Fun With Form 990

Tax manager filling our tax forms

OK, it’s not actually fun. Much to the chagrin of nonprofit leaders, tax-exempt does not mean filing-exempt. Most nonprofit organizations must file Form 990, which is due to the IRS by the 15th day of the 5th month after the close of each fiscal year. A few church-affiliated organizations can escape this annual requirement by applying for an exemption. For everyone else, the best approach is to understand the reporting rules and adopt an organized approach.

The purpose of Form 990 is to provide financial transparency so that the public as well as the government can see a clear picture of the organization’s activities and administration. As such, it’s a challenging report but also one that offers nonprofits an opportunity to demonstrate the social benefit they provide.

This makes Form 990 a valuable tool for fundraising in addition to a legal obligation. It becomes the public face of the organization, since the Public Inspection version is accessible to all (without donor information). While the full report includes minutiae that hold little interest for most readers, nonprofits should place a high priority on providing clear, complete and compelling information in these key sections:

  • Part I: Summary – The summary includes reporting of governance and unrelated business income, if any, along with a year-over-year comparison of revenues, expenses, assets, liabilities and net assets.
  • Part III: Statement of Program Service Accomplishments – This is the perfect place to tell compelling stories that illustrate the value of the organization’s programs. Including supplemental schedules along with big-picture program descriptions allows nonprofits to provide robust information about their accomplishments and clearly illustrate how those programs change lives.
  • Part VI: Governance, Management and Disclosure – This section allows nonprofits to communicate the best practice policies and procedures they employ to ensure good governance. How does the organization avoid conflicts of interest, determine compensation and treat whistleblowers? A thorough presentation here promotes public confidence that the organization is managed ethically and transparently.
  • Part IX: Statement of Functional Expenses – A relatively new requirement, the statement of functional expenses details the organization’s natural classification of expenses by program, general, administrative and fundraising. The percentage of expenditures in these areas helps public watchdog groups, donors and grantors assess nonprofits’ relative efficiency in pursuing a mission.
  • Part XII: Financial Statements and Reporting – Most readers don’t want to delve into the details of financial reporting. Some do, however, and many want to verify that financial metrics are in line with nonprofit best practices. This section also affirms that the organization has an independent audit and a properly appointed audit committee.

Organizational footnotes and supplemental schedules can also communicate details that help readers understand the challenges nonprofits face and the value of the work they perform. Think about questions that frequently arise; what would your audience like to see? These addenda should provide all relevant information, but nonprofits must be wary of information overload. If readers feel deluged, they’ll likely tune out and the message will be lost.

Having the executive committee review Form 990 prior to filing enhances existing policy and helps keep everyone on the same page. Once the form is completed and reviewed, don’t just file and forget it! Continue to review the qualitative information about the organization’s mission and key programs annually, as this tells your story to the public.

Form 990 requires a significant investment of time and effort. That’s okay, though, because the end result not only ensures compliance with IRS regulations, but also serves as a powerful illustration of everything that makes your organization so valuable in your community. Turn to the nonprofit specialists at HBP for help preparing a complete and effective Form 990 that delivers maximum benefit to your organization.