IRS Form 990 is more than just a tax form that many nonprofits must file every year. It’s an opportunity to demonstrate to the IRS, as well as to current and potential stakeholders, that your organization is well-run and financially sustainable. It is also an opportunity to showcase key mission-centric programs.
IRS Form 990 can be another tool you can use to promote confidence in your organization and convince donors that funding your nonprofit will effectively support your mission. Following are tips on how you can use Form 990 to inform and educate stakeholders of your organization’s accomplishments and financial health.
What is Form 990?
Most tax-exempt organizations that have gross receipts of at least $200,000, or assets worth at least $500,000, must file the standard IRS Form 990 on an annual basis. Some organizations, such as political organizations, churches, and other religious organizations, are exempt from filing an annual Form 990. Even though registered nonprofits are typically exempt from paying federal income taxes, the IRS still wants to make sure you are running your organization properly and in line with its tax-exempt purpose. Be aware that there are instances where your nonprofit may owe taxes if the IRS deems certain income unrelated to your tax-exempt purpose.
The 990 form is arguably the most important compliance requirement for nonprofits. The form has several purposes, including:
- Maintaining Your Tax-Exempt Status: The IRS wants to ensure you are not abusing your tax-exempt status and that your activities align with your organization’s mission.
- Overview of Your Organization: The 990 provides an inside look at your nonprofit’s finances, programs, and governance structure.
- Demonstrating Your Nonprofit’s Financial Strength: The 990 is an opportunity to demonstrate your nonprofit’s overall financial health to stakeholders so they can make an informed decision on whether to support your organization.
How can you leverage IRS Form 990 to benefit your organization?
The 990 form is a comprehensive document that not only includes your nonprofit’s financial information, but also details your organization’s mission and programs.
At the most fundamental level, providing detailed and accurate information for the following is valuable to the IRS as well as your stakeholders:
- Revenue: You will be asked to list your organization’s revenue sources such as income from donations and grants, membership dues, program services, and any investment income.
- Expenses: Another section of the IRS Form 990 requires you to list your organization’s expenses which include costs such as salaries, employee benefits, fundraising fees, and program expenses.
- Balance Sheet: An important component of the IRS Form 990 is a copy of your nonprofit’s balance sheet. You will list your organization’s total assets and liabilities to calculate your net assets.
- Compensation of Leadership: The IRS also wants to understand your organization’s compensation structure. That’s why the 990 form has you list the salaries of your nonprofit’s officers, directors, as well as key and highly compensated employees.
The greatest opportunity, however, comes from fully utilizing Schedule O. Nonprofits should use Schedule O narratives to address specific items on the IRS Form 990 and provide additional information that will be important to readers. For example:
- At a minimum, Schedule O must include narratives addressing the following:
- The process, if any, used by the organization to review the Form 990 being filed (Part VI, Line 11b)
- Whether (and, if so, how) the organization made its governing documents, conflict of interest policy, and financial statements available to the public during the tax year (Part VI, Line 19)
- Additionally, Schedule O can be used to provide additional information related to responses in the main body of the form that may be important to readers, and to feature a nonprofit’s programs and accomplishments. For instance, you might include information that:
- Explains the ratio of fundraising expense to total contributions revenue
- Further describes the organization’s mission, significant activities, and the impact of your service programs
- Describes the circumstances leading to a significant change in net assets
An IRS Form 990 filer can use as many pages of Schedule O as desired, so do not shy away from sharing valuable information. Additionally, think about all possible readers including current and potential donors and grantors, the media, watchdog groups, volunteers, and other stakeholders.
When must Form 990 be filed?
Even though most nonprofit organizations are exempt from paying federal income taxes, organizations that meet the criteria noted earlier must complete IRS Form 990 and submit the document to the IRS annually.
An organization’s 990 form is due to the IRS five months and fifteen days after the conclusion of the nonprofit’s fiscal year. For nonprofits that follow the calendar fiscal year, that date is May 15th (unless an extension is requested).
Be aware that once you submit your Form 990 to the IRS, it becomes a publicly available document. In fact, Form 990 is considered the “go-to” form for anyone looking to learn more about the inner workings of a specific nonprofit organization.
The 990 form is an important tool to help attract new donors and keep existing supporters confident in your organization’s ability to fulfill its mission.
Do you need assistance compiling the information necessary to file your organization’s IRS Form 990? Or maybe you could use some help with your nonprofit’s accounting in general? Our team of expert nonprofit accountants can help! Reach out to schedule your free consultation.