Form 990 Filing Mistakes Nonprofits Make - and How to Avoid Them

For many nonprofits, Form 990 is one more administrative task to complete. With other tasks to focus such as programs, fundraising, governance, and daily operations, it may not receive the attention it deserves.

Form 990 isn’t just an annual return. It’s also a public document used by donors, grantmakers, regulators, and others may use to evaluate your organization. Inaccurate or incomplete reporting can create compliance concerns and raise broader questions about financial stewardship, while repeated failure to meet annual filing requirements can ultimately result in revocation of tax-exempt status. 

Here are several common mistakes that can affect Form 990's accuracy, completeness, and credibility.

Assuming last year’s filing approach still applies

Don't automatically assume your organization should file the same return as last year.

The appropriate Form 990-series filing depends on the organization’s classification, gross receipts, year-end assets, and activities. Many small exempt organizations with annual gross receipts of $50,000 or less may file Form 990-N, while those below $200,000 in gross receipts and total assets below $500,000 may be eligible to file Form 990-EZ. Review current rules and circumstances each year rather than relying only on these thresholds.

Limited activity doesn’t necessarily eliminate the filing requirement; an organization may still need to file despite little revenue, paused  programs, or was largely dormant during the year.

Failing to file a required annual return or notice for three consecutive years automatically revokes tax-exempt status. Reinstatement requires a new exemption application and IRS fee and may also require delinquent returns, reasonable-cause statements, and professional assistance.

Ech year, confirm the organization’s classification, receipts, assets, and filing requirements. Set an internal deadline before the legal deadline, and verify that the IRS accepted the electronic filing. A rejected return generally must be corrected promptly to preserve the original filing date. 

Filing numbers that haven’t been reconciled

Every material number on Form 990 should be traceable to reliable records, even when nonprofit financial information comes from multiple systems.

The general ledger, donor database, payroll records, audited financial statements, and Form 990 may classify amounts differently. These differences aren't necessarily errors, but they must be explainable.

Common issues include contributions that don’t match with donor records, inconsistent grant reporting, compensation that cannot be reconciled to applicable Forms W-2 and 1099, and beginning net assets that differ from the prior-year filing. 

Identify and explain material differences before final review. A written reconciliation helps the preparer understand where the figures came from, gives leadership a clearer view of the filing, and provides support if anyone questions an amount later.

Treating narratives as boilerplate

Some of Form 990's most important sections are narrative. Part III asks about its mission and major program accomplishments, yet these descriptions are often reused even when programs, priorities, and results have changed.

Program leaders should review descriptions annually to confirm they accurately reflect the services delivered, people served, and outcomes the organization can substantiate.

Read the return as an outside stakeholder

Most of Form 990 and its schedules are subject to public disclosure. Outsiders may review compensation, governance, finances, program narratives, and unusual transactions without the content available to staff and board members.

Form 990 or 990-EZ public copies generally excluse contributor names and addresses from Schedule B, while Form 990-PF and section 527 political organizations generally disclose them. Check the applicable disclosure rules before redacting or publishing information.

Before filing, compare the return with the audited financial statements, website, annual report, board minutes, and approved compensation arrangements. Understand and, when appropriate, reconcile or explain material differences; use Schedule O when additional context is required.

Build a repeatable filing process

Form 990 errors often occur because relevant information is scattered among people unaware the preparer needs it. Every nonprofit can create a repeatable process.

After closing the books, reconcile accounting records with financial statements, payroll reports, donor records, investment statements, and prior-year return. Involve the employees familiar with the activities, complete the organization’s review process, assess the return as an outside stakeholder, and confirm that the electronic filing was accepted.

No single employee needs to know every Form 990 rule, but the organization needs a system that flags important changes, assigns responsibility, and gives the preparer complete information.

Get guidance tailored to your organization

Form 990 filing requirements vary by classification, financial activity, and specific circumstances. Contact us for help determining the corrrect filing, addressing reconciliations and disclosures, reviewing the return, and developing a more reliable year-over-year process.