How to Read a Form 990: A Detailed Breakdown

Form 990 is an annual information return filed with the Internal Revenue Service (IRS) by most tax-exempt organizations, including public charities and private foundations. This document serves as a public record, offering transparency into an organization’s financial activities and operational governance. It provides a detailed snapshot of how a nonprofit receives and spends its funds, outlines its mission, and describes its programs. Examining a Form 990 allows individuals to understand an organization’s financial health, assess its efficiency, and determine its adherence to tax-exempt purposes. This public disclosure helps evaluate an organization’s performance and integrity.

Finding Form 990s

Form 990s are generally available for public inspection. The Internal Revenue Service (IRS) offers a direct method through its Tax Exempt Organization Search tool on IRS.gov. Users can search for specific organizations by name or Employer Identification Number (EIN) to access digital copies of their filed Forms 990, typically for the past three years. This portal provides direct access to the documents.

Several reputable third-party websites also aggregate and provide access to Form 990 data, often with user-friendly interfaces and additional analytical tools. Prominent examples include GuideStar by Candid and ProPublica’s Nonprofit Explorer. These platforms allow users to search for organizations, view PDF copies of their Forms 990, and sometimes offer summarized financial information or historical data. Many organizations also post their recent Forms 990 on their own websites for easy public access.

Beyond online resources, tax-exempt organizations are legally obligated to provide copies of their Forms 990 upon request. Under IRS regulations, an organization must provide copies of its three most recent annual information returns, including Form 990, without charge other than a reasonable fee for reproduction and mailing costs. This ensures individuals can obtain these records directly from the organization. The organization has 30 days to fulfill such a request.

Navigating the Main Sections of Form 990

Understanding the primary sections of Form 990 is important for deciphering an organization’s operations and financial standing. The form is structured into twelve main parts, each offering distinct insights into the nonprofit’s activities.

Part I, the Summary, offers a high-level overview of the organization’s most significant financial and operational figures for the reporting year. It presents key data points such as total revenue, total expenses, and net assets, along with information on the number of voting members of the governing body and independent voting members. This section provides a quick reference to the organization’s scale and financial activity.

Part II, the Signature Block, confirms that the return has been officially reviewed and signed by an authorized officer of the organization. It indicates the official submission and responsible party.

Part III, Statement of Program Service Accomplishments, is important for understanding the organization’s mission and how it achieves its stated goals. It requires the organization to describe its three largest program services by expenses, detailing the accomplishments and quantitative results for each. This section allows readers to assess if the organization is effectively utilizing resources for its programs.

Part IV, Checklist of Required Schedules, serves as an index, indicating which additional detailed schedules are attached to the main Form 990. This checklist indicates which detailed schedules are attached. If a particular item, like compensation of officers or related-party transactions, is marked, it signals that more information is available in the corresponding schedule.

Part V, Statements Regarding Other IRS Filings and Tax Compliance, addresses various compliance matters related to federal tax filings and requirements. This section asks questions about the organization’s adherence to specific IRS regulations, such as whether it engaged in any political campaign activities or maintained donor-advised funds. It assesses the organization’s compliance with tax law.

Part VI, Governance, Management, and Disclosure, provides insight into the organization’s internal controls, board independence, and operational policies. It asks questions about the composition of the governing body, the existence of conflict of interest policies, whistleblower policies, and document retention policies. Analyzing this section helps determine the robustness of the organization’s oversight and ethical practices, important for good governance.

Part VII, Compensation of Officers, Directors, Trustees, Key Employees, Highest Compensated Employees, and Independent Contractors, details the compensation paid to the organization’s leadership and other highly paid individuals. This section allows for analysis of executive compensation levels, including base salary, bonus, and other benefits, and helps identify potential related-party transactions if individuals also serve as independent contractors. Examining compensation can reveal insights into resource allocation.

Part VIII, Statement of Revenue, itemizes the various sources of an organization’s income for the year. It distinguishes between different types of revenue, such as contributions and grants, program service revenue (income from activities directly related to the organization’s exempt purpose), investment income, and other miscellaneous revenue. Understanding these income streams helps assess the organization’s financial stability and its reliance on different funding sources.

Part IX, Statement of Functional Expenses, breaks down how the organization spent its money, categorizing expenses by their function. Expenses are primarily divided into program service expenses (costs directly related to achieving the mission), management and general expenses (administrative overhead), and fundraising expenses. Analyzing the proportion of expenses allocated to program services versus administrative and fundraising costs can indicate the organization’s efficiency; a higher percentage of program expenses suggests more resources directly support the mission.

Part X, Balance Sheet, presents a snapshot of the organization’s assets, liabilities, and net assets (equity) at the end of the fiscal year. This section helps evaluate the organization’s financial position, showing what it owns, what it owes, and its accumulated surplus or deficit. Key items to observe include cash balances, investments, property and equipment, and various types of liabilities.

Part XI, Reconciliation of Net Assets, reconciles the organization’s beginning-of-year net assets with its end-of-year net assets. It accounts for changes due to revenue, expenses, and other adjustments, providing a clear picture of how the organization’s overall financial position changed during the reporting period. This section connects the income statement (revenue and expenses) with the balance sheet.

Part XII, Financial Statements and Reporting, provides information about whether the organization’s financial statements were compiled, reviewed, or audited by an independent accountant. It also indicates if the organization followed generally accepted accounting principles (GAAP) in preparing its financial statements. This section offers insight into the level of external scrutiny applied to the organization’s financial records.

Understanding Important Schedules

While the main Form 990 provides a comprehensive overview, several attached schedules offer more detailed information on specific areas. These schedules provide deeper insights into an organization’s public support, compensation practices, and potential conflicts of interest.

Schedule A, Public Charity Status and Public Support, is completed by organizations seeking classification as a public charity rather than a private foundation. It details the public support tests under Internal Revenue Code Section 509, which determine if an organization receives a substantial portion of its support from the general public or governmental units. This schedule is important for understanding the organization’s public funding base and its adherence to public charity requirements.

Schedule B, Schedule of Contributors, lists individuals, corporations, or foundations that have made significant contributions to the organization. While individual donor names are redacted for privacy, the schedule indicates the number of contributors and total large contributions. This provides a general understanding of the organization’s major funding sources without revealing specific personal information.

Schedule J, Compensation Information, provides a more granular breakdown of compensation for the organization’s officers, directors, trustees, key employees, and highest compensated employees. This schedule details various components of compensation beyond base salary, including bonus and incentive compensation, deferred compensation, and non-cash benefits such as health insurance premiums, retirement plan contributions, and housing allowances. Reviewing Schedule J allows for a more complete assessment of executive pay.

Schedule L, Transactions with Interested Persons, is designed to disclose potential conflicts of interest and other transactions between the organization and its interested persons, such as officers, directors, trustees, or substantial contributors. It requires reporting on excess benefit transactions, loans to or from interested persons, and grants or business transactions with interested persons. This schedule is a valuable tool for identifying potential self-dealing or improper financial relationships.

Schedule O, Supplemental Information to Form 990, serves as a narrative “catch-all” where organizations provide explanations and additional information that does not fit into other specific parts or schedules of the Form 990. Organizations use this schedule to clarify responses, provide context for financial data, or describe significant changes in activities or governance policies. Schedule O offers explanations for various items throughout the main form and other schedules.

Citations

https://www.irs.gov/charities-non-profits/tax-exempt-organization-search
https://www.irs.gov/charities-non-profits/public-disclosure-requirements-for-exempt-organizations