Form 990: Financial Statement Portion of Form 990February 17, 2021
In part eight of our Form 990 series, we explore how to properly identify your nonprofit’s sources of income and report the proper totals.
*Editor’s Note: This blog has been updated as of February 17, 2021 for accuracy and comprehensiveness.
Filling out form 990? Need help with the financial statement sections? Part 8 of our blog series has the information you need.
Part 8- Statement of revenue
When completing part VIII, statement of revenue, one of the first things you will notice is that the IRS has included a number of line items with pre-printed descriptions of what should be reported.
For example, line 1, Contributions, Gifts, Grants, and Other Similar Amounts includes:
1(a) federated campaigns,
1(b) membership dues,
1(c) fundraising events and so on.
Lines 1a through 1f should report all cash and noncash amounts received as voluntary contributions from the general public. That means if you solicit contributions via memberships or fundraising events, you will need to determine the amount that represents a contribution in each category and report them separately on this schedule. This does not include monies that were received as a payment for services or goods, or donations of services provided. This type of revenue is reported in a separate category later on in part VIII of the form 990.
Federated campaigns, membership dues and fundraising events
Some of the line items are self explanatory, but what falls under federated campaigns, membership dues and fundraising events?
- Federated campaigns are contributions received indirectly through solicitation campaigns conducted by a federated fundraising agency. A federated fundraising agency conducts fundraising campaigns within a part of a particular state, and allocate part of the net proceeds to each participating organization on the basis of the donors’ individual designations and other factors.
- Membership dues, should only include membership dues and assessments that represent contributions rather than payments for benefits received.
- Fundraising events, are contributions received through events (i.e. dinners, auctions and other events) conducted for the primary purpose of fundraising funds for your organization.
Pay attention to the charitable contributions
The total amount of charitable contributions received by an organization is very important. This total enters into the calculation of the percentage of public support received and also into the calculation of fundraising efficiency that many resource providers review when making their grant allocation decisions. Therefore, it is very important to be sure to include on Lines 1a through 1g all of the contributions, gifts, grants and other similar amounts that you have received.
This can be confusing because there are revenues that you may not readily identify as contributions. For example, Line 1c mentions fundraising events and Line 8a also mentions fundraising events. Some refer to these as special events. Understanding the portion of the revenue from these events that can be considered a contribution is critical. I see many organizations that report income from special events on Line 8a with no amount reported on Line 1c. It is highly unlikely that such reporting is correct. Almost all special event revenue has a charitable contribution component that should be reported on Line 1c. And, remember, it is in your best interest to do so!
What do you report on line 1e?
Line 1e is where government grants that can be considered contributions should be reported. The very existence of Line 1e should send you to the IRS 990 instructions to learn what government grants are actually considered contributions. Far too many organizations routinely report government grants as program service revenue on Line 2. Remember, the more contribution revenue your organization reports, the better it looks to resource providers making grant allocation decisions while reviewing a long list of other applicants.
Did the CARES Act impact the 990?
The Coronavirus Aid, Relief, and Economic Security Act (CARES act) established the Paycheck Protection Program (PPP) to provide loans to small businesses as a direct incentive to keep their workers on the payroll. The loans are forgiven if all employee retention criteria are met and then funds are used for eligible expenses. Amounts of PPP loans that are forgiven should be reported on line 1e as contributions from a governmental unit in the tax year that the amounts are forgiven.
What do you report on line 2?
Program Service Revenue Line 2 of this form asks to list the 5 largest programs and provide the business code from the list of business codes contained in the IRS instructions. The fact that your program service revenue has a business code associated with it does not mean that this revenue is “unrelated business income”. The amounts reported here should still be listed in columns A and B and not in column C unless they are truly from an unrelated business activity.
What about lines 3-10?
Lines 3 through 10 call for the disclosure of other specific forms of revenue such as investment income, rental income, revenues from the sale of inventory items, sales of investment securities, etc. If your organization has revenues of this nature they must be reported on these lines.
Line 11 provides space for reporting any revenue that has not already been reported on one of the previous lines of the form. This is not an opportunity to list revenue that should have been reported on a pre-defined IRS line.
Some amounts from this page are carried forward and reported on page 1 of the 990 form. Although the detail included on page 9 may appear to be less important, as it is presented in the back of the core form, the total of contributions, program revenues and investment income are very important as they are highlighted on the first page of the return. All too frequently we see organizations not devoting sufficient effort to completing the page 9 revenue schedule properly, possibly because it is on page 9 of a 12-page form, but it is very important to properly identify your sources of income and report the proper totals on page 1. If you are wondering why your funding applications are unsuccessful more frequently than you expect, poor revenue reporting may be a reason.
Read our entire series on Understanding the Importance of your Form 990.
Questions? Contact our Nonprofit Services Team.