Who can prepare a club’s Form 990, and when a club needs a CPA

The IRS does not require a CPA to prepare a club’s Form 990. Anyone paid to prepare it needs a PTIN and must sign the return, and an audit of the club’s books is a separate service with its own rules.

This question might come up when a club grows or the person who did the return for years steps away, and a new person needs to file the tax return. The answer depends on which job the club needs done. Preparing the annual return is one job. Auditing the club’s financial statements is another, and different rules apply to each.

What does the IRS require of whoever prepares our return?

The Form 990 instructions say that, generally, anyone who is paid to prepare the return must sign it, enter a preparer tax identification number (PTIN), and give the organization a copy. A PTIN is the number the IRS issues to paid preparers. The IRS applies the same requirement to the Form 990-EZ and to the Form 990-T, the return a club files for unrelated business income.

The IRS also says an employee of the filing organization isn’t a paid preparer, and volunteers who prepare forms without compensation don’t need a PTIN. A volunteer treasurer who prepares the club’s own return is within the rules.

However, boards should know that using a paid preparer doesn’t relieve the organization of its responsibility to file a complete and accurate return. The return belongs to the club.

What is the difference between a CPA, an enrolled agent and an attorney?

All three are recognized under Circular 230, the Treasury rules that govern practice before the IRS, and all three may represent clients before the IRS. The IRS describes their representation rights as unlimited.

A certified public accountant (CPA) is licensed by a state board of accountancy after passing the Uniform CPA Examination. CPAs perform audits of financial statements and also prepare returns.

An enrolled agent (EA) is enrolled to practice before the IRS after passing the IRS’s three-part Special Enrollment Examination, and completes 72 hours of continuing education every three years. Tax is the focus of the credential.

An attorney is licensed by a state court after passing a bar exam, and one who works with exempt organizations can help with bylaws and questions about exempt status.

A paid preparer who holds a PTIN and none of these credentials may also prepare the return. The difference may come up after. The IRS says preparers without a credential have, at most, limited rights to represent a client, and only for returns they prepared and signed.

Who speaks for the club if the IRS sends a letter?

The return has a box that lets the IRS contact the paid preparer about processing questions. The instructions say it does not authorize the preparer to represent the organization. For anything more, such as an examination, the club signs Form 2848, the power of attorney, naming a representative such as a CPA, an EA or an attorney. Circular 230 also lets a bona fide officer of the club, such as the treasurer, represent it.

Does our club need an audit?

The Form 990 asks whether the club’s financial statements were compiled, reviewed or audited by an independent accountant, and the instructions note that a compilation or a review isn’t an audit. Whether a club must have an audit at all depends on rules like these.

In California, a charity that reports to the Attorney General with gross revenue of two million dollars or more, not counting certain government grants and contracts, must have its financial statements audited by an independent CPA. An organization that spends one million dollars or more of federal awards in a year needs a Single Audit under the federal grant rules. A club’s bylaws, a lender or a grant agreement can also call for one.

When an audit is required, the club needs an independent CPA for that work. Preparing the return is a separate engagement. A club with no audit requirement can look for someone who prepares exempt organization returns, knows the size tests that decide which return the club files, and can represent the club if a letter arrives.

Weighing who should prepare your club’s return? Let’s talk about what the club actually needs.

Everything here is general information, not tax or legal advice. Reading it doesn’t make you a client, and your facts will change the answer.