Examining Page One of the Form 990 - A Mission Matters Blog Article from KLR

Mission Matters Blog

Examining Page One of the Form 990

posted Mar 25, 2016 by Sandy Ross, CPA, CFE in the Mission Matters Blog

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The current version of Form 990 was redesigned by the IRS in 2008.  That redesign was the first change to the Form in over 25 years, so it is likely that this version of the 990 will be with us for a while. Today the Form 990, in addition to being the main IRS reporting form for nonprofits, is the basic component of the annual report that must be filed with a large number of state offices that regulate charitable solicitation. Many states require supplemental reports as well as the Form 990.

The Form 990 serves two essential purposes. First, it provides information that helps government agencies (the IRS and state charity regulators) enforce the laws that govern nonprofits.  For example, it helps government regulators learn whether groups have been spending their funds in a way that might cause them to lose their charitable and tax-exempt status.  Second, the Form 990 provides a great deal of financial information about the reporting organization’s financial condition, its financial strength or weakness and sources of income.

The Form 990 is composed of an 11-page core form and then a number of attached schedules, the number of which depend on the specific activities of the not-for-profit organization that is filing the Form.  All together, the completed Form 990 may be 30+ pages of detailed information. 

There are many pages of the Form 990 that contain important information.  However, one might argue that the first page is the most important.  If you consider the time required to study a 30+ page report, the first page is definitely the most important because it summarizes the financial activity of the organization and it is one that every reader will most likely read.

One of the first things to notice on page 1 is that the Form 990 is “Open to Public Inspection”.  The Form 990 is a public document and it is becoming more public. Today an organization’s Form 990 for any of the past three years must be shown to anyone who requests a copy.  In addition, copies of these forms must also be provided if requested (either in person or in writing) after the payment of a reasonable fee ($1 for the first page and 15 cents for every page thereafter and postage), if applicable. Furthermore, most Form 990’s, beginning with the year 1997, are being posted on the Internet by the National Center for Charitable Statistics and Guidestar, two nonprofit groups in the Washington D.C. area.  It is only a matter of time before all charities will be required to file their Form 990 electronically. Thus, virtually every Form 990 is or soon will be accessible by anyone in the world.

Page 1 includes a summary of information about the organization that is explained in more detail later in the document. This page contains the official name and address of the organization, the code of the internal revenue code in which it is tax-exempt, whether this is the initial return or the final return for the organization and the organization’s website (if it has one).

Page 1, Part I begins with a space to “briefly describe the organization’s mission or most significant activities.”  Organizations should write a clear statement that most accurately describes their organization and make sure it fits in the space provided.  If what you want to say about your mission or most significant activities does not fit in the space provided, it will be continued onto a page that may be 25 pages after page 1 (Schedule O).  Thus, your chance to make a good first impression will be lost as few people will turn the page to look for the remainder of your statement.

The YMCA does an excellent job utilizing this space on their 990 Forms.  While all the YMCA’s have detailed mission statements and conduct many important activities throughout the year, in this section of their 990 they indicate:  “We are a community organization committed to helping people and communities to learn, grow and thrive.” This is an outstanding summary statement and a wonderful example of how you should utilize this space.

Question two in Part I asks if the organization has discontinued its operations or disposed of more than 25% of its net assets.  Obviously, such a large change in an organization is important to the reader who has been accustomed to dealing with a significantly larger organization in the past.  This is also an indicator for the IRS to review the changes in the Organization’s exempt activities to ensure they are still in agreement with their mission.

Questions three and four ask about the size of the board and how many of the board members are independent of the organization.  It is a well established fact that overly large boards do not function well.  The board should be comprised such that 95-100% of the board members are independent of the organization.  Very large boards or boards where few people are independent are not in your organization’s best interest.  In addition, the executive compensation must be determined by a board of directors that does not have a conflict of interest.

Question five asks for the number of individuals employed in calendar year 2015.  This question is used to verify the information reported with annual payroll filings and could also be used to determine if there is an audit requirement for benefit plans in place.

Question six asks for the number of volunteers who provide service to the organization.  This question is used to gauge the amount of community support that an organization enjoys beyond the amount of support that is evident from the amount of financial support it receives.  Even though the form indicates that you may estimate this number, you should realize that this is a significant indicator of the health and importance of the organization in its community.

Read Pt. 2: How to Answer Questions on Page One of the Form 990.

Questions? Contact any member of our Not-for-Profit Services Group