Dissecting the Form 990

Air Date: September 4th, 2020

Interpreting information contained in the 990 is key to making a good decision about your gifts?

It’s purpose – provides information that helps government agencies (the IRS and state charity regulators) enforce the laws that govern nonprofits. Form 990 provides a great deal of financial information about the filing organization’s financial condition, about its financial strength or weakness and about such things as the sources of its income. These things are very important to those considering a donation or serving as a board member.

  • What is your interest in the organization? For example, if you are thinking of contributing to a nonprofit, you may want to know what it does and how strong it is financially (its ability to attract resources, its level of reserves, etc.).
  • If you are a board member, you may be interested in reviewing your own nonprofit’s Form 990 for information that might prove embarrassing upon inspection by the public. Some believe that board members have a responsibility to review their organization’s Form 990.

Who files a form 990?

Tax exempt organizations, nonexempt charitable trusts and section 527 political organizations, and foundations.

  • 990 is required for receipts greater than 25k annually
  • Less than 100k and greater than 25k of assets, short form.

What exactly is a form 990? Annual reporting for those organizations previously mentioned. On this public form you will be able to determine if a charity/political organization can be deemed worthy of your dollars.

Where to start on a form 990?

At the top – and Part III on page 2. You’ll find the name of the organization along with other particulars like what type of Organization. It will either show the 501c (nonprofit organization) 4947a1 (charitable trust) or 527 (politics). You can skip to part III to also see the organizations primary purpose. They are required to state this on their 990.

Part 1 on the form is where the good stuff is shown. You will be able to view the revenue/expenses/change in net assets & fund balances. This will tell you how successful an organization is. You can see their ability to raise income to support their specific cause. This is critical in choosing which organizations to support. If there’s revenue from different sources, you may feel at ease that the organization isn’t reliant on one source of income.

They are required to show amounts for public support and government grants. One part to pay attention to is the amount of unrelated business income generated. You will see those details on part VII of the 990 (analysis of income-producing activities).  You can see the amount of income generated form membership dues as well.

Part 1 is also going to reflect the expenses of the organization. How much are they spending and what are they spending it on? A quick tip? See how much they spend on fundraisers (ie income raising events) vs management. Keep in mind that management is more focused on events such as board meetings and admin. If the funds are used to cover oversight of fundraisers- it’s required that those expenses fall under fundraising lines.

Lastly for Part 1 – Net Assets.

  1. Excess of deficit for the year
  2. Net assets or fund balances at beginning of year
  3. Other changes in net assets or fund balances (they are required to attach an explanation of this)
  4. Net assets end of year

You can go even further in depth by reviewing the balance sheets of part IV of the Form 990. This is fairly self-explanatory if you’ve got any experience viewing a balance sheet. One part that may be less common is the restricted assets. This could be a grant or donation that’s been given but specifies that it must be used over time or just at a later date.

Part 3 Statement of Program Service Accomplishments

  • elicits information on what a filer does and how much is spent on each item.
  • This is the only part of the Form 990 where you can pick up descriptive data about a filer’s activities and this qualitative information can be helpful for putting all the numbers in the Form 990 in context.

Lastly one of the main things to look at as a donor is Part V-a. Officers/Trustees/Key Employees/Directors. Who are they and what are they getting paid!

  • names, addresses and compensation information of key employees. Key employees are defined by the Instructions as including a filer’s “chief management and administration officials” including the filer’s “chief financial officer and the officer in charge of administration or program operations … if they have authority to control the organization’s activities, its finances or both.”
  • Part V-A of the Form 990 and Part I of Schedule A require that the full compensation be given for each person listed.

Did the Filer Engage in any Self-Dealing Transactions During the Year?

  • Section 3 – pay close attention here. An example of such a transaction might be the sale by a board member of property he owns to the nonprofit organization on whose board he sits at a price in excess of its fair market value. Another example might be the furnishing of services to a board member without charge or at a price below their market value.
  • just because a Line 2 question is answered “Yes,” it does not mean that the filer engaged in an improper act. Before reaching any conclusions about the filer’s behavior, a careful reader will review the filer’s attachment that relates to the question.