Revamped forms and filing requirements can trip up unprepared nonprofits
By Shelley Huang & Darlene Flores
Since the start of the COVID-19 pandemic two years ago, many nonprofits have faced significant challenges. With millions of Americans suddenly out of work, a large number of these organizations saw declines in donations. According to a survey of around 2,500 nonprofits from the Federal Reserve Bank of St. Louis, donations dropped 16% from individuals and 24% from corporations. The survey also shows that 70% of these organizations reported higher expenses while simultaneously facing increased demand for their services. These challenges have forced many nonprofits to find creative ways to maintain their fundraising and service levels.
Thankfully, there have not been any monumental changes on the tax front, but there are a few that could potentially trip up some nonprofits. To start, as most organizations know, tax returns for the fiscal year 2020 were delayed, but are now due May 16, 2022. Additionally, there are some changes to Form 990 and 990-T, as well as the way in which nonprofits are allowed to file.
Changes to Form 990 and 990-T
The IRS requires all nonprofits to file a Form 990 every year to retain their exemption from federal income tax and receive tax-deductible donations from their donors. The information provided is straightforward, outlining what the nonprofit does and where they receive their money. However, since the 1940s, nonprofits were required to fill out a Schedule B form as part of their annual reporting requirements, if they received contributions greater than $5,000, or more than 2% of revenues from one contributor. This donation could be in the form of grants, bequests, devises, or gifts of money or property. Schedule B requires the nonprofit to provide the names, addresses and descriptions of the gifts from these donors. The IRS and state revenue departments are legally required to keep donor information confidential. Still, there have been many incidents where they’ve failed to redact this information or it was accidentally released.
The accidental release of this information could have a chilling effect on donors who want to remain private. They may have decided to contribute smaller gifts or not donate at all. However, in early July, the U.S. Supreme Court ruled in Americans for Prosperity Foundation v. Bonta that California’s law requiring nonprofits to submit a Schedule B to the California Attorney General’s Office was unconstitutional. Since this ruling, other states have dropped their requirement for nonprofits to submit a Schedule B to their state regulatory.
Nonprofits are still required to file a Form 990-T if they receive $1,000 or more for unrelated business income, which the IRS defines as money collected from operations unrelated to its core mission. For example, income from selling advertisements in a newsletter could be considered unrelated to the core mission and may be taxable. The significant change for Form 990-T comes in its Schedule M, which has been replaced by a redesigned Schedule A. Nonprofits are now required to use Schedule A for all unrelated trade or business income, which gives the IRS and potential donors a better understanding of how the organization operates and raises money.
Changes to how nonprofits file
Many nonprofits filed their 990 and 990-T forms on paper and submitted them through the U.S. Postal Service. However, the IRS now requires all nonprofit organizations to electronically file and submit these forms. This requirement was supposed to take effect in 2020, but was deferred until this year due to COVID-19 and other extensions. This may be an onerous burden for some smaller nonprofits; however, BPM can provide you with the support you need to lighten the load.
On their own, these are not substantial changes to a nonprofit’s reporting requirements. In fact, the removal of Schedule B might spur more support and donations from those shy of publicity. Nevertheless, these changes may be problematic if the nonprofit doesn’t follow the updated requirements.
BPM can help
That’s why nonprofits choose BPM to help with their filings and accounting services. Our team of professionals diligently monitors any changes to the federal and state tax codes through legislation or tax agency policy modifications. We can keep you informed and work on strategies to minimize your liabilities. Speak with your BPM team today to ensure you are prepared for all these changes and your returns comply with the latest rules and requirements.