Whether your nonprofit is in the beginning stages preparing to launch or a well-seasoned association, there are a few things you may want to consider when deciding if a calendar year-end or a fiscal year-end is the best fit for your organization.
Calendar year and fiscal year are the two methods that the IRS allows nonprofits to file with. A calendar tax year is 12 consecutive months beginning January 1st and ending December 31. A Fiscal tax year is 12 consecutive months ending on the last day of any month except December. A 52-53-week tax year is a fiscal tax year that varies from 52-53 weeks but does not have to end on the last day of a month
WHY WOULD A NONPROFIT ORGANIZATION WANT TO ADOPT AN ALTERNATIVE FISCAL YEAR?
Depending on the revenue cycle of your organization, a calendar year could create blind spots in budgeting. If your organization were to receive a hefty amount of revenue between October and December, a calendar year offers minimal flexibility or opportunity to strategize.
Distinguished nonprofits as well as those new to the industry should take into consideration their programming for the year as well. The fiscal year chosen should match with the programming activities for the year so that they do not fall between two fiscal years. An association that holds a majority of its events in the summer months should perhaps re-consider choosing the traditional fiscal year-end of June 30th.
Other considerations your nonprofit should take into account when deciding on a fiscal year-end are:
- Grant Cycles
- Primary Funder’s Fiscal Year
- Audit Evidence
- Debt Covenants
- Impact on Audit Period and Presentation in Year of Change
- State Charitable Registrations
- Application for Combined Giving Campaigns
TIMING YOUR CHANGE
If a nonprofit wishes to change its fiscal year, it is required to file IRS Form 1128. This form must be filed by the 15th day of the 5th month ensuing the close of the new fiscal year according to the Cullinane Law Group. If your nonprofit is interested in filing to change your year-end you can download Form 1128 with full instructions on how to do so here.
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1128 isn’t required for the first non profit year end change. 1128 is only required if the year end has been changed in the last 10 years.
Kenneth Donlon is correct. Many practitioners are having nonprofits complete a Form 1128 when it is not required.
The IRS rules state: Accounting period change.
If the organization changes its accounting period, it must file a Form 990 for the short period resulting from the change. Enter “Change of Accounting Period” at the top of this short-period return.
If the organization has previously changed its annual accounting period at any time within the 10-calendar-year period that includes the beginning of the short period resulting from the current change in accounting period, and it had a Form 990-series filing requirement or income tax return filing requirement at any time during that 10-year period, it must also file a Form 1128, Application To Adopt, Change, or Retain a Tax Year, with the short-period return.
Conclusion: 1128 is only required if the year end has been changed in the last 10 years. Otherwise, the only requirement is to write “change of accounting period” at the top of the Form 990.