Are there any penalties for late Form 990 tax payments by a North Carolina Foundation?
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Yes, there are penalties for late Form 990 tax payments by a North Carolina foundation, and these penalties can arise under both federal and North Carolina state law. Below is a detailed explanation of the relevant penalties and their application.
1. Federal Penalties for Late Form 990 Filings and Payments
A. Failure to File Form 990 (Information Return) – IRC §6652(c)
- Penalty Amounts (2025):
- For organizations with gross receipts ≤ $1,309,500: $25 per day, up to the lesser of $13,000 or 5% of gross receipts.
- For organizations with gross receipts > $1,309,500: $130 per day, up to $65,000.
- Manager Penalty: If the IRS issues a written demand and the return is not filed by the specified date, responsible persons (e.g., officers, directors) may be penalized $10 per day, up to $6,500.
- Reasonable Cause Exception: No penalty is imposed if the organization can show the failure was due to reasonable cause and not willful neglect. The organization must demonstrate that it exercised ordinary business care and prudence but was unable to file on time. The IRS considers all facts and circumstances, including efforts to comply and the organization's compliance history.
B. Failure to Pay Tax Due with Form 990 (e.g., Excise Tax on Net Investment Income) – IRC §6651(a)
- If the foundation owes tax (such as the excise tax on net investment income reported on Form 990-PF) and fails to pay by the due date, the penalty is:
- 0.5% of the unpaid tax for each month or part of a month the tax remains unpaid, up to a maximum of 25% of the unpaid tax.
- If the return is filed more than 60 days late, the minimum penalty is the lesser of $525 or 100% of the tax due for 2025.
C. Automatic Revocation of Exempt Status
- If a foundation fails to file a required Form 990 series return for three consecutive years, its tax-exempt status is automatically revoked as of the due date of the third return.
2. North Carolina State Penalties
A. Failure to File State Informational Returns
- North Carolina requires certain informational returns (such as Form NC-3 and associated W-2/1099 forms) to be filed electronically. Failure to file in the prescribed format can result in a $200 penalty, but this penalty is currently subject to an automatic waiver due to administrative issues.
- Failure to timely file the required state informational return (Form NC-3) results in a penalty of $50 per day, up to a maximum of $1,000.
B. Failure to File State Tax Returns or Pay State Tax
- For failure to file any required North Carolina tax return (including income, franchise, or other state tax returns), the penalty is 5% of the tax due per month (or fraction thereof), up to a maximum of 25%.
- For failure to pay tax when due, the penalty is 5% of the unpaid tax (for failures before July 1, 2027), with certain exceptions for timely payment after assessment or amended returns.
C. Application to Foundations
- If a North Carolina foundation is required to file a state income or franchise tax return (e.g., for unrelated business income or other taxable activities), these penalties apply to late filing or late payment of those taxes.
- If the foundation is only required to file federal Form 990 and not a state tax return, the state penalties above would not apply to the federal Form 990 itself, but would apply to any required state filings.
3. Summary of Key Points
- Federal penalties for late Form 990 filings are substantial and based on the number of days late and the foundation’s gross receipts. Penalties for late payment of tax due with Form 990 (such as excise tax) are also significant.
- North Carolina imposes penalties for late filing and late payment of state tax returns, as well as for late or improperly formatted informational returns.
- Reasonable cause can abate federal penalties if the foundation can show it exercised ordinary business care and prudence.
- Automatic revocation of federal tax-exempt status occurs after three consecutive years of non-filing.
If you need guidance on a specific scenario (e.g., whether a particular North Carolina foundation must file a state tax return or only a federal Form 990), please provide more details about the foundation’s activities and filing obligations.
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