The Importance of Filing Form 990: What Every Nonprofit Needs to Know to Avoid the Consequences of Late Filing

As a nonprofit organization, staying on top of tax
responsibilities is critical—not just for maintaining compliance with the IRS
but also for preserving the integrity of an organization’s mission. One of the
most important forms a nonprofit must file annually is Form 990, which provides
transparency into a nonprofit’s financials, programs, and operations. But what
happens if a deadline is missed? The consequences can be severe; therefore, understanding
this scenario is crucial for every nonprofit leader.
Form 990 is the IRS’s primary tool for collecting financial
data about tax-exempt organizations. It offers a snapshot of your nonprofit’s
financial health, governance structure, and how funds are being used. Filing
this form on time is not just a legal requirement—it also ensures that your
organization remains in good standing with the IRS and continues to be eligible
for tax-exempt status.
The Risks of Filing Late
Let’s paint a picture. Your nonprofit has just completed
another successful year of community outreach, fundraising, and advancing its
mission. However, in the hustle and bustle of all the activities that keep you
busy, the Form 990 filing deadline slips by unnoticed. The penalties for late
filing can add up quickly.
What Happens When You File Late?
If your nonprofit’s gross receipts are less than $1,208,500,
and you file your Form 990 after the deadline (even if you requested an
extension), you’re subject to a penalty of $20 per day for each day your return
is late. While this penalty might sound modest at first, it can escalate
quickly. The maximum penalty you could incur is $12,000 or 5% of your gross
receipts, whichever is smaller. For
smaller nonprofits, that penalty could wipe out a significant portion of a
budget.
If a nonprofit exceeds the $1,208,500 threshold in gross
receipts, the penalty increases dramatically to $120 per day, up to a maximum
of $60,000. Imagine the stress of realizing that your nonprofit could be facing
a fine this large just because of a missed filing.
More Than Just Fines: The Risk to Your Tax-Exempt Status
But the consequences of late filing don’t end with financial
penalties. If your organization fails to file the required Form 990, Form
990-EZ, Form 990-PF, or even the e-Postcard (Form 990-N) for three consecutive
tax years, you’ll automatically lose your tax-exempt status. This is one of the
most severe penalties a nonprofit can face because it would require the
nonprofit to pay federal taxes like any other for-profit business. Losing
tax-exempt status can significantly damage a nonprofit’s reputation with
donors, grantors, and the public.
How to Avoid These Penalties
Ways to avoid the consequences of a late Form 990 filing:
Know Your Deadlines: Form 990 is due on the 15th day of the 5th month after the
end of a nonprofit’s fiscal year. If a nonprofit fails to meet that deadline, they
can request an automatic extension for six months, but remember, this is only
an extension to file—not an extension to pay penalties.
Stay Organized: The key to avoiding missed deadlines is being organized.
Designate someone responsible for ensuring that Form 990 is filed on time and
keep track of deadlines on your calendar.
Monitor Your Gross Receipts: If your organization is approaching
the $1,208,500 threshold, it’s especially important to keep an eye on your
finances. The higher the gross receipts, the greater the daily penalty.
File Electronically: E-filing is not only quicker, but it also reduces the risk
of delays and human error that may occur with paper filing.
Understand Your Filing Requirements: Some smaller nonprofits are eligible
to file a 990-N (e-postcard) instead of the full Form 990. Make sure you
understand which form your organization needs to file based on its size and
financial activity.
Consult an Expert: If filing feels overwhelming, don’t hesitate to reach out to
an accountant or a nonprofit tax expert who can help ensure that all paperwork
is filed on time and correctly.
The Bottom Line: Timeliness is Key
As a nonprofit, it is important to note that filing Form 990
on time is not just about avoiding fines, but rather about maintaining
transparency and accountability to donors, supporters, and the public.
Nonprofits rely on trust, and timely filing is a critical part of building and
maintaining that trust.
By staying organized, tracking deadlines, and seeking help,
when necessary, a nonprofit can avoid the consequences of late filing and
continue focusing on what matters most—serving the community and fulfilling its
mission.
At HWA Alliance of CPA Firms, Inc., we understand the unique challenges nonprofits face when it comes to maintaining financial compliance and transparency. HWA has over forty years of experience in the nonprofit industry, with ninety percent of our clients being nonprofit organizations. Empowering nonprofits with tailored financial solutions is our firm’s specialty. Let HWA help you stay on top of your Form 990 filing deadlines and avoid costly penalties, while ensuring your mission remains at the heart of everything you do. Contact us today to schedule a consultation. Together, we can build a financial framework for your nonprofit that drives success, enhances accountability, and amplifies impact in the community.