With the most recent overhaul to the Form 990, Return of Organization Exempt From Income Tax, the IRS has made clear its intention to increase the transparency of a not-for-profit organization’s mission and activities and to promote active governance. To point, the IRS asks whether a copy has been provided to an organization’s board prior to filing and requires organizations to describe the process, if any, its board undertakes to review the 990.
This lack of ambiguity aside, it is just good governance to have an understanding of the information included in your organization’s Form 990. After all, it is available to anyone who wants a copy. But the volume of information included in a typical return can be daunting.
Where do you even start? Let’s take a look at the key components of a Form 990 that warrant at least a read-through:
- Income and expense activity (Page 1 and Schedule D) – Does this agree to, or reconcile to, the financial reporting of the organization?
- Narratives on Page 2 – Does it accurately describe your mission and “tell your story”?
- Questions in Part VI about governance, management, and disclosures – If any governance or policy questions are answered in the negative, have you given consideration to implementing changes?
- Part VII – Board information and key employee/contractor compensation – Is the list complete? Does the information agree with compensation set by the board? Does it seem appropriate in light of responsibilities and the organization’s activities
Depending on how questions were answered earlier in the Form 990, several schedules may be required. Key schedules include:
- Schedule C – Political and lobbying expenditures
- Schedule F – Foreign transactions and investments reported (alternative investments may have pass-through foreign activity)
- Schedule J – Detailed compensation reporting for employees whose package exceeds $150,000
- Schedule L – Transactions with officers, board members, and key employees (conflict-of-interest disclosures)
In addition to the Form 990, an organization may be required to file a Form 990-T, Exempt Organization Business Income Tax Return, if it earns unrelated business income. In general, it’s good practice to review the Form 990 with the organization’s management or tax preparer to be able to ask questions as they arise.
Filing and reviewing the Form 990 can be more than a compliance exercise. It’s an opportunity for a good conversations about your mission, policies, and compensation—a “health check-up” that can benefit more areas than just compliance. Understanding your not-for-profit’s operations and being an engaged and informed board member are essential to effectively fulfilling your fiduciary responsibilities.
If you have any questions about your Form 990, fiduciary responsibilities, or board operations, contact a BerryDunn Not-for-Profit advisor.