By Howard Donkin, CPA, Jacobson Jarvis Tax Partner
The Form 990 is a not-for-profit organization’s required annual IRS tax filing. As a board member, you should be asked to review the Form 990 before it is submitted. Even though you may not be asked to sign the document, you should make sure that the not-for-profit you serve files an annual Form 990 and that the information in it is correctly presented. Ask yourself, does the document present any red flags to prospective donors or governmental agencies? You should also confirm that the organization you are serving has applied for, and received, tax-exempt status from the IRS.
Reviewing the Form 990: Four Key Pages
If your not-for-profit is required to file the Form 990, rather than the 990-N or 990-EZ, there are four places you should focus your attention:
Snap Shot: Page 1. The first page of the Form 990 contains basic information about the organization, and a summary of its financial activities. It should provide the reader with a quick look at your mission, organizational structure, unrelated activities and financial health. The revenue, expense, asset and liability amounts should be consistent with your year-end financial statements. If the numbers you see on the 990 do not match your financial statement, ask someone to explain the differences.
Accomplishments: Page 2. The second page of the 990 will catch the attention of governmental agencies and potential donors. It describes in more detail the organization’s mission, new programs, three largest programs, and revenue and expenses by program. As you review this information, make sure the activities listed are consistent with the charitable purpose for which the organization has received exempt status. Over time, it is not unusual for an organization to shift to meet the needs of the community it serves. However, an inconsistency between the exempt purpose and the language in this section may prompt an audit or, in some cases, the revocation of exempt status. This section is also a significant one for donors. As you review the information, consider whether the statement of accomplishments would persuade you to make a contribution.
Checklist of Required Schedules: Page 3. Thirty percent of the organizations that file the Form 990 do so incorrectly. In many cases, this is because they fail to file a required form. A quick review of the questions and responses on page 3 should reassure board members that the required forms have been submitted.
Governance, Management & Disclosures: Page 6. At the top of the Governance, Management & Disclosure page, the IRS notes that the page requests information about policies not required by the Internal Revenue Code. However, the answers to these best practice-based questions serve as red flags, and are used to assign audit priorities. More significantly, these questions are receiving increasing scrutiny by savvy donors and granting organizations. As a board member, you should consider the implications of a negative response, and what can be done to remedy the situation.
The above article, excerpted from Jacobson Jarvis’ booklet “What Board Members Need to Know About Not-for-Profit Finance and Accounting”, is a timely reminder for board members that May 15th is the first due date for calendar year-end Form 990s (many organizations file extensions). Now is the time to take a look at your 990 and make sure that the information in it is correct and does the best job of describing the purpose of your organization to potential donors.
About the Author
Howard Donkin, CPA, Jacobson Jarvis Tax Partner, has more than 20 years’ experience in serving the not-for-profit community. Among his areas of expertise are complex tax issues, state and local tax issues, voluntary compliance issues, strategic planning, investment policies and organizational tax planning.
Howard is a member of the American Institute of Certified Public Accountants (AICPA), the Washington Society of Certified Public Accountants (WSCPA), the Washington Secretary of State’s Charities Advisory Council and AICPA Exempt Organization Technical Resource Panel to study tax issues for not-for-profits. He was a past chair of the WSCPA’s Not-for-Profit Committee, Bellevue Schools Foundation’s finance committee and the Bellevue Arts Commission. Howard is a frequent speaker and author on not-for-profit tax issues and is on the Advisory Board of The Exempt Organization Tax Review.