracks because nobody else is aware that the filing needs to be done.

2. How do I know if my organization needs to file a 990?

The IRS’s determination letter will state whether an organization must file a Form 990. Certain entities do not have to file a Form 990, including, among others, churches, integrated auxiliaries, and religious orders. The IRS provides a list of organizations that are not required to file a Form 990 on its website.

3. Why does the Form 990 ask nonprofits whether they have enacted policies on conflicts of interest, whistleblowing, and document retention, and why are those policies important?

Part IV, Section B of Form 990 asks whether the nonprofit has enacted policies related to managing conflicts of interest, responding to whistleblowing, and retaining documents. This is especially relevant following the Enron scandal and the subsequent passage of the Sarbanes–Oxley Act of 2002, which mandates certain practices in financial record keeping and reporting. The reason is that when an organization has those policies in place and follows them, it helps to demonstrate that the organization is compliant with the tax code, is not engaging in malfeasance, and has proper internal governance and oversight procedures in place. Form 1023 also requires organizations to maintain at least a conflict-of-interest policy.

While none of the mentioned policies are required, they are helpful to have in place to keep the IRS from conducting an audit and to assist with the organization’s compliance. The only downside to having them is that if your organization does not follow them, that failure will be seen as more egregious than it would have been if there were no such policies in place and malfeasance occurred. Once you adopt a policy, you have to follow it!

4. What are these policies about?

Conflicts of interest: This policy is aimed at ensuring that directors and officers responsible for making decisions for the organization do not have a personal stake or competing incentive when they are representing the organization. Such a policy works by identifying whether there are any conflicts of interests among the people making decisions before those decisions are made, providing a process for recusals if any conflicts are identified, and documenting the actions that are taken after recusal happens.

Such a policy works best when the organization has a “culture of disclosure,” that is, when leaders make a habit of openly communicating about matters such as how the decision makers are affiliated with other organizations with which their organization might work and whether there are any previous relationships with that organization. Appendix A to Form 1023 provides a sample conflict-of-interest policy to get you started. Keep in mind that there are also state-law requirements.

For more on conflicts of interest, check out Napa Legal’s resource “Conflicts of Interest: Avoiding Common Mistakes.”

Whistleblowing: Federal law prohibits all corporations, including nonprofits, from punishing employees who “blow the whistle” on accounting practices or financial fraud, ensuring that individuals who report misconduct are protected from retaliation and afforded legal safeguards. For more on whistleblower policies, check out Napa Legal’s resource “Nonprofits, Ethics, and the Need for Whistleblowers.”

Document retention: A nonprofit should preserve all books and records to show that its sources of income, expenses, receipts, tax credits, and any other flows of assets in or out of the organization remain consistent with its tax-exempt status. There is no need to save every record for all time, however. Federal and state law will provide guidance on what particular records need to be saved and for how long. For example, an organization’s Form 1023, its IRS determination letter, and the last three years of its Form 990 filings must be saved because they are required to be provided upon public request.

5. Why should nonprofits have those policies?

Having these conflicts-of-interest, whistleblowing, and document-retention policies in place shows that the organization has established processes to avoid running afoul of the tax code and signals to the IRS that the organization takes compliance with the tax code seriously.

Conclusion

As explained above, the IRS’s Form 990 provides a detailed list of where the organization’s money comes from and where the money goes. The Form 990 also asks organizations if they have enacted policies regarding conflicts of interest, whistleblowing, and document retention. This brief guide has introduced you to the Form 990 and explained why those particular compliance policies, while not required, are nonetheless important for nonprofits to enact and follow. All that said, this introduction is certainly not a substitute for consulting with a knowledgeable tax attorney who is licensed in your jurisdiction, but it is enough to get you oriented and to realize your basic obligations regarding the Form 990.

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¹ This is not legal advice for your nonprofit; as always, you should consult with a licensed attorney or CPA if you have specific legal questions about Form 990 or any related tax or compliance matter.

² See 26 U.S.C. § 170.

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