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Form 990-EZ Penalties

- Updated April 29, 2020 - 8.00 AM - Admin, ExpressTaxExempt

Nonprofits and Tax-Exempt Organizations are busy with serving people and may miss out on filing their returns on time.

This may seem trivial, but the foundation may end up paying hefty penalties for not filing on time or for incorrect filing and sometimes its revokes their tax-exempt status.

So be cautious about what you report to the IRS and the filing deadlines. The following are the topics covered under the Form 990-EZ penalty.

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1. Penalties for Not filing or Incorrect Filing of Form 990-EZ

If a Nonprofits and Tax-Exempt organizations don’t file on time, or doesn't file with the correct information and providing the proper reasons for the late filing or incorrect filing,

Smaller Organizations must pay $20 for each day. The maximum penalty for each return won't exceed the smaller of $10,500 or 5% of the gross receipts of the organization for the year.

A large organization that has gross receipts exceeding $1,067,000 for the tax year, must pay $105 a day. The maximum penalty for each return is $53,000 for a large organization.

Gross receipts mean the gross amount received during the foundation's annual accounting period from all sources without reduction for any costs or expenses.

Paid Preparer Penalties

The use of a paid preparer doesn’t relieve the organization of its responsibility to file a 990-EZ return.

Against responsible person(s). If the Nonprofits and tax-exempt organization doesn’t file a return on time or doesn’t file with the correct information, the IRS will send the organization a letter that includes a fixed time to fulfill these requirements.

After that period expires, the person failing to comply will be charged a penalty of $10 a day. The maximum penalty on all persons for failures for any one return shall not exceed $5,000.

There are also penalties (fines and imprisonment) for willfully not filing returns and for filing fraudulent returns and statements with the IRS (sections 7203, 7206, and 7207).

States can impose additional penalties for failure to meet their separate filing requirements.

2. What are the Reasons for the Penalty?

Nonprofits and Tax-Exempt Organizations will also be penalized for not compliant with the IRS if not providing the reasonable cause:

The major reasons for penalties

  • Not filing on time or not applying for extension
  • For incorrect filing
    • Not completing the required parts or lines
    • Not attaching the schedules
    • No signature
    • Not filing on proper media (For instance. not filing electronically if required)

3. What is Automatic Revocation?

An organization that fails to file the 990-EZ information return for 3 consecutive tax years will automatically lose its tax-exempt status.

Organizations that lose their exempt status may need to file income tax returns and pay income tax, but may apply for reinstatement of exemption.

Also an Organization must apply the Form 1023 / 1024 to reinstate the exempt status.

4. IRS Penalty Relief

Under certain circumstances like national disaster, fire, inability to take record, Death, serious illness, IRS provides relief from penalties for late or incorrect filings.

A penalty may not be applicable if you can solve the issue reported in the notice sent to you within the stipulated time.

Penalties Eligible for Relief

Penalties eligible for penalty relief include:

  • Failing to file a tax return
  • Failing to pay on time
  • Failing to deposit certain taxes as required
  • Other penalties as applicable

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