Schedule K is used by 501(c)(3) organizations to report on their tax exempt obligations. The Internal Revenue Code permits tax exemption for the interest paid on qualified 501(c)(3) bonds as long as the bonds also meet the other requirements in the code applicable to this type bond.
Filing Form 990
Under Section 6033 of the Internal Revenue Code, organizations described in Section 501(a) are required to file an annual information return unless specifically exempted. 501(a) refers to organizations that are tax-exempt under Section 501(c) and to religious and apostolic organizations that are tax exempt under Section 501(d). Section 501(c) of course covers a wide variety of non-profit organizations including charitable organizations exempt under Section 501(c)(3). Under the statute, certain organizations are exempt from the filing requirements of Section 6033 including churches, conventions or associations of churches and certain governmental entities.
How to Fill out Form 990
There are four different forms in the 990 series. The Form 990, the short Form 990-EZ and Form 990-PF which I’ll refer to as Form 990 series returns. Also, there’s a Form 990-N also known as an e-postcard, which is an annual electronically filed notice, not a return. An organization that’s eligible to submit the e-postcard and voluntarily file a Form 990-EZ or 990 instead and an organization eligible to file the Form 990-EZ may voluntarily file the full Form 990. Private foundations must use Form 990-PF. Only Form 990 contains Schedule K which is the main topic of this presentation. If an organization is not required to file Form 990, for example if the organization could file Form 990-EZ or submitted 990-N, but it chooses to file Form 990 then it must file a complete return and include all required schedules, including Schedule K if applicable.
Penalties for Not Filing Form 990
There are monetary penalties for non-filing, late filing, and incomplete filing of Form 990 and Form 990-EZ. These penalties apply against the organization and, in certain cases, against responsible individuals. More importantly, under Section 6033-j if an organization fails to file an annual Form 990 series return or submit a Form 990-N e-postcard notice for three consecutive years, its tax-exempt status is automatically revoked. The automatic revocation of exemption is effective as of the due date of the third required annual filing or notice. If an organization’s exemption is automatically revoked, it appears on the auto-revocation list on irs.gov/eo. If the organization was previously recognized as exempt under 501(c)(3) of the Code, it is no longer eligible to receive tax-deductible contributions under code Section 170.
Organizations Losing Tax Exempt Status and Form 990
Organizations that lose their tax exempt status may need to file income tax returns and pay income tax. They may apply for reinstatement of exemption, usually by reapplying for exemption using Form 1023 for 501(c)(3) organizations or Form 1024 for other entities exempt under 501(a). If granted, the exemption will normally be retroactive to the date of application for reinstatement, not to the effective date of auto-revocation unless the organization establishes reasonable cause for failing to file the Form 990 series return, for not just one, but for three consecutive years. For additional information, go to the IRS website pages for exempt organizations at irs.gov/eo. On the first page is a link to pages dealing with auto-revocation. By following the links to frequently asked questions about auto-revocation, you can find information on the potential impact of auto-revocation on an organization’s tax-exempt bonds.
Different Parts of Form 990
The Form 990 has 12 parts, including the signature block, plus 16 schedules to be completed by specific types of organizations with specific types of activities. The schedules are designated as schedules A through O plus R. In the core form, the reporting entity addresses program service accomplishments, governance, compensation to management and key employees, revenue, functional expenses, balance sheet items, and other IRS filings and tax compliance, such as appropriate backup withholding, filing of employment returns, and payment of unrelated business income tax. Part IV of the core Form 990 includes trigger questions for separate schedules. For example, schools are directed to complete Schedule E. Entities operating hospitals must complete Schedule H. Before we finish discussing the core Form 990, I want to take this opportunity to emphasize one thing. Under Section 6104 of the Code, the information on Form 990, 990-EZ and 990-PF must be made available to the public upon request, both by the IRS and by organizations that file one of these Form 990 series returns.
Public Inspecting Form 990 of Organizations
Members of the public also have the right to inspect the 990 series return at the location of the organization. So, it’s very important that the return not contain any social security numbers in this era of increased identity theft. 990 series returns do not require reporting of any social security numbers. This concludes my overview of the core Form 990. You can find additional information, including the detailed instructions for Form 990, on the Internal Revenue Service website, irs.gov, under information for charities and non-profits