Richard Scoresby, CPA, is a tax partner specializing in Nonprofit tax planning and preparation. Richard leads our Nonprofit Tax Practice.

 

Most nonprofits know, or have learned by sad experience, how important it is to file a timely Form 990 or 990-EZ.  Filing a late return can result in severe penalties unless a reasonable cause for filing late is accepted by the IRS.  Did you know that the same severe penalties can be assessed if an incomplete or inaccurate Form 990 or Form 990-EZ is filed?

Many nonprofit organizations have fallen into the trap of thinking that they just need to get the return filed on time and all will be well.  After all, the IRS audit rate for nonprofit organizations is low and the IRS has been overworked and understaffed for the past several years.  All that will likely be changing over the next few years as the IRS goes on a hiring spree to increase its enforcement personnel.

Potential Penalties

The penalties for filing an incomplete or inaccurate return can add up very quickly.  For organizations with annual gross receipts less than $1,129,000, the penalty is $20 per day up to the lesser of $11,000 or 5% of the organization’s gross receipts for the year.  For organizations with annual gross receipts over $1,129,000, the penalty is $110 per day up to a maximum of $56,000.

In addition, penalties of $10 per day up to a maximum of $5,000 can be assessed directly to the individual deemed responsible for filing the inaccurate or incomplete return if the IRS determines they did not correct the problem in a timely manner.

If the IRS thinks the Form 990 or 990-EZ is incomplete or inaccurate, they will notify the organization and give them some time to correct the issue before penalties are assessed. However, be aware that the initial penalty amount will likely be very high because by the time the IRS determines that the return is incomplete or inaccurate, several months may have passed since the due date of the return.

The worst penalties are reserved for those who file a fraudulent return.  You could end up with large fines and prison time.

When is a Return Considered Incomplete or Inaccurate?

The IRS instructions for Form 990 state that the penalty can be assessed for something as simple as not completing a line or a required part of a schedule up to omitting an entire schedule.  To avoid these errors, be sure to review your Form 990 or 990-EZ carefully.  Make sure all questions are answered correctly and all the required schedules are completed.  If the accurate value for a line is zero, input a zero rather than leaving the field blank.

Benefits of Filing a Complete and Accurate Return

There are many benefits of filing a complete and accurate return. The first is avoiding the severe penalties.  In addition, an accurate return can help you avoid an expensive and time-consuming IRS audit or inquiry.  Last, a complete and accurate return helps present your organization in the best possible light to potential donors and partners as the Form 990s are publicly available.

If you need help or have any questions, please reach out.  We would love to help you complete your Form 990 or 990-EZ filings.