More than just a tax form
Completed properly,
Form 990 can be a valuable public relations tool
IRS Form 990 has always
been an important document, but it's become even more so in recent
years as calls for accountability in the not-for-profit sector have
increased. For many nonprofits, the 990 is one of their first opportunities
to make a good impression. Prospective donors and funders, charity
evaluators, government regulators, competitors and the media frequently
read them. And because the Internet has made these widely available,
public inspection of your not-for-profit's 990 is easier than ever.
Avoiding problem areas
The common pitfalls in completing
the 990 often fall into one of these general categories:
Inadequate
disclosure. Many organizations miss an opportunity to sell their mission
and convey their successes. Some give only cursory details, particularly
in Part III, "Statement of Program Service Accomplishments," which asks for
a statement of purpose and a list of program activities. In completing
this section, remember that grant makers, the media and others will
make judgments about your not-for-profit based on the quality of information
presented.
Rather than simply abbreviating your mission (such as "provide
services to the elderly") and using lump sum amounts to describe various
activities (for instance, meals: $70,000), be specific and tell how
many individuals your organization helped and how many meals you distributed.
Also, avoid the temptation to simply duplicate the language
in this section from year to year. Make a fresh appraisal of any new
programs or services offered and present it in the strongest way, much
as you would if you were applying for a grant.
Too much information. On the flip side, some organizations
divulge unnecessary, even confidential information on their Form 990s,
such as private details pertaining to board members and donors. Even
if these disclosures are innocent mistakes, they still represent breaches
of privacy and carelessness on the filer's part. They not only can
upset the people whose information has been disclosed, but also leave
prospective board members, donors and others a bad impression.
Not-for-profits
are required to report on the 990 certain information about sizable
donations, such as dollar amounts if contributions exceed a certain
level. (This information is always excluded from online reports.)
But be careful not to provide unsolicited information about contributors
that is confidential in nature. For instance, GuideStar, the
national database of nonprofits, reports some organizations have been
known to inadvertently include details such as donors' bank account
information and aid recipients' Social Security numbers.
In addition,
make sure you don't divulge unnecessary personal information about
officers, directors, trustees
and key employees as requested in Part V of the 990. For example, home addresses
aren't required; the nonprofit's business address can be used instead.
Before submitting your form, check that you have disclosed
what is required without including any confidential or sensitive information.
Nonfunctioning numbers. Part II of the 990, "Statement of Functional Expenses," requires
nonprofits to classify expenses into one of three categories:
1. Program
services,
2. Management and general, or
3. Fund raising.
Regulators,
watchdog groups and the public scrutinize this section to ensure
organizations are appropriately using funds to further their
charitable purpose.
A common problem is that not-for-profits often
don't have a good system in place for assigning expenses to one of
these categories. As a result, they lump them together. This can
make the percentage amounts in a category seem unusually high, suggesting
that a nonprofit is either trying to hide something or isn't able
to properly classify its expenses.
If your organization's percentages
seem out of line with acceptable ranges, review the guidelines
for classifying expenses to make certain they're properly assigned.
You may also need to make changes in how you record and classify expenses.
Oversights. Some of the most common errors found
on 990s are also the easiest to avoid. For instance, organizations
often list the wrong tax year or forget to have an officer sign
the form. The best way to avoid these mistakes is to have several
staff and board members and your CPA review the form before you
file it.
Checking it twice
Keep in mind that the way your not-for-profit
completes your 990 can influence external perceptions about
your organization. With so much riding on this critical document,
review it carefully for accuracy and completeness.
The basics
Form 990 is the information return most public charities
are required by law to submit annually to the IRS. Because the
990 is filed by tax-exempt organizations, it's considered a reporting
form rather than a tax return. The IRS uses this form to evaluate
compliance with tax laws.
In a nutshell, the 990 provides information
about an organization's:
- Activities,
- Assets,
- Receipts,
- Expenditures,
and
- Compensation to key people.
Most nonprofits file the
990, 990-EZ or 990-PF (the form for private foundations).
Some that generate income unrelated to their primary exempt purpose
are also required to file Form 990-T, which doesn't have
to be made publicly available.
Certain not-for-profits aren't
required to file Form 990. They include those with annual incomes
of $25,000 or less, most faith-based organizations and subsidiaries
whose parent organizations assume filing responsibility.
All private foundations must file the 990-PF, regardless of
their size.
Organizations have 4.5 months after the end of their
fiscal year to file Form 990 - for example, a nonprofit
with a fiscal year ending Dec. 31 has until May 15. |
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publications are distributed with the understanding that the author,
publisher and distributor are not rendering legal, accounting
or other professional advice or opinions on specific facts or matters,
and, accordingly, assume no liability whatsoever in connection
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