The success of Frank’s 501(c)(3) fundraising surprised and pleased him. He had expected to motor along as a small charitable organization, attracting a few thousand dollars of support while doing its quiet charitable work. But to his surprise, his organization received a substantial donation, then another, then another. By the end of his organization’s second year, the part-time bookkeeper the organization employed notified Frank that the organization’s receipts had topped $50,000. Frank celebrated, until the bookkeeper reminded him that the organization might now have an IRS reporting form to complete.

Reporting

Reporting is an important function of charitable organizations, both to preserve their 501(c)(3) tax-exempt status and to inform the organization’s board, donors, and other constituents of the organization’s compliance and performance. If your organization had no legal obligation to complete and file annual reports, it might prepare annual reports anyway, just to let its board know if the organization was meeting its goals and to share with donors and the community, to retain and increase the organization’s respect and support. Keep a positive attitude about reporting. It’s not all mandated stuff, and it’s not all bad. Good can come from preparing and filing reports, and making reports privately and publicly available.

Corporate

As a state nonprofit corporation, your organization likely has a statutory obligation under the nonprofit corporation act to file an annual report with the state corporations bureau. In their typical form, state corporations bureau annual reports do not include any financial information. Instead, they include basic identifying information for the organization, its address, its resident agent and address, its board of directors and officers, and its continuing operation. The purpose of an annual report filed in the online, searchable, public records of the state is to enable the public to identify active and inactive or dissolved organizations, and reach their legal representatives. That contact includes the ability to serve court process on the organization’s resident agent, to properly initiate a civil lawsuit. Annual reports do not require financial reporting. Your organization’s executive director should be readily able to complete the organization’s annual report online, with only governance information. See, for example, the online annual report at the end of this guide.

Annual

As indicated briefly above, the organization may wish to prepare more-detailed annual reports, including program and financial data, for the board to evaluate the organization’s performance. The organization’s executive director, communications director, administrative assistant, or retained graphics consultant may also interpret and display inspiring and informative data on the organization’s website and in its fundraising and promotional materials. Donors, in particular, may wish to see annual reports that reflect financial and program performance. Develop a healthy practice of annual reporting for these beneficial uses. Make public and donor annual reports attractive and informative.

IRS

Your 501(c)(3) organization likely has IRS annual filing requirements, too. Your organization need not file a traditional income-tax return, as the IRS requires of individuals and businesses. But your organization likely has to file some form of information return, as the IRS calls those forms. Your organization pays no income tax with an information return, instead only making certain confirmations or financial disclosures. The specific information return your organization must file depends on your organization’s annual receipts and current assets. While the details of those requirements are lengthy and include exceptions, the following paragraphs outline the IRS information-return forms and the organizations most likely to use them.

Form 990-N

The IRS offers Form 990-N, also known as the e-postcard, for small tax-exempt organizations of certain types, the normal annual receipts of which fall below $50,000. The e-postcard name indicates the simplicity of the electronic filing, basically a simple notice of ongoing charitable operations. IRS rules permit these organizations to average their prior three years of receipts to see if they fall below the $50,000 e-postcard limit. Indeed, new organizations may exceed the $50,000 up to $75,000 in the first year and an average of $60,000 over the first two years, and still qualify for using the Form 990-N e-postcard if anticipating normal receipts to average below the $50,000 limit. Use the online e-postcard if your organization qualifies. Doing so can save substantial reporting time, while keeping your organization’s finances confidential.

Form 990-EZ

If your organization has annual receipts normally exceeding $50,000, your organization cannot use the Form 990-N e-postcard. But if  your organization’s annual receipts are below $200,000, and your organization’s assets have a value less than $500,000, your organization may be able to use Form 990-EZ. The end of this guide reproduces a copy of Form 990-EZ, which is four pages in length. Form 990-EZ requires the organization to disclose significant financial details including receipts by category, expenses by category, current assets and liabilities, and the compensation and benefits costs of higher-compensated staff members. Form 990-EZ also requires a statement of program accomplishments and for the organization to answer many questions regarding financial, compensation, and contractual relationships. If your organization must file Form 990-EZ, ensure that your organization has the skilled assistance to do so reliably, timely, and accurately.

Form 990

Charitable organizations that exceed the annual-receipts or current-assets limits for Form 990-N and Form 990-EZ, or otherwise do not qualify for those simpler filings, must file Form 990. At twelve pages in length, Form 990 is three times the length of Form 990-EZ. Form 990 also requires significantly more financial information than the easier form, including analyses of financial information and calculations of financial ratios. While your organization may be able to complete Form 990-EZ using budget and balance sheet information already prepared for board review and financial monitoring, completing Form 990 requires analyses and calculations of financial information beyond ordinary financial statements. Your organization’s completion of Form 990 may thus require more than bookkeeper or finance administrator time and skill. Expect to retain an accountant or accounting service for assistance. 

Exceptions

The IRS exempts some 501(c)(3) charitable organizations from its above information-return requirements. The IRS considers churches and other religious organizations, which can and do qualify as 501(c)(3) organizations, as exempt from filing annual information returns. Other exempt organizations can include integrated auxiliary organizations of churches, church-affiliated schools, and church-affiliated missionary societies primarily operating in foreign locations. Confirm your organization’s exemption from IRS information-return requirements with a knowledgeable professional before relying on any such presumption.

Responsibility

Ensure that your organization recognizes and assigns responsibility for the above reporting requirements to specific roles and individuals. The board president and secretary, together with the organization’s executive director, should be principally responsible for ensuring that the organization meets annual filing requirements. In practice, the board president and secretary may delegate the preparation and execution of those filings to the executive director and finance administrator, although the filings may require the president’s signature or the president’s other review, approval, or acknowledgment of the filings. The organization’s executive director, presumably with substantial relevant knowledge and at least some relevant experience, is the individual most responsible for knowing about filing requirements, even if ultimate responsibility lies with the organization’s officers.

Review

The organization’s board should be aware that the organization is meeting its annual reporting requirements. The executive director may report the organization’s completion of those requirements, in periodic updates associated with regular and annual board meetings. The board president and organization’s executive director may wish to make the organization’s information returns available to board members for review. The board president and executive director should request board review and approval of the returns before filing, if the returns’ preparation raised any significant questions of interpretation, disclosure, or propriety. Board members should be aware that the public has the right to access information returns on site and can do so publicly online.

Disclosure

As just briefly mentioned, IRS information returns are public documents. The IRS itself and other private services make information returns available in online, searchable databases. Anyone with your organization’s name or EIN may search for your organization’s information returns and examine their financial disclosures and other details. You and other leaders of your charitable organization may find it helpful to examine the information returns of other charitable organizations in your geographic area or that provide charitable programs similar to your organization’s programs elsewhere. Comparisons may suggest adjustments or opportunities for your organization’s leaders to investigate or pursue.

Key Points

• Charitable organizations have annual reporting requirements.

• A nonprofit corporation charity must file brief state annual reports.

• Annual reports to the charity’s board, staff, and donors may help.

• The IRS requires annual information returns from 501(c)(3) charities.

• Smaller charities may file a simple annual IRS e-postcard.

• Mid-sized charities file IRS Form 990-EZ with financial disclosure.

• Larger charities file IRS Form 990 with detailed financial analysis.

• Churches and related organizations are exempt from IRS reporting.

• Reporting responsibility is with the president and executive director.

• The charity’s board should be aware of reporting compliance.

• Information returns that charities file with the IRS are public.

Read Chapter 20.