Schedule O Instructions for Form 990 and 990-EZ

Schedule O is a supplemental form attached to Form 990 or Form 990-EZ, the annual information returns filed by most tax-exempt organizations. It provides the Internal Revenue Service (IRS) and the public with narrative explanations for information that cannot be detailed within the main form’s structured fields. Filing Schedule O is required when answers to certain questions on the Form 990 or 990-EZ trigger the need for more information. The schedule serves as a standardized format for these explanations, creating a more complete picture of an organization’s activities and offering context to its financial data.

Identifying When Schedule O is Required

An organization’s responses on Form 990 dictate the need to file Schedule O. For Form 990 filers, a narrative is mandatory for at least two questions in Part VI, Governance, Management, and Disclosure. Line 11b requires a description of the process used to review the Form 990 before it is filed. Line 19 asks for an explanation of how the organization makes its governing documents, conflict of interest policy, and financial statements available to the public.

Other responses on Form 990 can also trigger the requirement. In Part III, Statement of Program Service Accomplishments, a “Yes” answer to Line 2 (new program services) or Line 3 (significant program changes) requires an explanation. In Part V, Statements Regarding Other IRS Filings and Tax Compliance, an explanation is needed if an organization had over $1,000 of unrelated business income but did not file Form 990-T, triggering a “No” answer on Line 3b.

Part VI contains many potential triggers beyond the mandatory ones. An explanation is also required if the organization:

• Had material differences in voting rights among governing body members (Line 1a)
• Had members or stockholders (Line 6)
• Delegated control over management duties (Line 4)
• Underwent a significant diversion of assets (Line 5)

The process for determining compensation for top officials (Line 15) also requires a detailed description on Schedule O if the answer is “Yes.”

For organizations filing Form 990-EZ, Schedule O is required for certain responses. In Part I, filers must use the schedule to provide details for:

• “Other revenue” on Line 8
• Grants on Line 10
• “Other expenses” on Line 16
• “Other changes in net assets” on Line 20

Part V of the 990-EZ also requires explanations for significant activities not previously reported (Line 33) or significant changes to organizing documents (Line 34).

General Principles for Completing Schedule O

Each narrative on Schedule O must be clearly linked to the question it addresses by explicitly identifying the Part and line number from the Form 990 or 990-EZ. This referencing system ensures reviewers can connect the information to the main return. The explanations should be direct and concise, using plain language instead of internal jargon. Each required explanation should be treated as a separate entry, and if more space is needed, the organization must use a duplicated copy of Schedule O.

Because Schedule O is a public document, organizations must never include confidential data such as Social Security Numbers (SSNs). This includes nonpublic personal information of donors, employees, board members, or other individuals. Protecting this information is a legal and ethical obligation.

Narrative Guidance for Specific Form 990 Parts

Part III Program Service Accomplishments

When providing explanations for Part III, the narrative should describe any new program service, the resources allocated, and how it furthers the organization’s exempt purpose. For significant changes to existing services, the explanation should detail the nature of the change, the reasons for it, and its impact on beneficiaries.

Part VI Governance, Management, and Disclosure

For Part VI, Line 11b, the description of the Form 990 review process must be specific. It should state who reviews the form, when the review occurs, and what materials are provided. A vague statement like “The board reviews the 990” is insufficient.

The explanation for Line 15, concerning the process for determining executive compensation, requires similar detail. The narrative should describe the steps taken, such as using compensation surveys, consulting with a committee, or documenting the decision-making process.

Part VII Compensation

Supplemental information for Part VII clarifies complex compensation like non-standard benefits, deferred compensation, or severance payments. The narrative should provide enough detail to understand the nature and justification for the payment. For instance, if a bonus was paid, the explanation could describe the performance metrics that were met.

Part IX Statement of Functional Expenses

For Part IX, an organization must use Schedule O to detail certain miscellaneous costs. If the amount for “Other fees for services” or “All other expenses” is more than 10% of total functional expenses, the organization must provide an itemized list. The narrative should break down the total figure into its major components, such as office supplies or bank fees, to prevent large, unexplained sums on the return.

Part XI Reconciliation of Net Assets

When differences exist between the revenue or expenses on Form 990 and the organization’s audited financial statements, Part XI requires a reconciliation on Schedule O. The narrative must explain the nature of these differences. Common reasons include unrealized gains on investments or donated services, which are treated differently for Form 990 reporting.

Amending or Correcting Information on Schedule O

If an organization discovers an error or omission in a previously filed Schedule O, it must file a complete amended Form 990 or 990-EZ for that same tax year. Corrections cannot be made by submitting a standalone Schedule O. On the heading of the form, the “Amended return” box must be checked. This signals to the IRS that the submission is intended to replace a previously filed return.

A revised Schedule O must be attached to the amended return. On this schedule, the organization must identify the part and line number being corrected and explain the change. For example, it might state, “This amended return corrects the description of the Form 990 review process originally reported in response to Part VI, Line 11b.”