Miss the beginning of the series? Go to Common Nonprofit Mistakes (And Simple Solutions) Part 1: I Could Do It All, But I Shouldn’t.
Nonprofit leaders are experts in multitasking. They juggle a million responsibilities, successfully work within tight budgets, and strive for their cause day in and day out.
Without a doubt, there is a method to the madness that keeps you moving forward! But losing your tax-exempt status would change your methods into just pure madness. Don’t think it could happen to you? Almost half a million nonprofits have lost their tax-exempt status to date! The IRS came huffing and puffing, and then blew those nonprofits down.
Now don’t run away. I said IRS, but I promise it is worthwhile to keep reading.
Here is the story of how Molly found herself in this situation so you can make sure you don’t find yourself there.
I’m Molly, the new director, failure in chief, and master of procrastination for an animal shelter. I’m learning how to manage my nonprofit the hard way, but I’ve got a great team of volunteers who are stressing me out a little less now than they did at first.
We were already skating on thin ice until our latest problem had us falling into a lake of distress. I opened the mail and saw a letter from the IRS:
Lose our tax-exempt status? Was the IRS playing a practical joke on me? I looked at the calendar. It was May 15. I reread the due date in the letter.
Holy moly! The Form 990 was due today!
I scrambled around the office like a chicken with its head cut off, trying to track down anything IRS-related. I found the missing receipts I had needed two weeks ago, a can of stale half-eaten Pringles in the bottom of a filing cabinet, and even a little present left by a dog behind the door; but I didn’t find any IRS documents.
In a panic, I rushed to get some advice from my board members and explained the IRS letter. I asked if they had any idea what it was talking about and where I might locate prior paperwork related to IRS filings.
The “law man,” Arthur, read over the letter and said, “Oh dear, looks like we got ourselves in a bit of a pickle. But as a matter of fact, I do know where they are located.”
Arthur explained that there had been a break-in a few years back. Among other things, there was a stack of paperwork with account information that had been taken.
The shelter’s previous director had then beefed up security by hiding all of her important account information in the trunk of a broken-down Cadillac out behind the kennels. Arthur bragged that he was the brains behind that brilliant idea.
Sure enough, I found boxes of old paperwork there in the trunk. I searched through stacks of manila folders for a while and uncovered old IRS filings, but two years were missing from the tax filing timeline.
Digging through the requirements, I became really thankful we were a small operation. The Form 990-N itself was painless compared to my personal taxes. Within 30 minutes, everything was filed, including overdue returns.
Crisis averted. Our tax-exempt status was preserved for another year. Whew! That would have been bad. No way would I let that slip through the cracks next year. I used a bright red marker to put this on my day planner and added it to my computer’s calendar with 12 bells, whistles, and alerts.
With that taken care of, I could get back to my passion: running the shelter, working with my volunteers, and getting ready for the big fundraising event that was coming up. But I’ll tell you more about that next time…
Following the IRS rules for nonprofits isn’t always simple. Right around the time my company first started helping nonprofits e-file Form 990-N, a large number of nonprofits (like Molly’s) got a letter from the IRS saying they were going to lose their tax-exempt status for failing to file three years in a row. We were inundated with emails and calls from people who were running in circles trying to file late returns. Here is one of my favorites:
“Hello! I have been given to understand that you folks can file a prior year IRS 990-N form. Is this correct? I have a letter from them stating I did not file for TY2010. They seem grumpy.”
I appreciated his sense of humor in a fairly stressful situation. Most of the people we spoke with were frustrated, angry, or panicked like Molly, and for good reason. The IRS was telling them to file late returns or lose their tax-exempt status, but most of the e-file providers named by the IRS could only help them with the current year and not previous years. I was glad Aplos was able to help turn those moments of stress into relief.
So why is it so hard to file a simple form on time?
If you are behind on filing, you aren’t the only one. In fact, for 2012, almost a third of the returns submitted through Aplos due by May 15 were submitted late. Why?
In Molly’s case, her organization had a transition of leadership and she had no idea that nonprofits needed to file a Form 990. Not an uncommon problem. For others, people often assume someone else is taking care of it. Frequently, the person in charge of filing just forgets.
What should you do if you think you have a problem?
If you missed a filing or are late, it’s time to catch up before you put your tax-exempt status at risk. There is no late fee for Form 990-N, but there is for Form 990-EZ. Check out Aplos eFile for details about filing a return for prior years.
Finally, if your tax-exempt status is revoked, don’t panic. The IRS recently made it easier and less expensive to get your status back. However, you do need to take action fast to ensure your donors are able to receive tax deductions so you retain their trust. Check out Foundation Group’s blog for details.
If you always file your Form 990 on time, great! Good job avoiding this extremely common problem. You owe a big thank you to your faithful, detail-oriented team player who remembers and completes this thankless task year after year. Share this e-card to let them know how much you appreciate them!
Mark your calendar now. Don’t settle for a last-minute scramble each year. Create a reminder system that’s easy to manage that will alert you for important due dates.
Add your annual return deadline to your calendar for the fifteenth of the fifth month after the start of your fiscal year. (That’s May 15 if your fiscal year starts in January.) Set it to recur annually if it is electronic. Don’t forget to also set a reminder a month or two early so you don’t wait until the last day to do your return.
Form 990-N and Form 990-EZ Cheat Sheets
After the end of your fiscal year, start preparing for your filing. Here are some cheat sheets for what you’ll need.
For help categorizing your income and expenses to match the 990-EZ categories, download this free Excel worksheet. Need a little more help? Watch this recording of the Aplos Form 990-EZ webinar or check out the IRS educational site: stayexempt.irs.gov.
When you are ready to file, Aplos eFile can walk you through the preparation of your Form 990-N or Form 990-EZ, and e-file it for you. If you need to submit another type of Form 990, such as one for a foundation, visit IRS.gov for additional resources.
Don’t forget that you might also have state filing requirements. Each state has a number of different requirements, forms, and deadlines. Check the filing requirements in your state.
What helpful tools have you used to complete your Form 990? Was there something that made it faster and easier for you? I would love to hear it, so please share it in the comments section below!
Up Next: Part 4
Not everyone enjoys the fundraising aspect of running a nonprofit, but you don’t have to dread it. Learn some tips and best practices when asking for money for your organization in Part 4.