Preparing your Form 990 for Tax Season – A Nonprofit’s Story in Numbers

Watch the recording of the call HERE!

“Aligning the Form 990 with the social determinants of health and the United Nations Sustainable Development Goals is a necessary component for those who are thinking forward. For those who are in the present, just being aware of your 990s in its application is important, but for or those with thinking about the next turn, in which our society will begin to look at the attention economy, recognizing the role of the 990 is critical. It’s no longer about a single point of contact. [The 990] will reflect a myriad of ecosystems coming together and your ability to manage that influence.”

– Fred Brown | President and CEO | The Forbes Funds

Your Journey: The 990 as Record of Past (and Future) Accomplishments 

This week we are joined on our Call for Community Solutions by Beth Mellon, head of the Pittsburgh Foundation’s Finance Team. Beth oversees the Pittsburgh Foundation’s filings, reconciliation, and compliance matters at the federal- and state level, as well as the filings for organizations such as GPNP, The Forbes Funds, and other supporting organizations in the Western PA region. She previously worked at Schneider Downs, where she managed nonprofit tax engagements, including tax compliance efforts, payroll and benefit-related matters, and accountable plan compliance. Beth has also worked as a senior tax analyst with the West Penn Allegheny health system. She has a BS in Business Administration from Robert Morris University, is a member of the Professional Development Committee and FAOG (Finance Administration Operations Group). 

Given the radical changes the Nonprofit sector has gone through since the beginning of the COVID-19 Pandemic, it becomes crucial to emphasize how filing Form 990 reflects the Social Determinants of Health related to Economic Stability. The 990, in this sense, documents how nonprofit organizations have changed and adapted over the course of several years, giving them some sense of stability, and a coherent narrative for the critical moments of change that define who a nonprofit is and what matters for them. In this way, the 990 also foregrounds how future board members, communities, and funders will view the organization, supporting the sustainable Development Goals of Decent Work and Economic Growth and Industry, Innovation, and Infrastructure. Form 990 allows nonprofits, and those whom they serve, to get a sense for how the organization overcame its and what opportunities for improvement still exist.  

What is the 990? What are the filing requirements? And who is looking at it? 

While we often think of the 990 as a tax return, it’s better understood as an ‘information’ return. The 990 doesn’t calculate tax like a form 990-T. Put simply, the 990 is a form filed with the IRS by an organization that has been granted tax-exempt status. In this sense, the 990 tells the story of an organization, not just the financial story, but the story of its leadership, its programs, its funders, and the communities it serves. In the 2000s the form evolved to provide increased transparency and accountability for organizations, present a more realistic picture of tax-exempt organizations and the activities they engage in, and reduce to reduce the burden on the nonprofit sector by making 990s easier to complete while making it easier for the IRS to assess the compliance and accountability of nonprofits. 

Contents and Core Elements of the 990

The core form of an I-90, consists of 12 pages, and there are 16 possible additional schedules behind the core. The core, additional schedules, and the instructions for both add up to somewhere around 300 pages of paper. 

• Who files a 990?: Form 990 is due five-and-a-half months after your organization’s tax year ends. There’s an automatic extension available for an additional six months, so that brings the final due date to eleven-and-a-half months after your tax year ends. Not all organizations file a 990: Filing requirements are based on organizations gross receipts and total assets. This means the 990 might look different depending on the size of the organization. Some might file a 990-N while others might file a 990-EZ 
• 990-N (only if the organization had less than OR equal to $50K in gross receipts) is a postcard submitted electronically through the IRS website (see: user guide found on the IRS website under the title “IRS Form 990 Electronic Filing system User guide” and at the end of this article) 
• 990-EZ (only filed if organization had less than $200k in gross receipts AND less than $500k in total assets) 
• Full 990 Form (only if the organization has at least $200k in gross receipts or at least $500k in total assets). 

• To file a 990-N you only need 8 items: (1) EIN, (2) Tax Year, (3) Legal Name and Address, (4) Other names used by your organization, (5) Name and Address of principal officer, (6) Website address, (7) Confirmation that your gross receipts are $50k or less, (8) Statement that your organization has terminated or plans to terminate (if applicable) 
• Failure to file the 990EZ or 990N for three consecutive years will result in a loss of tax-exempt status 

Public Inspection and Disclosure of 990

Internal revenue Code section 61.04, requires that organizations’ 990, 990-EZ, and other documents be made available for public inspection, excluding Scheduled B, the list of your schedule of contributors. The names of contributors must be kept private, however other information on Schedule B, including the amount of the contribution and the description of any non-cash contribution like stock, is required to be made available unless it clearly identifies the contributor by name. 

Who is even looking at my organization’s 990?

Your 990 documents who your organization is, how it got where they are, and what they offer to those whom they serve. It isn’t just the IRS that is checking to make sure your organization complies with filing rules, it could be: Any State Regulatory Authorities who want to check the organization’s registration and licensing to solicit, lobby, or fundraise (especially games and raffles). Members of the media who want to check the salaries and benefits of an organization’s management team or executive board. The media may also look to see how the organization spends its cash to verify how much it spends and whether that spending furthers the charitable mission of the organization. Potential donors/funders to the organization view the organization’s 990 before making contributions to ensure that the mission aligns with their values or goals and to evaluate the governance and policies in place. Funders might also want to assess the programs of your organization or your financial strengths or weaknesses. Potential board members might look at a 990 if they anticipate joining the board or have been asked to join your board. They may also look to see what governance practices and policies are in place. And lastly, there are other charitable rating agencies out there, such as charity navigator, charity watch, and other watchdog organizations which rate charities based on specific criteria that are found on your 990. 

Benefits of Transparency

While having this information out in the open can seem like a vulnerability, keep in mind that it also presents organizations with a wealth of opportunities for communicating their story and marketing themselves. By knowing their organization in detail and keeping good records the executive board and its financial representatives are able to tell the story of what the organization has accomplished and what it plans to do in the future. The important thing to note about all of these different groups is that they all have different motives and different reasons for reviewing the 990. So it is crucial that organizations review their 990, think about how potential readers might react to the information included therein, and leverage that information as an opportunity to show off the best aspects of their board, their programs, and their overall financial structure.  

Anatomy of the 990: Key Considerations Section by Section 

• Parts I & II, pg. 1: Consider, what story does your financial information tell? Have you looked at the past three years of 990s to review any trends? How does your 990 compare with those of your peers? 
• Part III, pg. 2:  Consider, this section presents your organization with the opportunity to describe its mission and explain how it reflects its activities. Check that the organization’s mission statement reflects what is shown on its website and audited financial statement. What communities or populations were served by the organization? What is the organization’s program service narrative? What demonstrates that the organization is a legitimate charity? 
• Part V, pg. 5: Considerations the tax compliance efforts of your organization. The IRS is all about compliance. The questions in this part help the IRS identify organizations that are in need of assistance with identifying and documenting their compliance efforts. 
• Part VI, pg. 6: Considers governance, management, disclosure, and policies detailing how well an organization is governed. The policies that an organization follows demonstrate information about the board and how the organization makes its documents available. Readers of this section can see how many voting members are independent, meaning that they didn’t receive compensation from the org or related organizations. 
• Part VII, pg 7: This is probably the most viewed section of the 990. Part VII is where the officers and board members are listed along with the highest compensated employees. this is where everyone goes to view compensation and benefits. If the reader is a potential board member, they might look to see who else is listed, how much time is devoted to the position, and the compliance efforts of the organization.  

• Parts VIII, IX, X: Consider all of the elements of an organization’s financial reporting. It can be important to ask what story the financial section telling.  
• Parts XI and XII, Page 12: Lastly page 12, the final page of the core form of the 990, considers the reconciliation of net assets. Here, the 990 asks how the organization’s books are prepared. 

Key Takeaways

• What story does your 990 tell? 
• How does that story reflect your past and current activities? 
• How does the 990 allow organizations to actively review trends in financial health? 
• Is the story reflected in Part III (program services accomplishments)? (think of this as a marketing tool) 
• Did you review all of the trigger questions and reporting thresholds in parts III and IV? 
• Do you periodically review your bylaws to ensure compliance with board reporting in Part VII? 
• Is the Form 990 financial information balanced? (PART VIII, IX, X) 
• Make sure that if you upload to a website that you use a public disclosure copy  

Your 990 is a public document, make sure it tells your story accurately and enthusiastically and demonstrates a passion for your programs. Used in this way, the 990 can be leveraged as a marketing tool for your organization. 

“[Form 990] is critical to the very lifeblood of the work we do. Over the past 2 years, as a result of covid and resources being regulated to support emergency response mechanisms, the role of organizations, infrastructure, operating reserves in their status with guys starting new programs really required and acute analysis of their 990s and also using their 990s as a projective measure of their organizations capacity to perform their mission. As we look at the challenges facing us today, being acutely aware of how the 990s can guide that process, what legal requirements adhere to that process, and how to leverage it as a positive influence for your work in the ecosystem in particular, with funders is critical”

– Fred Brown | President and CEO | The Forbes Funds