The Nonprofit FAQ

Are US Nonprofits Required to Report to the Government?

A nonprofit organization that has been recognized as exempt from federal income taxes by the Internal Revenue Service is required to report to the IRS annually using one of the versions of Form 990. Organizations that are required to report and fail to do so for three consecutive years have their recognition of exempt status revoked. Up until 2007, small organizations (generally those with less than $25,000 in annual revenues) were allowed to operate indefinitely without reporting to the IRS at all. With the passage of the Pension Protection Act in 2006, the IRS was directed to create a new system for collecting information about nearly all exempt organizations using an "e-postcard" called Form 990-N. Background about this new form and the filing requirement can be found on the IRS website at http://www.irs.gov/charities/article/0,,id=169250,00.html. At the same time, the IRS has been engaged in a significant redesign of the Form 990 that is used by larger organizations. Starting with reports on the year 2008, many organizations will need to use this new form. Gradually over the next few years, the filing thresholds for using Form 990, Form 990-EZ (for medium size organizations) and Form 990-N will change. The IRS has links to the plans for those changes on the web at http://www.irs.gov/charities/article/0,,id=176613,00.html By long-established practice and under the First Amendment to the U.S. Constitution, churches are not required to seek recognition of their tax-exempt status and they are not required to file annual reports using Form 990 on their core operations. Naturally, this exception has led to the question, How does the IRS decide whether an organization is a church or not? A discussion of this and other questions about churches is in the IRS Tax Guide for Churches and Religious Organizations (revised and resissued in August 2008). It is available as a .pdf file on the IRS website at http://www.irs.gov/pub/irs-pdf/p1828.pdf The Pension Protection Act of 2006 added a new requirement that exempt organizations with Unrelated Business Income must make public the tax-return on which they calculate whether any corporate income tax is due; that form is called 990-T. When churches have unrelated business income, they too are required to file Form 990-T and make it available to the public. There is more about unrelated business income, and unrelated business income tax (UBIT) in the Nonprofit FAQ at http://www.idealist.org/if/i/en/faq/190-37/20-4 . The discussion in the previous paragraphs is all about federal tax-exempt status. It is also usually true that nonprofits, like all other organizations, need to file employment and tax reports with various other government agencies. The situation is different in every state, and often from city to city as well. The state associations and other organizations listed in http://www.idealist.org/if/i/en/faqcat/96-23 can often provide guidance on the requirements in a particular area. Posted 2/20/08; "Tax Guide for Churches and Religious Organizations" added 8/27/08 -- PB