Even for tax-exempt organizations, the tax-filing season can be a stressful time. The IRS requires exempt organizations to file annual information returns, Form 990 series. In addition, the IRS disclosure regulations requires that the three most recently filed annual returns be made available for inspection by the general public, as well as other organizational documents Therefore, filing your organization’s 990 carries significant value in representing the activities of the organization in the eyes of the general public, which includes potential and current donors , grantors and other state and local agencies who review the nonprofit’s mission, operations, governance, and finances.
There are several types of 990s with varying complexity, which are filed depending on the organization’s annual financial activity as provided by IRS guidelines. The full form 990 has a twelve-page core form along with sixteen additional schedules that are required based on the organization’s activities. A simpler form, the 990-EZ, has a four-page core form requiring certain additional schedules. The most condensed form 990-N is an e-Postcard which is only filed by small organizations with gross receipts less than $50,000. The annual return and schedules must be filed by the 15th day of the fifth month following the end of your organization’s tax year. However, an extension of time to file is available by filing Form 8868. Failing to file a 990 three years in a row results in an automatic revocation of an organization’s tax-exempt status.
With today’s emphasis on accessible data and increased transparency, these public documents are increasingly posted online by nonprofits themselves or on sites like Guidestar. The IRS responded to this demand for increased transparency and accountability when it revised the form 990 in 2008, providing more space for explanations and narrative descriptions of organizations activities and finances. This transparency has made 990 returns key windows into the inner workings of nonprofits and are reviewed by potential donors, members, journalists, and charity rating websites like Charity Navigator.
Clearly and carefully listing the activities, accomplishments, funding sources, and compensation of your organization on your 990 is now more critical than ever. Here are a few general best practice recommendations to follow to ensure your organization looks good on paper:
The 990 instructions are clear in the information required to be presented per IRS guidelines; however, certain flexibility exists in written information provided. Opt for details over expediency. Particularly on the second page of the form – where multi-line entries invite you to explain your mission, most significant activities, and accomplishments – take your time, and use that time to brag.
Within that bragging, include specifics about what you’ve done with the resources you’ve received, such as statistical information on numbers served. Vague answers about your activities can paint an incomplete picture. Just noting that a large proportion of expenditures go toward programs rather than compensation or office expenses is not enough. Show clearly how those programs have achieved their intended goals and have done so with maximum bang for the buck.
Focus on accomplishments.
Demonstrating that bang for the buck is where page 2 comes in, the “Statement of Program Service Accomplishments.” Other parts of the form, such as the statement of functional expenses lays out where you spent your funding, and can refer back to the examples given in those accomplishments on page 2, showing that those expenses have been worth it. Need more space? The IRS provided that when it added “Schedule O,” in 2008. Schedule O can be your “opportunity” which allows organizations to supplement narrative information reported on Form 990 or 990-EZ.
Within those general tips, there are some specific questions to keep in mind when filling out the form, keeping in mind what you might be looking to learn if you were thinking of donating to or even questioning the tax-exempt status of your organization:
Where is the money going?
To programs supporting your mission statement? To business expenses and compensation? If the latter, explain why it’s necessary.
Where is the money coming from?
Government Funding? Contributions? Fundraising Events? Loans? Investments? Programs? Is the revenue reliant on a few main funding sources? Is it sustainable?
Who is doing what and what are they getting paid for it?
What are their title and workload? Are they getting most of their compensation from the organization or outside funders? How is their compensation determined? This is one of the first sections the general public and media tend to look at.
To almost all these questions, the 990 can only give limited answers. But the form is one of the most important ways today’s nonprofits are evaluated, so the stories these numbers, names and descriptions appear to tell are crucial.
Perhaps the most important thing your 990 says about your organization is what it leaves out. A clear, detailed 990 that tells as transparent a story as possible about your organization is key in today’s world of transparency and accountability. It’s worth taking the extra time to make it as complete, specific and results-focused as possible.
Meet the Author
Rachelle Jumper, CPA
Aldrich CPAs + Advisors LLP
Rachelle Jumper joined the firm in 2013 and has over eight years of experience providing strategic tax planning and compliance services to nonprofit and governmental clients. She has a bachelor’s degree in accounting from Point Loma Nazarene University.
- Nonprofit and governmental
- Certified Public Accountant
- Strategic tax planning and compliance