Tax Form 990 is an annual information return nonprofits use to disclose their annual operating information to the public. Form 990 has existed for almost 80 years, and, through this time, it has greatly expanded from the original two page form. Now at 12 pages, with 16 supplemental schedules, Form 990 is used to provide the public detailed information about tax-exempt organizations, including what they do, and how they operate. As explained by ARB Principal and Practice Leader for the firm’s Nonprofit Advisory Group, Jason LeBlanc, and ARB Manager, Shannon Brown, in their presentation to the Maine Association of Nonprofits, here is an overview of some of the most important sections of Form 990 used to evaluate your organization.
Form 990 is available to the public and, as a result, is frequently an examination tool for users to review several aspects of a tax-exempt organization. Users may be donors checking that their gift has impacted your mission, or readers looking at the depth of your program services. They may be potential board members evaluating the organization’s governance policies, or the IRS ensuring compliance. Form 990 requires nonprofit organizations to remain transparent in their workings, so it is very important for management to understand how to present this information accurately and most effectively.
Page 1: In Summary…
Although it may seem daunting, Form 990 depicts the progress and goals of your organization, and it can actually be utilized as a valuable marketing tool. The first page is essentially a summary of the detailed information that follows, providing a quick overview of key information, giving the user a “snapshot” of your organization. It provides a platform for you to show what your organization is all about: what you do, your mission, how your funding is generated, and how those funds are spent. Additionally, this summary includes the number of voting members of your board, the number of board members that are independent, the number of volunteers involved, your total unrelated business revenue, and your net unrelated business taxable income, as well as a comparison to the prior year, giving the user an analysis of your organization’s financial health.
Page 2: The Goods…
The second page is where you have the opportunity to use greater detail in explaining your organization’s mission statement, major program activities, and your brand story. This is where your organization can illuminate the successes of each program, your awards, and other noteworthy accomplishments that demonstrate the value your organization provides to your clients and community. To avoid information overload, choose your top three programs to showcase on page 2. Schedule O, Supplemental Information to Form 990 or 990-EZ, may be used to disclose other program services and highlight what differentiates your organization. Be sure to include meaningful statistical information that exhibits the success of each program, such as the number of people assisted by the program, total hours that volunteers gave to the program, or the number of meals served.
Overview of Other Sections
While pages 1 and 2 of Form 990 are the most vital to capturing the attention of those evaluating your organization, many users are taking a closer look at the financial and non-financial information in the subsequent sections as well. Part 5, beginning on page 4, for example, begins the IRS Compliance section, which is where your organization informs users of any additional compliance filings submitted, such as Forms 1096, W-2G, W-3, and 990-T, as well as filings related to interest or authority over foreign accounts.
Part 6, Governance, Management, and Disclosure, follows on page 6, and this section is key for identifying accountability and transparency within your organization. Users can find out if all board members have received a copy of Form 990 before it was submitted, if there is a conflict of interest policy in place, and whether there is a clear approval process for awarding compensation to top management employees and other officials of the board. Details on compensation are located on page 7, and certain further detail on compensation may be disclosed through supplemental Schedule J.
Statements of Revenue and Functional Expenses
Part 8, beginning on page 9 of Form 990, provides details on your organization’s revenue sources, including donations, program services, investment income, gains and losses from sales, gross income from fundraising events, and gross sales of inventory. This is followed by Part 9, beginning on page 10, which displays your Statement of Functional Expenses. This statement categorizes expenditures across program services, management & general, and fundraising and should be easily related to your financial statements. The majority of an organization’s expenses are generally utilized for program services, which support the mission of the nonprofit. Users of Form 990 can use this statement to evaluate whether the organization is using its sources of revenue to fund its programs efficiently.
There are 16 supplemental schedules that can accompany Form 990, containing a wide range of additional information about your organization. While not all of the schedules will apply to your organization, a few schedules are key in providing detail regarding sustainability, accountability, and transparency. If your organization was granted nonprofit status by the IRS because you were expected to receive a substantial part of your support from the public and/or the government, Schedule A provides information related to that level of public support. Schedule G, Supplemental Information Regarding Fundraising or Gaming Activities, provides additional information about what fundraising events and activities you are conducting and whether those events are successful in generating contributions for your organization. Schedule L, Transactions with Interested Persons, discloses transactions with related individuals and organizations, such as unreasonable compensation, business transactions, the payment of personal expenses, and financial assistance. Additional information on transfers and transactions among disregarded entities, related entities and organizations, and unrelated organizations is disclosed through Schedule R, Related Organizations and Unrelated Partnerships. The disclosure these schedules provide gives users and interested parties a transparent view of your organization’s inner-workings and monetary commitment to your mission.
by Jason LeBlanc, CPA