Q&A #23 – Is it better to file a late Form 990 or file an incomplete Form 990 by the deadline?
Question: My nonprofit organization has been scrambling to complete our Form 990 by the deadline, but for various reasons we are still trying to track down information that we need to complete certain required Schedules. We have already received a 6-month extension, so we are faced with a choice of filing late or filing an incomplete return on time (and supplementing or amending it later). Both choices are not ideal, but which is better?
Answer: The short answer is that you should wait until your Form 990 is complete and accurate before filing, even if it is late. In the worst-case scenario, you may have to pay late filing penalties. Also, be aware that your organization’s tax-exempt status will be auto-revoked for failure to file for 3 years in a row, so a late filing can trigger this revocation if you have already failed to file for the previous 2 years.
The penalties for late filing depend on the size of the organization:
For organizations with $1,067,000 or less in revenue (gross receipts) for the year, the penalties are $20 per day for each day the Form 990 is late, up to a maximum penalty of $10,500 or 5% of revenue (whichever is less).
For organizations with over $1,067,000 in revenue (gross receipts) for the year, the penalties are $105 per day for each day the Form 990 is late, up to a maximum penalty of $53,000.
Note: the exact revenue thresholds and penalty caps change from year to year, so check the Instructions for the Form 990 to see the current numbers for the year at issue.
However, you can request that the IRS “abate” (i.e. waive) these penalties if you have reasonable cause for filing late (based on your question, it may be possible that the circumstances that led to you needing to track down information could be grounds for reasonable cause, and this should be explored). This reasonable cause statement should be attached to your late Form 990, when filed. It is also common to submit an abatement request after you receive your notice of penalties from IRS.
Filing an incomplete return on time is not a solution. The IRS will reject incomplete returns and treat them as if they had not been filed, so this approach won’t avoid the penalties you are worried about (and filing a false or fraudulent Form 990 can lead to criminal penalties as well).
Moreover, correcting an incomplete or incorrect Form 990 by filing an amended return will create a confusing public record that reflects poorly on your organization, so you will want to avoid doing this whenever possible.
Planning Tip – Filing a late Form 990 almost always indicates an underlying organizational problem that should be examined and corrected. Take steps to identify how you got into this predicament and implement measures to ensure it does not happen again. This can include getting help with your financial recordkeeping, putting calendar reminders in place, getting started earlier, and/or allotting more time for Form 990 preparation.
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