Form 990, Exemptions, and Compliance Obligations
Tax-exempt status is not the same as filing-exempt status. It is one of the most persistent misconceptions in the nonprofit sector. An organization may be exempt from federal income tax and still carry significant filing, reporting, and compliance obligations. Failure to meet these obligations can result in penalties, loss of exemption, and damage to donor trust.
This guide examines the tax obligations facing nonprofits in Virginia and Washington DC, from annual Form 990 filing to state tax exemption requirements and the consequences of noncompliance.
The Annual Filing Obligation: Form 990 Series
Most tax-exempt organizations must file an annual information return with the IRS. The specific form depends on the organization’s gross receipts and total assets .
Form 990-N (e-Postcard) is for organizations with gross receipts normally $50,000 or less. Filing is completed online, and there is no paper equivalent.
Form 990-EZ is for organizations with gross receipts under $200,000 and total assets under $500,000.
Form 990 is the full return, required for organizations with gross receipts of $200,000 or more or total assets of $500,000 or more.
Form 990-PF is for private foundations, which file regardless of revenue level.
The filing deadline is the 15th day of the 5th month after the end of the organization’s tax year. For calendar-year organizations, this is May 15. A six-month extension is available by filing Form 8868 .
Consequences of Noncompliance
Failure to file Form 990 for three consecutive years results in automatic revocation of tax-exempt status. The IRS publishes a list of organizations that have lost their exemption, which damages donor confidence and disqualifies the organization from many grants.
Reinstatement requires a new application, additional fees, and no guarantee of retroactive restoration. Organizations that have lost their status may be required to file income tax returns and pay taxes during the period of revocation.
The automatic revocation process is described in detail in IRS resources, and organizations should treat the filing deadline with the same seriousness as any other compliance obligation .
Schedule B: Contributor Reporting Requirements
Schedule B to Form 990 requires organizations to report contributors who meet certain thresholds. However, not all organizations are required to report contributor names and addresses.
Organizations other than Section 501(c)(3) organizations and Section 527 political organizations are no longer required to report the names and addresses of their contributors on Schedule B. These organizations must enter “N/A” in Part I, column (b). However, they must continue to collect the names and addresses, keep the information in their records, and make it available to the IRS upon request .
Section 501(c)(3) organizations must report contributor names and addresses in Part I, column (b). Special rules apply for organizations that meet the 33 1/3 percent support test. Such organizations list only those contributors whose contribution of $5,000 or more during the tax year is greater than 2 percent of total contributions reported on Form 990, Part VIII, line 1h .
For example, an organization that reported $700,000 in total contributions would only need to list contributors who gave more than the greater of $5,000 or 2 percent of $700,000 ($14,000). A contributor who gave $11,000 would not be reported, even though the gift exceeded $5,000, because it did not exceed $14,000 .
Virginia Sales and Use Tax Exemption
As noted in the companion article on financial management, Virginia sales and use tax exemption is not automatic. Organizations must apply to Virginia Tax and meet all criteria set forth in Code of Virginia § 58.1-609.11 .
The application is made through Nonprofit Online or by completing Form NP-1. There is no fee to apply. Once approved, the organization may purchase items exempt beginning on the effective date on the exemption certificate. The exemption does not apply retroactively .
The exemption applies only to sales tax on purchases of tangible personal property and taxable services. It does not extend to corporate income tax, withholding tax, or utility tax .
Organizations with a tax-exempt letter from another state cannot use that certificate in Virginia. Retailers located in Virginia should only accept a valid exemption certificate issued by Virginia Tax .
Washington DC Tax Exemption
For organizations operating in Washington DC, tax exemption is a separate application from federal 501(c)(3) status. Organizations must file Form FR-164 with the DC Office of Tax and Revenue .
The application requires a copy of the IRS Determination Letter and a copy of the business registration. Processing takes approximately 30 to 60 days. Until DC approval is received, the organization may technically be liable for DC taxes .
DC tax exemption is valid for five years and must be renewed. Non-renewal results in immediate loss of DC tax-exempt status .
Common reasons for denial include failure to attach requested documents, attaching outdated or expired certificates, attaching proof of location that differs from the address on file, and submitting the wrong type of business license documentation .
Washington DC Biennial Report
In addition to tax exemption renewal, DC nonprofits must file a Two-Year Report with the Department of Licensing and Consumer Protection. The first report is due April 1 in the calendar year after registration. Subsequent reports are due biennially by April 1 .
The filing fee is $80, with a $50 late fee for delinquent filings. Missing this deadline triggers administrative dissolution after five months late .
Unrelated Business Income Tax
Nonprofits are generally exempt from federal income tax on income related to their exempt purpose. However, income from activities that are not substantially related to the exempt purpose—known as unrelated business income—is subject to tax.
Organizations with gross unrelated business income of $1,000 or more must file Form 990-T, Exempt Organization Business Income Tax Return. The form is due by the 15th day of the 5th month after the end of the tax year, the same deadline as Form 990.
For Virginia purposes, organizations with unrelated business income subject to tax under IRC Section 511 must file the appropriate Virginia return and pay tax on that income. For DC purposes, corporations report UBI using Form D-20; all others use Form D-30 .
Recordkeeping and Public Disclosure
Tax-exempt organizations are required to make certain documents available for public inspection. These include the exemption application (Form 1023 or 1024) and the annual information returns (Form 990, 990-EZ, or 990-PF) for the most recent three years.
Organizations should maintain records that support the information reported on their returns, including financial records, board minutes, and documentation of governance policies. The IRS may request these records during an examination.
How Nova Tax & Accounting Services Can Help
At Nova Tax & Accounting Services, we help nonprofit organizations across Virginia and Washington DC meet their tax filing and compliance obligations. Our team provides:
Form 990, 990-EZ, and 990-PF preparation and review
Virginia sales tax exemption application and renewal assistance
DC tax exemption application and compliance support
Unrelated business income tax analysis and Form 990-T preparation
Governance consulting and internal controls assessment
Nonprofit audit and assurance services
We serve organizations throughout Northern Virginia, Washington DC, and Maryland from our office in Ashburn. For more information, visit https://novataxservices.com/ or schedule a free consultation.
