Key Strategies for Form 990 Filers to Avoid the Ire of the IRS

February 11, 2020

In the IRS Tax-Exempt & Governmental Entities (TE/GE) 2020 Program Letter, much is made over “data-driven approaches”, “query sets”, and “models.” All of this to say that the IRS is carefully monitoring the Form 990-series returns that your organization may be filing annually.

The Program Letter states, “Data-Driven Approaches use data and queries to select work based on quantitative criteria, which allows TE/GE to allocate resources that focus on issues that have the greatest impact. TE/GE is committed to integrating data into its process and procedures and will use return data and historical information to identify the highest risk areas of noncompliance.”

Couple this with the recent “Taxpayer First Act of 2019” (July 1, 2019) which mandates future electronic filing of all Form 990-series returns and we have an increased level of scrutiny that could adversely affect your organization if you are do not diligent file a timely, complete, and accurate Form 990-series return. (These include Form 990, Form 990-EZ, Form 990-PF, and Form 990-T.)

So what are some best practices for ensuring that your organization is putting its best foot forward AND taking steps to “avoid the ire” of the IRS?

  • Minimize Attention from the Internal Revenue Service
    • Carefully study and adhere to form instructions (which can be found at www.irs.gov/eo by searching “Forms and Publications.”)
    • Diligently document the amounts, answers, and descriptions you report on your annual return(s)
    • Be mindful of the IRS’ data-driven approach and what that means (see the TE/GE 2020 Program Letter for more information)
    • Systematically review drafts of Form 990s to ensure that nothing reported (or not reported) on the Form 990 in and of itself could be considered an audit exposure for the nonprofit by the Internal Revenue Service
    • Monitor updates and changes to forms and instructions
    • Even “small” nonprofits can be subject to a Form 990 audit by the IRS
  • Put Best Foot Forward
    • Because Form 990 is a public document, it is in the best interests of the nonprofit to use it as a marketing document, especially if a §501(c)(3) public charity
    • It is especially important to closely review Form 990, Pages 1 and 2 (Parts I and III) to align this data and narrative to your website and/or donor and marketing communications
  • Encourage Good Governance
    • Be a governance role model for other nonprofits
    • Utilize Form 990, Part VI as a “checklist” with management and your board regarding governance issues

The IRS Exempt Organizations Division is committed to using data analytics in making sure that “service and enforcement co-exist” in everything they do. To this end, they continue to enhance systems that electronically identify non-compliance on Form 990-series returns. This generally means we will see more examinations in the exempt organization sector. Your organization should carefully document the amounts and descriptions that you report on your annual returns and ensure sufficient review to file timely, complete, and accurate returns.

Additional Resources:

Form 990: Most Common Errors 
Read about the most common errors on Form 990, as compiled by the IRS Exempt Organizations Division, based on what they saw on the “new” Form 990 in the early years of filing that return.

Form 990-PF: Most Common Errors 
This article describes the most common errors made when preparing IRS Form 990-PF for private foundations.

Form 990 Red Flags for 501(c)(3) Charitable Organizations (PDF) 
This article is intended to be used as a guide for a Form 990 reviewer to identify potential red flags that should be examined or considered prior to filing.

The Trouble With Filing an Incomplete Form 990
The IRS treats an incomplete Form 990 as a return never filed, so it’s critical that preparers include all the required information. This article highlights the most common reasons Forms 990 are considered incomplete and offers tips to ensure you don’t make this mistake.