Form 990: What Boards Need to Know

December 19, 2016 | Article

The Form 990 is much more than a general tax compliance return because of the significant amount of non-financial information reported. It’s widely available to the general public through a variety of avenues—, an organization’s website, state attorney general offices (if you file solicitation reports), and direct written and verbal requests to your organization. The IRS is looking at your Form 990, but so are your current and former employees, grantors, major donors, competing organizations, state agencies, media, and watchdog groups. Each of these readers are making their own conclusions about your organization based on the information you report or don’t report. 

The IRS encourages board members to review and approve the Form 990 prior to filing with the IRS. The Form 990 must describe the process undertaken through a specific question in the Governance, Management and Disclosure section of the return. While not an IRS requirement, it is best practice to have it reviewed and approved at the board level, or at a minimum, make the return available to the board. Be aware that some states require the Form 990 to be approved at the board level as part of charitable solicitation filings.

While the entire form is extremely important, here are some key points board members should be aware of during the review:
 - Identify significant financial differences from prior to current year that may stand out to the general public and be ready to explain “why” (Part I).
 - Be familiar with the programs and activities described (Part III and Schedule O).
 - Be aware of responses related to governance, policies and disclosure, and read the associated narratives to ensure responses are in line with actual operations (Part VI and Schedule O).
 - Understand the organization’s responsibility for reporting family and business relationships and other transactions with interested persons (Part VI and Schedule L).
 - Understand which individuals are reported in the return (you!) and how compensation is reported for tax purposes (Part VII and Schedule J).
 - Know your expense allocation percentages and what they mean—how much is spent on program, management, general and fundraising (Part IX).
 - Know what unrelated business income (UBI) is and if your organization has it. Which activities are generating the taxable income? (Part I and Form 990-T).
 - Ensure all required schedules are completed based on the activities of the organization  (Part IV).
 - Be aware that some states require certain donor information to be disclosed as part of state solicitation filings (CA, FL, and NY).
 - Read Schedule O to understand all narrative responses to questions asked through the filing.

As the demands for transparency and accountability in the nonprofit sector continue to increase, it is important that exempt organizations and their boards understand the information provided in this public document and ensure its accuracy.

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