Calendar year 2020 is rapidly approaching. Nonprofit leadership should review all reporting requirements for both the state and Internal Revenue Service (IRS).
Nonprofits are usually corporations and are given corporate status by the state in which they reside. The Department of Corporations is where the annual reporting should begin.
IRS is the federal agency that requires annual reporting. IRS grants the federal income exemption and is the recipient of the annual reports. The annual information report allows IRS to track the income and activity of this type of organization.
It is this report that IRS uses to continue providing the income tax exemption. Absence of this report for three consecutive years will trigger an automatic revocation of this benefit.
When an organization has received legal status as a nonprofit corporation, it incurs multiple state agency reporting requirements.
Here are the agencies, in Florida, that require annual or other periodic reports from all nonprofits:
n An annual corporation report is due no later than May 15. A standard fee must be included with the filing. Penalties exist for lack of or late reporting that start at $400. Corporation dissolution is also a possibility.
n If the nonprofit receives or solicits donations, a permit is now required by all states. Nonprofits that solicit in multiple states must now have a permit for each in which they are active. This permit has in the past few years required more personal information about each officers of the corporation.
The filer must certify that each officer has no record of criminal activity and will not be compensated by the organization. Without this information, the permit is denied.
n Other reports include reporting changes in the legal officers and any amendments to the state corporate documents.
These reports have small fees associated with the filings.
It is always best to file all of these lesser reports in a timely fashion to prevent any future legal liabilities.
n A nonprofit can receive a sales tax exemption from the state only if IRS has granted the federal income tax exemption on a determination letter.
This document comes in the form of a certificate and lasts for three to five years before renewal is required.
Each purchase the nonprofit makes can be exemption form sales tax if a copy of the certificate is presented to the seller.
There is only one annual information report to file with IRS each year. It is normally due before May 15. Nonprofits that do not file for three consecutive years will receive an automatic revocation of the income tax exemption. The penalty can easily cost $600 or more for reinstatement.
Also, the IRS will require documents be filed relative the absence of reporting for the three-year period. Please note the IRS can also deny a reinstatement of this benefit depending on information on the request for reinstatement.
The reporting form IRS requires is the 990. The 990 has different versions and complexities based on the amount of averaged yearly income. If the nonprofit is small and has income of less than $25,000 per year, a 990N can be filed over the internet.
The 990 is used for annual incomes of more than $25,000 and up to $50,000 and greater. A multiple-paged 990 is required and becomes more complicated as income and expenditures must now be listed. Sources of income and related operating costs must be listed.
There is a 990PF form that is used by foundations and it is most complicated. Foundations pay certain types of taxes on investment income. Foundations usually have huge annual incomes, often in millions of dollars, that must be used to support smaller organizations.