After the deadline passed for most not-for-profits to file Form 990 with the IRS on May 15, 2024, it’s time to shift focus towards the next tax season. If your organization operates on a calendar-year tax basis and filed its Form 990 on time, you might want to put tax reporting out of your mind until next spring. However, it’s crucial to bear in mind the future Form 990 while your organization carries out its programs and events this year.
Here are four often overlooked issues that your organization should consider:
1. Fundraising Expenses: Ensure that your not-for-profit accurately reports both income and expenses from fundraising activities on Schedule G of Form 990. The IRS pays close attention to events where income is substantially less than claimed expenses, so maintaining proper records is essential for potential IRS inquiries.
2. Operations Abroad: While nonprofits can operate internationally without penalty, specific reporting requirements must be met, such as foreign bank accounts, activities in foreign countries, and grants from foreign entities. Ensuring compliance with these regulations is crucial to avoid heightened IRS scrutiny.
3. Diverted Assets: Be transparent about any asset diversions in the past year on Form 990. Any misappropriation of funds for personal use must be explained in detail. Implementing robust internal controls can help prevent fraud and illegal asset diversions, minimizing the risk of an IRS audit.
4. Loans to Disqualified Persons: Prohibited loans from a tax-exempt organization to disqualified individuals must be reported on Form 990, reflecting a declining balance if applicable. Avoiding such activities altogether eliminates the need for reporting and potential red flags for the IRS.
By staying mindful of these issues and working with a professional tax advisor to prepare Form 990, your organization can effectively report its activities and minimize audit risks. Keeping these potential pitfalls in mind can help safeguard your nonprofit’s financial integrity.
DISCLAIMER:
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. The services of an appropriate professional should be sought regarding your individual situation.
