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Nonprofit Compliance
Compiled by Valerie F. Leonard, Expert
Community and Organizational Development

Did you know that tax exempt organizations are 2 times more likely than tax payers to be
late with filing annual returns with the IRS?
There are approximately 1.6 million registered organizations in the United States
(IRS, December 13, 2016). Of this number, 670,158 registered organizations, or 40%, lost
their tax exempt status as a result of not filing Form 990 for three years in a row. Just four
years ago, there were approximately 1.2 million nonprofit organizations with about 32%
losing their tax exempt status for failing to file Form 990 three years in a row. In contrast,
about 85% of individuals and corporations file their income taxes (Form 1040) on time.

Its that time again. Make sure your organization has completed the necessary filings to
maintain tax exempt status. Be sure to
1) File Annual Reports to the Secretary of State. ALL Not-for-Profit Corporations must
file an annual report of officers and directors with the Secretary of State. The due
date depends upon when the corporation was formed. The annual report is due
before the first day of the corporations anniversary month each year. The
anniversary month is the month in which the corporation was formed. For example, if

Copyright Valerie F. Leonard. All rights reserved.

the date of incorporation was Sept. 15, the anniversary month is September and
each annual report is due before the first day of September each year. Forms will be
sent to the registered agent approximately 60 days before the due date. Annual Fee:
$10.00 Late Fee: $3.00 Failure to file an annual report may result in involuntary
dissolution of the corporation.
http://www.cyberdriveillinois.com/departm ents/business_services/annual_reports/cor
p_instructions.html
2) Conduct an annual financial audit.
3) Comply with all grant requirements and conduct a separate grant audit if required
4) File (state) Form AG-990-IL (within 5 months of the fiscal year end) Filing Fee:
$15.00. Penalty for late filing: $100 (for every late return)
http://www.illinoisattorneygeneral.gov/charities/ag990-annualreport.pdf
5) File (federal) Form 990 (within 5 months of the fiscal year end) If Form 990 is filed
after the due date(including any extensions), and the organization doesn't have
reasonable cause for filing late, the Internal Revenue Service will impose a penalty
of $20 per day for each day the return is late. (For every return that is filed late) The
maximum penalty is $10,000 or 5% of the organization's gross receipts, whichever is
less. The penalty increases to $100 per day up to a maximum of $50,000 (For every
return that is filed late) for organizations whose gross receipts exceed $1,000,000.
Previously, only organizations with revenues above $25,000 were required to file. As
of 2008, all nonprofits are required to file Form 990.
http://www.irs.gov/pub/irs-pdf/f990.pdf
Click here for instructions: http://www.irs.gov/pub/irs-pdf/i990.pdf
An organization that fails to file the required information return (Form 990, Form 990EZ, or Form 990-PF) or e-Postcard (Form 990-N) for three consecutive tax years will
automatically lose its tax-exempt status. The revocation of an organizations taxexempt status will not take place until the filing due date of the third year. For
example, if your Form 990 was due on May 15, 2009 (for tax year 2008) and you did
not file in 2009, 2010, or by May 15, 2011, your organization probably lost its your
tax-exempt status on May 15, 2011. The IRS will not send additional notices once
your tax-exempt status is automatically revoked.
Organizations on the Automatic Revocation of Exemption List (Auto-Revocation
List) previously recognized as exempt under section 501(c)(3) of the Internal
Revenue Code are no longer eligible to receive tax-deductible contributions under
Code section 170. Publication of an organizations name on the Auto-Revocation List
serves as notice to donors and others that the organization is no longer eligible to
receive tax-deductible contributions under section 170 and that donors and others
may not rely on an IRS determination letter dated before the effective date of
revocation. http://www.irs.gov/charities/article/0,,id=239696,00.html

Copyright Valerie F. Leonard. All rights reserved.

You can check Publication 78 to ensure that an organization is still eligible to receive
tax deductible contributions. For best search results, be sure to enter the exact legal
name of the organization. You can also conduct an online search at
http://www.irs.gov/charities/article/0,,id=240099,00.htm l
6) Ensure information regarding the registered agent is current and accurate.
Complete NFP 105.10/105.20if there are any changes.
http://www.cyberdriveillinois.com/publications/pdf_publications/nfp10510.pdf
If the changes came about as a result of a resignation of the registered agent,
complete Form BCA-5.15 NFP 105.15
http://www.cyberdriveillinois.com/publications/pdf_publications/nfp10515.pdf
7) File quarterly Form 941 (federal employment tax withholding) Penalties. For each
whole or part month a return is not filed when required (disregarding any extensions
of the filing deadline), there is a penalty of 5% of the unpaid tax due with that return.
The maximum penalty is 25% of the tax due. Also, for each whole or part month the
tax is paid late (disregarding any extensions of the payment deadline), a penalty of
0.5% per month of the amount of tax generally applies. This penalty is 0.25% per
month if an installment agreement is in effect. You must have filed your return on or
before the due date of the return to qualify for the reduced penalty. The maximum for
this penalty is also 25%. The penalties will not be charged if you have a reasonable
cause for failing to file or pay. Use of a reporting agent or other third-party payroll
service provider does not relieve an employer of the responsibility to ensure that tax
returns are filed and all taxes are paid or deposited correctly and on time.
Download Form 941 here: http://www.irs.gov/pub/irs-pdf/f941.pdf
Download instructions here: http://www.irs.gov/pub/irs-pdf/i941.pdf
File quarterly IL-941 or annual IL 941A (State of Illinois employment tax withholding)
See Publication 103 Penalties and Interest for Illinois Taxes for further details.
Contact the Illinois Department of Revenue for further information.
8) If you didnt do so at the time of incorporation, make sure your organization is
registered with the State of Illinois Attorney Generals Office Charitable Trust
Bureau, http://illinoisattorneygeneral.gov/charities/co-1form.pdf. File Form CO-2 with
the State of Illinois Attorney Generals Office, if your organization is less than 1 year
old http://www.illinoisattorneygeneral.gov/charities/co-2form.pdf.
This checklist has been developed for informational purposes only and is not construed to
be professional advice. It is strongly advised that you consult an attorney and accountant
who are well-versed in matters of nonprofit organizations and taxes.

Copyright Valerie F. Leonard. All rights reserved.

About the Author

Valerie F. Leonard is a Chicago-based expert in community and organizational
development, with a mission to strengthen the capacity of organizations to make a positive
impact on the communities they serve through technical assistance, specialized workshops,
resource and organizational development and project management. For further information,
you may call Valerie at 773-571-3886, visit www.valeriefleonard.com or e-mail her at
consulting@valeriefleonard.com.

Copyright Valerie F. Leonard. All rights reserved.