The Form 990 is a publicly available document and the Internal Revenue Service’s (IRS) primary tool for gathering information about tax-exempt organizations and promoting compliance. The Form 990 is also used by organizations to share information with the public about its programs. As the Form 990 is a public document, it is best practice that it be reviewed by the organization’s governing body as part of their governance responsibility. The form includes the question, “has the organization provided a complete copy of this Form 990 to all members of its governing body before filing the form?” While not a requirement, it appears clear that the IRS has a level of expectation that the governing body is aware of the information reported in the form.
Often, the Form 990 is not presented by the external preparer to the governing Board. So how can management of the organization assist its Board to understand the information reported? Below is a summary designed to guide the Board through the form and highlight the areas of importance.
- Form 990, Parts I through III are what funders, donors or other interested parties will focus on. These pages include the organization’s mission, a two-year summary of the audited financial statements, and a narrative of program service accomplishments, including the number of individuals served. This provides the organization an opportunity to tell its story. Annually these program accomplishments will likely change and should be updated to mirror current activities. Management should highlight these changes to the board and board members should review for accuracy.
- Form 990, Part IV is a series of 38 yes or no questions. A yes response will generally require a supplemental schedule be included with the 990. While responses to these questions may not change year over year, they should be annually reviewed.
- Form 990, Part V includes information regarding the organization’s IRS filings and tax compliance. “Yes” responses in this section generally indicate an additional filing requirement. This section should be examined to ensure the organization is complying with IRS reporting requirements.
- Form 990, Part VI targets specific questions regarding the governing body and management policies to promote compliance and sound business practices. While the IRS doesn’t require these governance policies and procedures, they are considered best practice for good governance of tax-exempt organizations. As such, it is important to review these questions and discuss any “no” responses with the board. These responses typically will not change from year to year.
- Form 990, Part VII includes publicly disclosed information regarding the compensation of officers, directors, trustees, key employees, highly compensated employees, and independent contractors. The board members listed in this section should include any members that served at any time during the fiscal year. Check the reasonableness of the salaries and benefits paid. Board members should inquire as to any omissions they notice.
- Form 990 Parts VIII through XII include the detailed financial data of the Organization. These amounts come from the annual audited financial statements and may not require a detailed review; however, the supporting financial statements should be provided to the board for reference.
Following the core Form 990 are many required supplemental schedules which are prepared based on the responses to the questions in Part IV. While not a complete list, common schedules are highlighted below:
- Schedule A is the reason for the public charity status which highlights the description of the organization’s tax-exempt purpose. This schedule is utilized to demonstrate that the organization meets the criteria to be considered a public charity. The board should ensure the information amount its public support is complete.
- Schedule B is the schedule of contributors over a certain dollar threshold. It is important to note that the names and addresses of contributors are not available for public disclosure.
- Schedule D is supplemental financial information, similar to the footnotes in your financial statements. The information comes from the audited financial statements and may not need a detailed review.
- Schedule G includes information on fundraising and gaming activities. Review the results from each fundraising event. Board members should inquire regarding any unusual results.
- Schedule J further details compensation information for individuals with annual compensation greater than $150,000 and the processes for establishing compensation for the organization’s CEO/Executive Director.
- Schedule L is used to state transactions with interested parties. Interested parties primarily consist of current and former officers, trustees, key employees, or substantial contributors.
- Schedule O provides a place to include explanatory information. Several of the questions throughout the 990 may require further elaboration, such as additional program accomplishments and the organization’s conflict of interest policy. These disclosures should be read through for completeness and accuracy.
- Schedule R lists all related organizations and transactions with related organizations. The rules for those defined as related parties on the Form 990 are complex. Encourage the board to review and ensure all related parties have been included.
Explaining the various components of the Form 990 and encouraging follow up discussion will allow for an effective and efficient review by the governing body. The Form 990 is a public document, and it is important that it receives the appropriate level of review and approval.
If you need further guidance or have any questions on this topic, we’re here to help. Please do not hesitate to reach out to our trusted experts to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
