Non-profit Reporting Requirements Present Traps for the Unwary

November 22, 2016

Running a non-profit organization requires managing a dizzying array of details under stressful circumstances, including overseeing staff and service providers on a limited budget, seeking donations and grants, and navigating the various personalities and preferences on the Board of Directors. It is no surprise that so many non-profits have trouble keeping track of the many reporting, filing, and registration requirements that may apply at the federal or state level. However, failing to keep up with required filings can have serious consequences.

For example, the Internal Revenue Service has reported that since 2010, about 550,000 organizations have had their tax-exempt status revoked for failure to file the Form 990 (or 990-EZ, or 990-n, where appropriate) for 3 consecutive years. Many other organizations have lost their status as a "corporation" for failure to keep up with required state filings. The first step in avoiding the hassle and expense of correcting missed filings is becoming aware of the various reporting requirements that may apply to your organization.

Below are some of the main reporting and filing requirements that generally apply to non-profits (though this list is not comprehensive and there may be other requirements depending on the organization's specific activities): 

1. Federal Tax Filings 
Virtually all tax-exempt non-profits (with the exception of churches, certain religious organizations, and governmental entities) must file some version of the Form 990, depending on the organization's revenue, assets, and tax-exempt status. This will be either the Form 990-N, Form 990-EZ, Form 990, or Form 990-PF. As mentioned above, failure to file the applicable version of the Form 990 for 3 years in a row results in automatic revocation of tax-exempt status. In addition, organizations with $1,000 or more of gross income from an unrelated business in a given year must file Form 990-T.

2. State Tax Filings
Some states have their own tax filing requirements for non-profits (although many states simply defer to the federal Form 990 and impose no extra requirements). Sometimes, states impose state-specific tax filings only on organizations with unrelated business revenue, and sometimes these tax filings apply only to sales and/or property taxes. These filing requirements could potentially apply in any state in which an organization operates or generates revenue. 

3. State Corporate Filings
An organization must generally submit an annual (or sometimes biennial) filing in the state in which the organization incorporated, reporting basic information such as the organization's address, directors, and officers and paying a fee.

4. State Licensing Requirements
Operating or raising money in a particular state may give rise to a requirement to register and/or obtain a license in the state, even if the organization has no office and was not incorporated there. State charitable solicitation registration requirements, which apply in approximately 40 states, are the most common example applicable to non-profits. Subject to various exceptions, non-profits are generally required to register and file annual reports in the states in which the organizations solicit donations for charitable purposes. In some cases, these reports require filing a copy of the Form 990 and audited financial statements.

5. Employment Reports
Non-profits with employees are required to file Form 941 (reporting withholding and payroll taxes) quarterly with the Internal Revenue Service, and certain non-profits must also file Form 940 (reporting federal unemployment taxes) quarterly. Separate quarterly payroll and tax reports are generally required at the state level as well. Non-profits with employee benefit plans may also be required to file Form 5500 with the Department of Labor.

6. Lobbying and Political Activity 
Non-profits, including 501(c)(3) organizations, are allowed to engage in varying amounts of lobbying activities. Besides disclosing these activities on the Form 990, lobbying activities may need to be disclosed pursuant to the Lobbying Disclosure Act on reports called the LD-1, LD-2, and LD-203. In addition, non-profits permitted to engage in political campaign activities may be required to file Form 1120-POL with the Internal Revenue Service, and/or various reports with the Federal Election Commission.

7. Foreign Assets
Non-profits with financial accounts overseas must generally file an annual Foreign Bank Account Report ("FBAR") called the FinCEN Report 114.