Form 990 is the Internal Revenue Service filing required annually for most nonprofits. Since 2009, it has included questions that have little to do with the tax rules, but rather concern the organization’s purpose, activities, and governance. This makes the 990 Return not simply an accounting function. Instead, the 990 can be a strong public relations statement, or it can be full of damaging disclosures for anyone to read.
Unlike almost all other tax returns, Form 990 is a public disclosure document. It is a substantial form, requiring several schedules. All Form 990s are available for public inspection, and available online, with limited exceptions allowed for donor identification information. These returns are regularly examined by potential contributors, ministry partners, competitors, and lawyers.
A Response to Abuse
The current Form 990 is the response of Congress and the IRS to financial abuse and mismanagement by nonprofits. Just as the Sarbanes-Oxley laws required Federal corporate governance oversight of public companies, so the governance of nonprofits is now subject to public disclosure. The IRS believes that good corporate governance is necessary to ensure that the organization lives up to its responsibilities as a tax-exempt organization, and every indication is that it will continue on this course.
There are exceptions. Churches continue to be exempt from such filings.
Smaller organizations may be eligible to file the more streamlined, online a Form 990-N, Electronic Notice (also referred to as an “e-Postcard”). Private foundations continue to use Form 990-PF. But non-profits with anything more than minimal revenue have to file a 990 Return annually.
As a result, organizations should now view this as more than a tax filings. The 990 Return is now a public relations document that presents your organization to the world.
An Opportunity and a Risk
All this means that the Form 990 should no longer be the exclusive purview of accountants. Accurate financial data is, of course, essential, but is not sufficient. Answers to questions should be crafted for legal compliance and public review. Form 990 filings if not carefully considered can be public relations disasters or even exhibits entered against the organization in court – in a recent dispute between non-profits that escalated to litigation and ended at trial, our law firm introduced several years of 990 returns against one of the other parties, with damaging disclosures.
A well-crafted Form 990 can be part of a well-structured public relations and donor relations program, reinforcing your basic message and mission.
What Are Donors and Supporters Looking For?
The most important parts of a 990 Return for public consumption are (i) a clear statement of purpose and the means by which that purpose is achieved, regularly repeated throughout the document; and (ii) sound fiscal management shown by the financial statements. Both are essential and nothing will be sufficient if these two points are not obvious to any reader.
Sophisticated donors, rating agencies, and the media will also be looking for established governance policies in the following areas:
Independent Directors, who are not tied financially (or otherwise) to related organizations, substantial vendors or suppliers, or who otherwise have a financial interest in the operations of the organization.
A clear conflict of interest policy (the IRS has a standard and accepted policy that many non-profits adopt) and a whistleblower policy.
Fiscal oversight policies and an audit committee
Compensation policies and oversight
The governance practices that must be disclosed in the 990 Return do not have mandated “correct” answers – but you should expect donors and rating agencies to read them. Poor answers could lead to IRS questions or audits. This is not to say that a non-profit should adopt policies simply for the sake of being able to answer the questions on the 990 Return. Policies should be adopted.
only after consideration of the organization’s particular situation. But the 990 Return is a window into its internal operations.
The IRS is now the leading force for the reform of non-profit governance, and pursues this goal through mandated public disclosure. Because the disclosure is a tax filing, it is easy to think of this document as you would other tax filings, and put forward as little information as is necessary.
Wiser organizations will rather see this as an opportunity both to broadcast and target its message, clothed in the credibility of an IRS filing.