What Happens If a Nonprofit Doesn’t File Form 990?

Most tax-exempt organizations have an annual IRS filing requirement, even when they owe no federal income tax. For many nonprofits, that means filing Form 990, Form 990-EZ, or Form 990-N.

Missing a filing deadline can create penalties and compliance problems, and repeatedly failing to file can put the organization's tax-exempt status at risk.

Are Nonprofits Required to File Every Year?

Most tax-exempt organizations are required to submit an annual information return or notice to the IRS.

Depending on the organization's size and circumstances, this may include:

• Form 990

• Form 990-EZ

• Form 990-N

• Other applicable nonprofit filings

Certain organizations are exempt from the annual filing requirement, so the appropriate filing should be determined based on the organization's specific situation.

What Happens If Form 990 Is Filed Late?

Organizations required to file Form 990 or Form 990-EZ may face financial penalties for filing late.

The amount can depend on factors such as the organization's gross receipts, how late the return is filed, and the applicable rules for that tax year.

Allowing an overdue return to remain unfiled can therefore become increasingly costly.

Can a Nonprofit Lose Its Tax-Exempt Status?

Yes.

One of the most serious consequences occurs when an organization fails to file a required Form 990-series return or notice for three consecutive years.

Under federal law, the organization's tax-exempt status is generally automatically revoked.

This can create substantial tax and administrative consequences for the organization.

What Does Automatic Revocation Mean?

Once tax-exempt status is revoked, the organization may no longer be recognized by the IRS as federally tax-exempt.

That can potentially affect:

• Federal income tax treatment

• Donor confidence

• Deductibility of contributions

• Grant applications

• State compliance

• Financial reporting

• Organizational operations

For organizations that rely heavily on donations and grants, losing exempt status can be particularly disruptive.

Can Tax-Exempt Status Be Reinstated?

Potentially, yes.

An organization whose tax-exempt status has been automatically revoked may apply to the IRS for reinstatement.

The appropriate procedure can depend on the organization's circumstances, including how quickly it applies and whether it qualifies for certain reinstatement procedures.

Reinstatement can involve additional filings, documentation, and fees.

What If the Nonprofit Had No Income?

Having little or no income does not necessarily eliminate the annual filing requirement.

Smaller organizations that meet the applicable requirements may be eligible to submit the simplified Form 990-N e-Postcard rather than a full Form 990.

This is why even small or relatively inactive nonprofits should review their filing obligations every year.

What If You Discover an Old Form 990 Was Never Filed?

If your organization discovers a missed filing, identify which tax year is affected and which Form 990-series return should have been submitted.

If multiple years are missing, determine whether the organization is approaching or has already reached the three-consecutive-year automatic revocation rule.

Addressing the issue promptly can help prevent additional compliance problems.

How Can Nonprofits Avoid Missed Filings?

Consistent accounting and compliance procedures can make annual filings much easier.

Organizations should maintain:

• Accurate bookkeeping

• Contribution and grant records

• Program expense records

• Payroll information

• Bank reconciliations

• Board and governance records

• Prior Form 990 filings

• A calendar of tax and compliance deadlines

Preparing throughout the year is generally easier than reconstructing the organization's financial activity immediately before a deadline.

Stay Current With Nonprofit Compliance

Missing one nonprofit filing can create problems. Missing required filings for several consecutive years can threaten the organization's tax-exempt status entirely.

James Ridout CPA provides Form 990 preparation, late nonprofit filing assistance, nonprofit accounting, financial reporting, tax compliance support, and ongoing CPA guidance.

Is your nonprofit behind on Form 990 filings? Schedule a consultation with our team to review what's missing and determine the appropriate next steps.