Since the 990 is subject to public disclosure rules and is easily available online, it is important to stress accuracy when preparing this return. This is the face of your organization. Many individual donors and foundations will rely on the information presented on the 990 to make their funding decisions. Below is a list of common mistakes that are made when preparing a 990 return.
Most Damaging Common Mistakes
Missing the deadline. The 990 is due on the 15th day of the 5th month after the organization’s year-end. That means May 15th for calendar year organizations and November 15th for organizations with a June 30th year-end. There are two 3-month extensions available but these have to be filed by their deadlines. Final deadline after all extensions is November 15th for calendar year-end organizations and May 15th for June 30th organizations. Late filing fees can be as high as $50,000. Failure to file for 3 consecutive years results in loss of exempt status. If the organization has unrelated business income, it must file an extension for the 990 and a separate extension for the 990-T.
Wrong name or Federal Employer Identification Number (EIN). The day-to-day name used by an organization may not be your legal name. Check your Articles of Incorporation to verify what your organization’s legal name is. Most states publish the names of corporations online. A wrong name and/or EIN may cause your return to be rejected which can result in a missed filing deadline.
Filing an incomplete return. The IRS can consider an incomplete return as never filed in which case late filing penalties up to $50,000 can apply. Missing schedules is one of the most common reasons for incomplete returns. Listed below are some of the most common schedules. Keep in mind that some schedules only apply to organizations filing a 990 and some schedules apply to both the 990 and the 990-EZ.
- Schedule A – Required of all public charities
- Schedule B – Required of organizations that received donations of $5,000 or more from a donor
- Schedule C – Lobbying activities are reported in this schedule
- Schedule D – Most common reasons for filing this schedule are fixed assets, endowment funds, escrow funds, and/or audited financial statements. Endowment funds includes those administered by someone else such as a community foundation. An example of escrow funds is security deposits from building tenants.
- Schedule G – Required if the organization had over $15,000 in expenses for professional fundraisers (not employees) or if it had over $15,000 in gross income from either fundraising events or gaming activities.
- Schedule I – Required if the organization gave more than $5,000 in grants and contributions to other organizations or individuals in the United States. Schedule F is completed if the grants were given to organizations or individuals located outside of the United States.
- Schedule M – Required if the organization received over $25,000 in donated non-cash contributions. Common mistake is not realizing that donated stock is considered a non-cash contribution.
- Schedule R – Required if the organization was related to any other organizations or if it owns 100% of a disregarded entity.
Not dealing properly with related entities. If your organization has a related entity, it must be reported in Schedule R. In some cases, their activities are consolidated for tax return purposes but in most cases each organization will have to file a separate tax return. My advice is to ask a professional to look at your particular situation to advise you on how the tax returns must be filed. Again, an incomplete tax return can be considered as not-filed by the IRS and lead to huge penalties and possible loss of tax exempt status.
Improper functional allocation between program, management, and fundraising expenses. A few years back, the IRS began questioning organizations that had large amounts of contribution revenue and no fundraising expenses.
Failing to report unrelated business income. Advertising and sponsorships can trigger audits by the IRS because there is a very fine difference between these two. Advertising is typically considered unrelated business income while sponsorships are typically considered contributions. Other common types of unrelated business income are merchandise sales and rental income from debt-financed property.
Failing to report lobbying activities can lead to penalties imposed on the organization and on each board member of the organization.
Other Common Mistakes
Outdated mission statement and/or program activities
Outdated or incorrect board list
Wrong contact information. Verify that address, phone number, and website are all accurate.
Math just doesn’t work. Seems like a simple rule but I’ve seen quite a few returns with math errors. We assume that software programs always add things correctly but formulas can be overwritten in every software program.
- Total assets has to equal the sum of total liabilities and net assets
- Beginning net assets + revenue – expenses + changes in net assets has to equal ending net assets
- Beginning net assets has to equal ending net assets for the prior year
Schedules don’t tie back to the main return. For example:
- Total amount of contributions in Schedule B should not be higher than total contributions in Part VIII of the 990 or in Part I of the 990-EZ.
- Fundraising and gaming events listed in Schedule G should not be higher than amounts reported on Part VIII of the 990 or on Part I of the 990-EZ.