Form 990 and 990-EZ

Do you know which Form 990-series return you are required to file for the 2010 tax year?  The 990 filing thresholds for the year 2010 and later (filed in 2011 and later) changed as follows for all organizations required to file a 990-series return:

• Organizations with gross receipts normally < $50,000 must file Form 990-N (but may choose to file a complete Form 990 or Form 990-EZ).  In prior years only organizations with gross receipts normally < $25,000 could file the Form 990-N (“e-postcard”).
• Organizations with gross receipts > $50,000 and  < $200,000 and total assets < $500,000 must file Form 990-EZ or a complete Form 990.
• Organizations with gross receipts > $200,000 or total assets > $500,000 must file Form 990.
• Private foundations must file Form 990-PF.

Form 990 series returns are required to be filed by most tax-exempt organizations, except for church and government-affiliated organizations. Form 990 is the IRS primary tool for gathering information about tax-exempt organizations, for educating organizations about tax law requirements and ensuring their compliance.  Organizations use it to inform the public about their programs.  In addition, most states rely on Form 990 to perform charitable and other regulatory oversight, and to satisfy state income tax filing requirements for organizations claiming exemption from state income tax.

What is Form 990?

Form 990, Return of Organization Exempt From Income Tax, is the annual information return for tax-exempt organizations, including political organizations.

What is Form 990-EZ?

Form 990-EZ is the short form of the annual information return for exempt organizations, including political organizations. A political organization required to file Form 990 that has not exceeded thresholds for the its total gross receipts during the year and total assets at the end of the year may file Form 990-EZ instead of the Form 990.  See Filing Phase-In for more information about the thresholds.

Who has to file Form 990?

Tax-exempt political organizations whose annual gross receipts are $25,000 or more must file Form 990, unless excepted. Any organization excepted from the requirements to file a Form 8871 and any political organization that is a caucus or association or state or local officials are excepted from the Form 990 filing requirement. Qualified state or local political organizations are only required to file Form 990 if they have annual gross receipts of $100,000 or more.

Note:  Organizations whose gross receipts during the year and total assets at the end of the do not exceed certain thresholds may file Form 990-EZ instead of Form 990.  See Political Organizations That May File Form 990-EZ for more information.

Does a tax-exempt political organization whose annual gross receipts are normally $25,000 or more have to file a Form 990 for any year in which its annual gross receipts are less than $25,000?

No.  Unlike other exempt organizations, a tax-exempt political organization does not use the three-year averaging test to determine whether it meets the $25,000 threshold.  The organization should indicate the amount of its gross receipts in the header area of the return (Item G), because the IRS may otherwise correspond with the organization regarding the filing of Form 990.  Note that the $25,000 filing threshold is increased to $100,000 for qualified state or local political organizations.

When is Form 990 due?

Form 990 is due on the 15th day of the 5th month following the end of the organization’s taxable year. For organizations on a calendar year, the Form 990 is due on May 15th of the following year.

See: Return Due Dates for Exempt Organizations Annual Returns

May a political organization request an extension of the due date for filing Form 990?

Yes, the organization may request an automatic three-month extension, without showing cause, by filing Form 8868, Application for Extension of Time to File an Exempt Organization Return, by the due date of Form 990.  A second three-month extension, with cause, may also be requested using Form 8868.

How does a political organization report its income in Parts I and VIII of Form 990?

That an item of income is treated as a contribution for purposes of election law reporting does not necessarily mean it is reported as a contribution on Form 990.  Instead, the political organization must determine the various types of income it has and report each type on the appropriate lines in Parts VIII and I of Form 990.  For example, membership dues and assessments are reported on line 1h, Part I, of the 2008 return, whereas political fundraising or entertainment event income is generally reported as income from fundraising events on line 1c.  Unlike Form 1120-POL, all income of the political organization is reported on the Form 990 (including contributions (line 1)) and taxable income (such as interest and dividends (line 10 of the 2008 form)).

Does a political organization need to identify contributions as being from federated campaigns, membership dues, fundraising events, related organizations, government grants (see line 1 of the 2008 return)?

No, a political organization may report all of its contributions on the total line (1h of the 2008 Form 990) without breaking out federated campaign contributions, membership dues, fundraising events, contributions from related organizations, and government grants. It does need to identify contributions as cash or non-cash.

Does a political organization report as a contribution in Part I of Form 990 the value of the use of materials, equipment or facilities provided by a connected organization that is not required to be reported as a contribution under federal election law?

No.

How does a political organization report a loan?

A political organization reports a loan with repayment obligations in Part X of Form 990 as an account payable (line 17 on the 2008 form) or as a loan from an officer, etc. (line 5).

How does a political organization report its expenses in Part IX of Form 990?

A political organization reports all its expenses (including its political campaign expenses) in Part IX, Column A of Form 990.  It does not need to allocate these expenses among columns B (program services); C (management and general); and D (fundraising expenses).

How does a political organization that makes contributions to candidates or other political organizations report them in Part IX of Form 990?

Contributions to candidates or other political organizations are reported as grants (line 2, Part IX of the 2008 form).

Does a political organization need to report joint costs in Part IX of Form 990?

No, a political organization does not need to report joint costs in Part IX of Form 990 because it is not required to allocate expenses between program services, management and general, and fundraising costs.

How should a political organization describe its exempt purpose in Part III of Form 990?

The exempt purpose of a political organization is to engage in political campaign activity.  An organization may want to be more specific in describing its purpose.  For example, a candidate committee may describe its purpose as “To elect X to Congress” while an environmental PAC may describe its purpose as “To elect candidates who support environmental issues.”

How would a political organization describe its program service accomplishments in Part III of Form 990?

Part III of Form 990 provides an opportunity for a political organization to describe its activities and how they further its exempt purpose.  In some cases, this will be fairly straightforward.  For example, a candidate committee’s program service accomplishment would be conducting the campaign to elect X to Congress.  In other cases, particularly for those organizations that engage in indirect as well as direct political campaign activities, a political organization may use this section to describe how various activities are intended to influence elections.

What does a political organization report in Part VII of Form 990?

Internal Revenue Code section 527 does not require political organizations to be organized with boards of directors, officers and trustees, but if the political organization is organized in this way, it must provide the names, addresses, title, average hours worked and compensation of those officers, directors and trustees, key employees, highest compensated employees, and independent contractors.

Does a political organization have to report the compensation of one of its officers, directors, trustees or key employees that is paid by a related organization?

In general, a political organization must report on Form 990, Part VII (and on Schedule J, if Schedule J is required) the compensation of its officers, directors, trustees, and key employees that is paid by related organizations.  A political organization need not report reportable compensation of less than $10,000 from a related organization on Part VII (though it must be reported on Schedule J, if Schedule J is required).  A political organization need not report compensation from certain for-profit related organizations if the officer, director, trustee, or key employee serves the political organization on a volunteer basis.

What is a related organization for purposes of reporting compensation paid by related organizations on Form 990?

A related organization is any organization that meets one of the following tests:

• Fifty percent or more of the political organization’s officers, directors, trustees or key employees are also officers, directors, trustees or key employees of the other organization.
• The political organization appoints fifty percent or more of the other organization’s officers, directors, trustees or key employees.
• Fifty percent or more of the political organization’s officers, directors, trustees or key employees are appointed by the other organization.

Does a political organization need to complete Part VIII of Form 990?

No, because the political organization is subject to tax under Code section 527 rather than under the unrelated business income tax provisions of section 511-514.

What does a political organization report on Schedule R of Form 990?

If the political organization owns more than fifty percent or more of any taxable subsidiary or disregarded entity (partnership or limited liability company), it must report the name, address, employer identification number, activities, and income and assets of the entity, along with the percentage the political organization owns of the entity. It must also report this information for certain nonprofit organizations.  See the instructions to Schedule R  for more information.

Does a political organization need to complete Schedule A of Form 990?

No.

Does a political organization complete Schedule B of Form 990?

Yes, if the political organization received contributions from any one person aggregating $5,000 or more for the year. Note, however, that a political organization need not report on Schedule B information about contributors for which information need not be reported on Form 8872.

If a political organization that files Form 8872 chooses not to disclose a contributor on that form, is it required to disclose the contributor on Schedule B of Form 990?

A political organization that files Form 8872 is not required to disclose on Schedule B of Form 990 the name and address of any contributor that it did not disclose on Form 8872.  It must disclose the amount of the contribution and that it paid the amount specified under section 527(j)(1) for that contribution.

What if the political organization fails to file Form 990?

A political organization that fails to file a required Form 990 or fails to include required information on those returns is subject to a penalty of $20 per day for every day such failure continues. The maximum penalty imposed regarding any one return is the lesser of $10,000 or 5 percent of the gross receipts of the organization for the year. In the case of an organization having gross receipts exceeding $1,000,000 for any year, the penalty is increased to $100 per day with a maximum penalty of $50,000.

Are Forms 990 filed by tax-exempt political organizations publicly available?

Yes, Forms 990 filed for taxable years beginning after June 30, 2000, including contributor information reported on Schedule B, will be made available for public inspection by the Service. In addition, each political organization must make a copy of these returns, including contributor information reported on Schedule B, available for public inspection during regular business hours at its principal office (and any regional or district offices having at least three paid employees) in the same manner as Internal Revenue Code section 501(c) organizations provide copies of their annual returns.

See: Penalty for organization’s failure to disclose

What if the tax-exempt political organization does not make its Forms 990 publicly available?

A penalty of $20 per day may be imposed on any person with a duty to comply with the public inspection requirements for each day a failure to comply continues.  The maximum penalty that may be incurred for any failure to disclose any one return is $10,000.

The following are frequently asked questions and tips address various questions pertaining to Form 990 reporting of arrangements between a filing organization and its related organizations, including disregarded entities, exempt organizations, partnerships, trusts, and corporations. Schedule R, Related Organizations and Unrelated Partnerships , is used to identify, and provide certain information regarding, related organizations and certain unrelated partnerships. These FAQs and Tips also address the general reporting requirements for group returns.

Schedule R requires certain information reporting regarding related organizations. What are related organizations for purposes of Schedule R?

Related organizations are organizations that stand in a parent/subsidiary relationship, brother/sister relationship, or supporting/supported organization relationship. Supporting and supported organizations are defined in section 509(a)(3) and 509(f)(3). Determination of the first two relationships depends on a definition of control set forth in the Form 990 instructions glossary and Schedule R instructions.  The definition of control depends on whether the organization has owners or persons with beneficial interests.

How is control defined for nonprofit organizations and organizations without owners or persons with beneficial interests?

There is a parent/subsidiary relationship between such organizations if:

• one organization (the parent) has the power to remove and replace, or a continuing power to appoint or elect, a majority of the directors or trustees of the other organization (the subsidiary).
• there is a management or board overlap situation where officers, directors, trustees, employees, or agents of one organization (the parent) constitute a majority of the directors or trustees of the other organization (the subsidiary).

There is a brother/sister relationship between such organizations if the same persons constitute a majority of the members of the governing body of both organizations.

How is control defined for nonprofit organizations and organizations with owners or persons with beneficial interests?

There is control if one organization (the parent) owns more than 50 percent of the other organization (the subsidiary), as follows:

• more than 50 percent of the stock (measured by voting power or value) of a corporation;
• more than 50 percent of the profits or capital interest in a partnership (or limited liability company (LLC) treated as a partnership); or
• more than 50 percent of the beneficial interests in a trust.

There are also several special rules for treating a partner or member (the parent) as controlling a partnership or LLC (the subsidiary):

• an organization that is one of three or fewer managing partners or managing members is deemed to cqontrol that partnership or LLC;
• an organization that is one of three or fewer general partners in a limited partnership is deemed to control that limited partnership; and
• the sole member of a disregarded entity controls the disregarded entity (for example, a single-member LLC).

In the first two situations, control in fact typically exists regardless of the level of economic ownership in the entity.

What information about a related organization is required to be reported on Schedule R?

Parts I-IV of Schedule R all ask for the related organization’s name, address, employer identification number, primary activity, legal domicile, and direct controlling entity. They also ask for certain other types of information depending on whether the related organization is a tax-exempt organization, a disregarded entity, a taxable corporation, or a partnership for federal tax purposes, as follows:

• Tax-exempt organization:
  • its exempt Code section (such as 501(c)(6))
  • if exempt under section 501(c)(3), its public charity status
• Disregarded entities:
  • total income
  • end-of-year assets
• Taxable corporation or trust:
  • share of related organization’s total income
  • share of related organization’s end-of-year assets
  • percentage ownership
  • related organization’s entity type (C corporation, S corporation, or trust)
• Partnership:
  • share of related organization’s total income
  • share of related organization’s end-of-year assets
  • related organization’s predominant type of income (related, investment, or unrelated)
  • unrelated business income amount (if any) reported in the partnership’s Form 1065, Schedule K-1, box 20
  • whether the partnership makes disproportionate allocations
  • whether the filing organization is a general or managing partner or member

Schedule R, Part V also requires reporting of transactions between the filing organization and its related organizations. Do all transactions between the filing organization and its related organizations have to be reported?

No.  Schedule R, Part V, line 1, requires check-box reporting of whether the organization was engaged in certain kinds of transactions with any related organizations.  The following transactions must be reported in greater detail in line 2:

• all transactions described in line 1a, which includes all receipts or accruals of interest, annuities, royalties, or rent from a controlled entity under section 512(b)(13), regardless of amount.
• transactions described in lines 1(b) through 1(r) with controlled entities if the amounts involved during the tax year between the filing organization and a particular controlled entity exceed $50,000.

Section 501(c)(3) organizations must report additional information on line 2. Such organizations:

• must report transactions with related tax-exempt organizations not described in section 501(c)(3) (including section 527 political organizations).
• in particular, must report the name of the related organization, the type of transaction, and the amount involved during the filing organization’s tax year (even if the transaction was entered into by the parties in a prior year).
• should aggregate transactions of the same type with the same related organization.
• may disregard and not report transactions of a specified type with a particular organization if the total amounts related to those transactions during the tax year do not exceed $50,000.

What is the difference between a related organization and a controlled entity for purposes of Schedule R? Why does the IRS require certain transactions between the filing organization and a controlled entity to be reported on the schedule, even if the transaction amount is less than the reporting thresholds applicable to other transactions with related organizations?

A related organization for Form 990 purposes is defined by the glossary and instructions (see Meaning of Related Organization, Meaning of Control – Organization Without Owners, and Meaning of Control – Organization With Owners). A controlled entity is one type of related organization, whether tax-exempt or taxable, that is defined in Code section 512(b)(13) to include subsidiaries that are more-than-50 percent controlled by the organization. Section 6033(h) requires controlling organizations to report certain controlled entity transactions, including loans, fund transfers, and receipt of interest, annuities, royalties, or rents from the controlled entity, on their Forms 990. Schedule R is used to report this information.  Because receipts or accruals of interest, annuities, royalties, or rent from a controlled entity are subject to special tax treatment under section 512(b)(13), they must be reported regardless of amount.

Besides Schedule R, what are some other examples of other parts of the Form 990 and schedules that require the filing organization to provide information regarding certain of its related organizations?

• Part VII, Compensation—compensation from related organizations
• Part VI, Governance, line 1b— must take into account transactions with related organizations in determining independence of members of governing body
• Part VIII, Statement of Revenue, line 1d–contributions from related organizations
• Schedule D, Part V, line 3–endowment funds held by related organizations
• Schedule D, Part X–payables to related organizations
• Schedule H, Part VI (optional for 2008 but required for 2009)–states in which a related organization files a community benefit report on behalf of filing organization
• Schedule M, Part I, line 32–whether the organization solicits, processes, or sells noncash contributions for filing organization

The same definition of related organization used for Schedule R (described in Meaning of Related Organization, Meaning of Control – Organization Without Owners, and Meaning of Control – Organization With Owners) is also used for these other reporting requirements.

Because information regarding related organizations is required in various parts of the form, the Sequencing List in the Instructions (page 5) recommends determining the related organizations as one of the first steps in preparing the Form 990.

Why does Part VI of Schedule R require information regarding certain partnerships even though they are not related organizations?

Some exempt organizations participate in joint ventures and other arrangements in which the organization does not have a controlling interest that satisfies the Form 990 definition of related organization. These arrangements might lead to activities that result in unrelated business income tax, private benefit, inurement, and other exempt status issues, especially when the organization does not control the venture or arrangement.  Accordingly, Part VI of Schedule R was designed to collect information regarding participation in partnerships which are not controlled by the organization but through which the organization conducts significant activities.  For this purpose, the organization must report information regarding unrelated partnerships through which it conducts activities constituting at least 5 percent of its total activities, measured by gross revenue or total assets, whichever is greater.  Certain passive investment activities are excepted.

When is the filing organization required to treat the activities of a related organization as its own activities for Form 990 reporting purposes?

Whether and the extent to which an organization is required to include in its Form 990 the activities of a related organization depend upon the type of related organization.

• Disregarded entities.  Except for reporting of disregarded entities in Schedule R, Part I, disregarded entities are treated as part of the organization rather than as separate entities for Form 990 reporting purposes.  Accordingly, all activities of a disregarded entity of which the filing organization is the sole member are to be reported in the filing organization’s Form 990.  See Appendix F, Form 990 instructions, for more information on how activities of disregarded entities are to be reported on certain lines.
• Partnerships. In general, the activities of a partnership are treated as the activities of the filing organization, in accordance with the filing organization’s proportionate interest in the partnership.  See Appendix F for more information on how activities of partnerships are to be reported on certain lines.
• Corporations. In general, the activities of a corporation in which the filing organization has an ownership interest are not treated as the activities of the filing organization, unless the corporation (1) is acting as the filing organization’s agent, or (2) the corporation is a sham (for instance, lacks a bona fide business purpose and is not conducting business).

Should a filing organization report on Schedule R other organizations in which it has an indirect ownership interest, such as second and third tier subsidiaries?

Yes, if the filing organization directly or indirectly controls the other organization. For this purpose, the constructive ownership rules of section 318 of the Code apply to determine control of a corporation, and similar principles apply to determine control of a partnership or trust.

For example, if the filing organization X owns 80 percent of a taxable corporation Y, and Y holds a 70 percent profits interest as a limited partner of a limited partnership Z, then X is deemed to own 56 percent of Z (80 percent of Y’s 70 percent interest in Z). Thus, X controls both Y and Z, which are therefore both related organizations with respect to X. X would report Y in Schedule R, Part IV, and would report Z in Schedule R, Part III.

These constructive ownership rules also apply to determine whether the filing organization is controlled by or under common control with another organization.

What are the related organization reporting requirements for organizations filing group returns?

Appendix E to the Form 990 instructions contains special group return rules for reporting information on behalf of a group in a group return, including special rules for Schedule R.  In general, central and subordinate organizations in a group exemption are not required to be reported as related organizations in Schedule R, Part II.  All other related organizations of the central and subordinate organizations are required to be listed in Parts I, II, III, and IV, as appropriate.  Transactions with such organizations must be reported in Part V whether or not a central or subordinate organization in a group exemption is required to be listed as a related organization.

What are the related organization reporting requirements for organizations filing Form 990-EZ?

There are only two lines in Form 990-EZ that pertain to related organizations. Line 45 asks whether the organization has any controlled entities, because the organization must file Form 990 and not 990-EZ if there was a transfer of funds with a controlled entity. Also, line 49 asks whether the organization (if a 501(c)(3)) made any transfer to a related tax-exempt organization other than a 501(c)(3) organization and, if so, whether the related organization was a section 527 organization.

Additional information:

• Exempt organizations–If you are an officer, director, employee or volunteer of an exempt organization;
• Tax professionals–If you prepare returns for or provide tax advice to exempt organizations;
• General public and contributors–If you make contributions to charitable organizations or want to find information about an exempt organization; and
• Researchers (including news media)–If you need statistical information or general background information about exempt organizations.
• Form 990 Filing Tips Archive
• Mini-course – 990 schedules (including Schedule R) – available on IRS’ www.stayexempt.irs.gov site
• If you cannot find what you want on these pages, try using this site index for charities & nonprofits or use the Search box in the upper right corner of each page on www.irs.gov.

DISCLAIMER: This information is not intended to provide legal or accounting advice, or to address specific situations. Please consult with your legal or tax advisor to supplement and verify what you learn here.