C. Accounting Periods and Methods

Accounting Periods

Calendar year. Use the 2025 Form 990-EZ to report on the 2025 calendar year accounting period. A calendar year accounting period begins on January 1 and ends on December 31.

Fiscal year. If the organization has established a fiscal year accounting period, use the 2025 Form 990-EZ to report on the organization's fiscal year that began in 2025 and ended 12 months later. A fiscal year accounting period should normally coincide with the natural operating cycle of the organization. Be certain to indicate in the heading of Form 990-EZ the date the organization's fiscal year began in 2025 and the date the fiscal year ended in 2026.

Short period. A short accounting period is a period of less than 12 months, which exists when an organization first commences operations, changes its accounting period, or terminates. If the organization's short year began in 2025 and ended before December 31, 2025 (not on or after December 31, 2025), it may use either 2024 Form 990 or 2025 Form 990-EZ to file for the short year. If using the 2024 return, provide the information for designated years listed on the return, other than the tax year being reported, as if the years shown in the form text and headings were updated.

For example, if filing for a short period beginning in 2025 on the 2024 Form 990-EZ, provide the information on Schedule A (Form 990), Part II, for the tax years 2021-2025, rather than for tax years 2020-2024. Check the “Initial return” box or the “Final return/terminated” box in Item B of the Heading if either of those situations apply.

Accounting period change. If the organization changes its accounting period, it must file a Form 990 for the short period resulting from the change. If you are filing a short period return because you changed your accounting period, use the change of accounting period field provided by the software provider to file. Also, include the reason for the change, either “Form 1128 was approved” or “Revenue Procedure 85-58 rules apply.”

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 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. See Revenue Procedure 85-58, 1985-2 C.B. 740. See also IRS.gov for further instructions. If an organization that submits Form 990-N changes its accounting period, it must report this change on Form 990, 990-EZ, or 1128, or by sending a letter to:

Internal Revenue Service 1973 Rulon White Blvd. Ogden, UT 84201

Accounting Methods An “accounting method,” for federal income tax purposes, is a practice a taxpayer follows to determine the tax year in which to report revenue and expenses for federal income tax purposes. An accounting method includes not only the overall plan of accounting for gross income or deductions (for example, an accrual method or the cash receipts and disbursement method), but also the treatment of any item that involves the proper time for the inclusion of an item in income or the taking of an item as a deduction, or both. However, a practice that does not affect the timing for reporting an item of income or deduction for purposes of determining taxable income is not an accounting method. A taxpayer, including a tax-exempt entity, generally adopts any permissible accounting method in the first year in which it uses the method in determining its taxable income. See Revenue Procedure 2015-13, 2015-5 I.R.B. 419, as modified by Revenue Procedure 2021-34, 2021-35 I.R.B. 337.

4 2025 Instructions for Form 990-EZ

Caution: An exempt organization may adopt an accounting method not only for purposes of calculating taxable income but also for purposes of determining whether taxable income will be subject to federal income tax. For example, a tax-exempt entity may adopt an accounting method for an item of income from an unrelated trade or business activity even if the gross income from such activity is less than $1,000 and is therefore not taxed for federal income tax purposes pursuant to Regulations section 1.6012-2(e).

An accounting method for an item of income or deduction may generally be adopted separately for each of the taxpayer's trades or businesses. However, in order to be permissible, an accounting method must clearly reflect the taxpayer's income. Unless instructed otherwise, the organization should generally use the same accounting method on the return (including Form 990-EZ and all schedules) to report revenue and expenses that it regularly uses to keep its books and records.

Accounting method change. Once a taxpayer, including a tax-exempt entity, adopts an accounting method for federal income tax purposes, the taxpayer must generally request the IRS's consent before it can change its accounting method (even if the year in which the taxpayer seeks to make the change is a year in which it generates only tax-exempt income or is otherwise not taxed on its taxable income). In most cases, a taxpayer requests consent to change an accounting method by filing Form 3115, Application for Change in Accounting Method. See Revenue Procedure 2015-13, as modified and clarified by Revenue Procedure 2021-34, and Section 9 of Revenue Procedure 2025-1 (or any successors) for general procedures for obtaining consent to change an accounting method.

Caution: Depending on the specific accounting method change being requested, the taxpayer may be able to request “automatic” consent. This means that as long as the taxpayer follows the applicable procedures, the taxpayer does not have to wait for formal approval by the IRS before applying the new accounting method. For the latest guidance on the list of automatic changes, see Revenue Procedure 2025-23, 2025-24 I.R.B. 1476, or its successor.

For example, a tax-exempt entity that has adopted an accounting method for an item of income from an unrelated trade or business must generally request consent before it can change its method of accounting for that item in any subsequent year. This is true regardless of whether gross income from the unrelated trade or business is greater than or equal to $1,000 in such subsequent year.

Alternatively, if a taxpayer, including a tax-exempt entity, has not yet adopted an accounting method for an item of income or deduction, a change in how the entity reports the item is not a change in accounting method. In this case, the procedures applicable to requests for accounting method changes (for example, the requirement to file Form 3115) are not applicable.

Thus, a tax-exempt entity that has never taken into account an item of income or deduction in determining taxable income does not have to request consent to change its method of reporting that item on Form 990-EZ. Additionally, a tax-exempt entity that has never been subject to federal income tax on an item of income or deduction but that is required to file a Form 990-T solely due to owing a section 6033(e)(2) proxy tax does not have to request consent to change its method for reporting the item.

Adjustments required when changing an accounting meth- od. A taxpayer, including a tax-exempt entity, that changes its accounting method must generally calculate and report an adjustment to ensure that no portion of the item being changed is permanently omitted or duplicated (see section 481(a)). However, depending on the specific method change, the IRS may provide that an adjustment is not required or permitted. An

organization must report any adjustment required by section 481(a) in Part I, line 20 (other changes in net assets or fund balances), as a net asset adjustment made during the tax year. The organization must explain in Schedule O (Form 990), Supplemental Information to Form 990 or 990-EZ, the change and net asset adjustment.

Caution: Generally, a taxpayer, including a tax-exempt entity, will recognize a positive section 481(a) adjustment (that is, an increase to income) ratably over 4 tax years and will recognize a negative section 481(a) adjustment in full in the year of change. See Revenue Procedure 2025-23, or its successor.

However, as discussed above, if a tax-exempt entity has not yet adopted an accounting method for an item, a change in how the entity reports the item for purposes of the Form 990-EZ is not a change in accounting method. In this case, an adjustment under section 481(a) is not required or permitted.

State reporting. Many states that accept Form 990-EZ in place of their own forms require that all amounts be reported based on the accrual method of accounting. If the organization prepares Form 990-EZ for state reporting purposes, it can file an identical return with the IRS even though the return doesn’t agree with the books of account, unless the way one or more items are reported on the state return conflicts with the instructions for preparing Form 990-EZ for filing with the IRS.

Example 1. The organization maintains its books on the cash receipts and disbursements method of accounting but prepares a Form 990-EZ return for the state based on the accrual method. It could use that return for reporting to the IRS.

Example 2. A state reporting requirement requires the organization to report certain revenue, expense, or balance sheet items differently from the way it normally accounts for them on its books. A Form 990-EZ prepared for that state is acceptable for IRS reporting purposes if the state reporting requirement doesn’t conflict with the Instructions for Form 990-EZ.

An organization should keep a reconciliation of any differences between its books of account and the Form 990-EZ that is filed.

Tip: See Pub. 538, Accounting Periods and Methods, and the instructions for Forms 1128 and 3115, about reporting changes to accounting periods and methods. See IRS.gov for details.