Nonprofit Doesn’t Mean Tax-Free: Understanding 990 Filings and IRS Rules

Many people assume that if an organization is a nonprofit, it doesn’t have to deal with taxes. But the truth is, while nonprofits are often exempt from income taxes, they’re not free from IRS oversight, annual reporting requirements, or penalties.

If you run a nonprofit or are thinking about starting one, understanding the IRS Form 990, what qualifies as “tax-exempt,” and the compliance rules is essential to maintaining good standing and avoiding revocation.

This guide breaks down what every nonprofit board member, director, or founder needs to know in 2025.

What Is a Tax-Exempt Organization?

A tax-exempt organization is typically:

Organized for charitable, religious, educational, scientific, or literary purposes
Approved under Section 501(c) of the IRS code
Exempt from paying federal income tax, but must follow strict rules

Common examples include:

Churches and religious ministries
Educational nonprofits and tutoring programs
Homeless shelters and food banks
Animal rescue organizations
Youth programs and community centers

But being “nonprofit” doesn’t mean:

You can skip IRS filings
You’re exempt from state taxes or fees
You can pay out profits to founders or directors

IRS Form 990: Your Annual Filing Obligation.

Form 990 is the annual tax return that tax-exempt organizations must file with the IRS. It provides transparency into the organization’s:

Revenue
Expenses
Governance
Fundraising activity
Executive compensation

Failure to file can result in fines —and even the loss of tax-exempt status.

Which Version of Form 990 Do You File?

It depends on your organization’s gross receipts and assets:

Form	Who Files	Filing Threshold
990-N (e-Postcard)	Very small orgs	Gross receipts ≤ $50,000
990-EZ	Mid-size orgs	Gross receipts < $200,000 AND assets < $500,000
990 (long form)	Larger orgs	Gross receipts ≥ $200,000 OR assets ≥ $500,000
990-PF	Private foundations	All private foundations, regardless of income

When Is Form 990 Due?

Form 990 is due on the 15th day of the 5th month after your organization’s fiscal year ends.

For calendar-year nonprofits, that means:

May 15, 2025 for the 2024 tax year

You can request a 6-month extension by filing Form 8868.

What Happens If You Don’t File?

A late Form 990 may trigger penalties up to $100/day
If you fail to file for 3 consecutive years, the IRS will automatically revoke your tax-exempt status
Reinstatement requires a new application and fee (Form 1023 or 1024)

More than 600,000 nonprofits have lost status due to non-filing since the rule took effect.

What’s Reported on Form 990?

Even if you’re not paying income tax, the IRS wants to see:

All sources of revenue (grants, donations, program income)
Expenses by category (salaries, rent, fundraising, etc.)
Compensation of key employees and board members
Major donors and contributors (over $5,000 in some cases)
Any conflict of interest policy
Governance structure and activities

Many funders and donors review your 990 before offering grants or support — it’s a public record.

Are Nonprofits Ever Taxed?

Yes, under certain circumstances. Even if you’re a 501(c)(3), the IRS can tax:

Unrelated business income (UBI) from activities not related to your mission
Investment income : if excessive or improperly structured
Excess benefits if insiders receive above-market compensation or perks

If your nonprofit runs a for-profit business, that income may be subject to the Unrelated Business Income Tax (UBIT) and require Form 990-T.

For Example: A nonprofit youth center selling merchandise year-round might owe UBIT on profits from t-shirt sales if not related to its core mission.

State-Level Tax Requirements.

In addition to IRS filings, many states require:

Annual reports or renewals
State-level income or franchise tax filings
Fundraising registration if soliciting donations

Failure to meet state requirements can result in loss of good standing, fines, or even administrative dissolution.

Check with your Secretary of State or State Attorney General for local rules.

Governance Best Practices

The IRS reviews how nonprofits are governed and sloppy governance can flag your return for audit.

Tips:

Keep minutes of board meetings
Adopt a conflict of interest policy
Document how salaries are determined
Avoid personal use of nonprofit funds
Ensure Form 990 is reviewed by the board before filing

Records You Should Keep.

Nonprofits should maintain:

Copies of Form 990 and acknowledgments for 7+ years
Donation receipts and grant letters
Board rosters and meeting minutes
Bylaws and IRS determination letter
Annual budgets and financial reports

These help with audits, fundraising applications, and board transitions.

FAQ.

Q: Can I file Form 990 myself?
A: Yes, many small orgs file 990-N or 990-EZ themselves. Larger orgs often hire a tax professional or accountant.

Q: Is my Form 990 public?
A: Yes. Anyone can view it through IRS tools or sites like GuideStar and ProPublica.

Q: Do churches have to file Form 990?
A: Generally, no. Churches and integrated auxiliaries are exempt — but they must still follow all tax-exempt laws.

Q: How do I get 501(c)(3) status?
A: You must file Form 1023 (or 1023-EZ for smaller orgs) with the IRS and receive a determination letter.

Wait. Did You Forget Something

Trending now