Top 5 Form 990 Errors Your NFP Should Avoid

Written by: Cameron Stelljes

Form 990 is a public document which allows not-for-profit (NFP) organizations to demonstrate transparency and accountability to donors, grantors, the IRS and the general public. It includes information about the organization's mission, programs and finances. Given the type of information included and potential for high visibility, it’s important for an NFP to get it right.

Having seen our fair share of Form 990 errors, we decided to compile the top five errors that NFP’s should avoid.

Filing with the IRS is very important because the penalties for not-for-profits can be very costly depending on how late the return is filed. As of January 25th, 2024, if an organization whose gross receipts are less than $1,208,500 for the tax year files their Form 990 after the due date without reasonable cause, there will be a penalty of $20/day for each day the return is late (with a maximum of $12,000 or 5 percent of the organization’s gross receipts, whichever are less). This penalty increases to $120 per day and up to a maximum of $60,000 for an organization whose gross receipts exceed $1,208,500.

To avoid this, please remember that Form 990 is due the 15th day of the 5th month following the end of the organization’s taxable year. This can be extended 6 months by filing a Form 8868 extension before or on this due date.

Reporting of Board members on part VII can be very tricky so it is recommended that an organization keep detailed records of those who served on the board. A common error for the reporting of board members is not including all who served during the taxable year, regardless of the length of time.

For example, if someone had served on the board only one day during a taxable year, they would still need to be included on part VII reporting.

This can be a very important section that is skipped over and not given as much attention as it deserves. On page 2 Part III of the Form 990, an organization is able to list out and describe how the organization is operating and fulfilling its mission. Many times, descriptions here are vague and not very descriptive. Being mindful of the potential for high visibility, organizations should look at this section as an opportunity to market themselves to potential donors and funders.

It’s important when preparing Schedule A to make sure you keep accurate records and fill out lines for excess contributions and payments from disqualified persons as this will affect your public support percentage and your status of being a public charity, if applicable.

On Part II of Schedule A this calculation is found on line 5 and on Part III of Schedule A this calculation is found on lines 7a and 7b. It is very important to keep good documentation because of these excess calculations.

Believe it or not, another common error is including incorrect contact information. With such detailed information included in Form 990, organizations tend to give less attention to the administrative portion. Given that this is a public document and therefore is a great source of information for a potential donor or grantor, this could affect someone’s ability to get in contact and support your organization.

Clark, Schaefer, Hackett & Co. hosted a free webinar covering this topic in more depth along with topics such as how to make your 990 appeal to grantors and donors. Please join us to learn more and discover the tools to position your organization for 990 success. Click here to register and watch the webinar on-demand.