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 3.05 million registered organizations in the United States (IRS, April 28, 2025). Of this number, 1.13 million registered organizations, or 37%, have lost their tax exempt status at some point in their history as a result of not filing Form 990 for three years in a row. Some may have gone through the process of getting their tax-exempt status renewed. The remaining 1.92 million registered organizations are still eligible for tax-exempt contributions. In contrast, about 85% of individuals and corporations file their income taxes (Form 1040) on time, with about 15% filing late.
Filing annual 990’s with the IRS is only one piece of the compliance puzzle. It includes following your own internal policies and procedures, as well as complying with agreements with grantors and other funders; state, federal and local agencies and the general public. Failure to comply has a host of consequences, including strained relationships with funders and regulators; loss of funding; loss of standing in the community; difficulty attracting funding; loss of tax-exempt status; tax liabilities; penalties and interest.
While I am not a lawyer or an accountant, I have found in my experience running an organization and nonprofit consulting, that all roads lead to compliance. It doesn’t matter what the assignment involves—program development, strategic planning, board development—or what have you. At one time or another we are all confronted with compliance issues and challenges.
I wrote this article to share with you a checklist of what is required at the state and federal levels for Illinois nonprofits. Be sure to
- 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 corporation’s anniversary month each year. The anniversary month is the month in which the corporation was formed. For example, if 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.
https://apps.ilsos.gov/nfpannualreports
- Conduct an annual financial audit.
- Comply with all grant requirements and conduct a separate grant audit if required
- File (state) Form AG-990-IL (within 5 ½ months of the fiscal year end) Filing Fee:
$15.00. Penalty for late filing: $100 (for every late return)
AG990-IL Charitable Organization Annual Report
- File (federal) Form 990 (within 5 ½ 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.
https://www.irs.gov/pub/irs-pdf/f990.pdf
Click here for instructions: https://www.irs.gov/instructions/i990
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 organization’s tax-exempt 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, 2020 (for tax year 2019) and you did not file in 2021, 2022, or by May 15, 2023, your organization probably lost its your tax-exempt status on May 15, 2023. 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 organization’s 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. https://www.irs.gov/pub/irs-pdf/p4991.pdf
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 https://www.irs.gov/charities-non-profits/tax-exempt-organization-search
- Update Registered Agent Information,
Ensure information regarding the registered agent is current and accurate.
Complete NFP 105.10/105.20 if there are any changes.
https://www.ilsos.gov/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
https://www.ilsos.gov/publications/pdf_publications/nfp10515.pdf
- 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: https://www.irs.gov/pub/irs-prior/f941–2025.pdf
Download instructions here: https://www.irs.gov/pub/irs-pdf/i941.pdf
File quarterly IL-941 or annual IL 941A (State of Illinois employment
tax withholding) https://tax.illinois.gov/content/dam/soi/en/web/tax/forms/withholding/documents/currentyear/il-941.pdf
See Publication 103 Penalties and Interest for Illinois Taxes for further details. Contact the Illinois Department of Revenue for further information.
- Maintain Exemption From State Sales Taxes
Be sure to renew your exemption from sales tax with the state of Illinois. Complete Form STAX-1 https://tax.illinois.gov/content/dam/soi/en/web/tax/forms/reg/documents/stax-1.pdf
- Appeal Property Taxes (If Applicable)
If your organization owns property and is using it for a tax-exempt purpose, be sure to appeal to your local board of appeals. Here is the link for the Cook County Board of Review in Illinois. https://www.cookcountyassessor.com/not-profit
- File Form REG-1
If your organization is relatively new, you may or may not have filed Form REG-1, which is used to register your business or nonprofit organization with the State of Illinois. https://tax.illinois.gov/forms/reg/reg-1.html
- File Form UI-1
If your organization has not done so at the time of incorporation, complete Form UI-1 Report to Determine Liability Under the Unemployment Insurance Act to register for the State of Illinois unemployment insurance program. This form should be completed within 30 days of forming the nonprofit. Report to Determine Liability under the Unemployment Insurance Act (Form UI-1)
- File Unemployment Insurance Taxes
Nonprofits, with the exception of religious institutions, are required to pay state unemployment taxes once if they have at least four employees (whether full-time, part-time, or temporary), during at least 20 weeks of a calendar year. Once your organization exceeds 4 employees, it must pay state unemployment insurance taxes on a quarterly basis. File Unemployment Insurance Taxes
- File Form CO-1
If you didn’t do so at the time of incorporation, make sure your organization is registered with the State of Illinois Attorney General’s Office Charitable Trust Bureau, https://illinoisattorneygeneral.gov/Page-Attachments/Form%20CO-1_Registration%20Statement.pdf
- File Form CO-2
File Form CO-2 with the State of Illinois Attorney General’s Office, if your organization is less than 1 year old https://illinoisattorneygeneral.gov/Page-Attachments/CO2FinancialInformation.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.
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. Valerie is the Founder of Nonprofit Utopia, the ideal community for emerging leaders. For further information, you may call Valerie at 773-571-3886, visit www.valeriefleonard.com or e-mail her at valeriefleonard@nonprofitutopia.com.
