Transparency and accountability are crucial for nonprofits, and IRS Form 990 is a key tool in achieving both. Unlike businesses filing tax returns, tax-exempt organizations use Form 990 to report their activities, finances, and governance to the public and the IRS. This form is more than administrativeit provides a clear view of a nonprofits operations, helping donors and stakeholders understand resource allocation.

Whether you are affiliated with a nonprofit or you just happen to be an interested bystander, mastering Form 990 is a must. In this article, I break down what's on Form 990, why it matters, and what nonprofits need to know when filing.

What Is Form 990 and Who Needs to File It?

Form 990 is a yearly report by the Internal Revenue Service for tax-exempt organizations, which is mostly about nonprofits. Instead of developing profit and loss items for tax computation, Form 990 details how a nonprofit runs, from the success of its programs down to financial details. Most organizations that have tax-exempt status under section 501(c) - amongst them charities, schools, and foundations - must submit an annual report using Form 990 if they are to maintain that exemption status.

Not all nonprofits file the same version of Form 990. The IRS has multiple variations depending on the size and type of organization:

Form 990: For larger organizations with gross receipts of $200,000 or more or assets exceeding $500,000.

Form 990-EZ: A shorter form for smaller organizations with gross receipts below $200,000 and assets under $500,000.

Form 990-N (e-Postcard): This electronic form is the simplest for very small organizations with gross receipts under $50,000.

Form 990-PF: Specific to private foundations, detailing their charitable distributions and providing an account of their investments.

Nonprofits must determine which version they need to file each year based on their financial situation. Failing to file or filing inaccurately can have serious consequences, including penalties or loss of tax-exempt status, so its crucial to understand the requirements.

The Purpose and Importance of Form 990

Form 990 serves multiple important purposes for nonprofits. It provides the IRS with critical information to assess if an organization still qualifies for tax-exempt status. Beyond compliance, Form 990 enhances transparency by revealing details on income sources, expenditures, executive compensation, and program outcomes, allowing the public to gauge a nonprofits effectiveness.

Donors, grant-makers, and researchers use Form 990 to gain insights into an organizations financial health, fund allocation, and program impact. Potential donors, in particular, rely on it to ensure responsible fund use. Publicly accessible on sites like GuideStar and the IRS, Form 990 provides an open view into nonprofit operations and accountability.

Breaking Down the Structure of Form 990

Form 990 is comprehensive, covering various aspects of an organizations operations. Lets look at some of the main sections that make up this form:

Part I: SummaryThis section gives an overview of the nonprofit, including its mission, revenue, expenses, and net assets. It provides a quick snapshot of its financial and operational scope and helps readers understand the scale and focus of the organization's activities.

Part II: Signature BlockAn officer certifies the accuracy of the form by signing, emphasizing the organization's accountability in reporting accurate information to the IRS and the public.

Part III: Statement of Program Service Accomplishments This part describes the nonprofits major programs, significant activities, and related expenses, linking financials to mission fulfillment and allowing stakeholders to see how resources are allocated to achieve objectives.

Part IV: Checklist of Required Schedules Form 990 has additional schedules covering areas like political activity and foreign investments. This checklist helps nonprofits identify which extra schedules they must complete based on specific activities.

Part V: Statements Regarding Other IRS Filings and Tax Compliance Here, nonprofits report their compliance with IRS requirements, such as payroll taxes and unrelated business income tax (UBIT), ensuring adherence to tax obligations.

Part VI: Governance, Management, and Disclosure This part discloses governance practices, including board composition and conflict-of-interest policies, demonstrating the organizations commitment to ethical management and transparency.

Part VII: Compensation of Officers, Directors, Trustees, and Key EmployeesNonprofits disclose key personnel compensation here, fostering public trust. Transparent reporting of high salaries is essential to maintaining credibility and accountability.

Part VIII: Statement of Revenue This section breaks down income sources, from donations to investment income, providing a clear view of how the organization funds its work and ensuring financial transparency.

Part IX: Statement of Functional ExpensesExpenses are categorized by programs, administration, and fundraising, offering insight into how effectively the nonprofit allocates resources to achieve its mission and objectives.

Part X: Balance Sheet The balance sheet lists assets, liabilities, and net assets, providing a snapshot of the nonprofits financial health and stability at the end of the reporting year.

Completing Form 990 thoroughly and accurately is essential, as these sections collectively give a full picture of an organizations finances, governance, and activities.

Filing Deadlines, Extensions, and Consequences of Missing Form 990

Form 990 must be filed annually by the 15th day of the fifth month after the end of the organizations fiscal year. For organizations following the calendar year, this means a May 15th deadline. Extensions are available, allowing nonprofits additional time to complete the form. However, failing to file on time can result in penalties, and organizations that do not file for three consecutive years risk automatic revocation of their tax-exempt status.

The IRS offers an extension (Form 8868) for organizations that need extra time, though this should be used judiciously to avoid habitual late filing. Revocation is a serious consequence that not only results in loss of tax-exempt status but also can damage an organizations reputation and limit its ability to receive tax-deductible donations.

Conclusion

Form 990 is a vital tool beyond compliance, highlighting a nonprofits dedication to transparency and accountability. Filing it accurately and on time can be challenging, but the benefits are substantial. Form 990 not only ensures regulatory compliance but also builds public trust, enhances donor confidence, and offers a clear view of the nonprofits financial health and mission-driven work. Understanding Form 990 allows nonprofits to use it as a platform to reinforce credibility and align operations with their mission transparently.