Form 990: Financial Statement Portion of Form 990July 05, 2016
How to properly identify your sources of income and report the proper totals.
Parts VIII, IX and X of the form 990 are the financial statement sections – the statement of revenue, statement of functional expenses and balance sheet - for the reporting organization. The fact that these financial documents do not appear until pages 9 to 11 of the 12-page core form tells us that the IRS believes all of the information disclosed earlier in the form is more important than this financial information. True as that may be, this is not the time to slack off on your preparation vigilance.
One of the first things that you will notice on these pages is that the IRS has included a number of line items with pre-printed descriptions of what information should be reported on those lines. For example on Line 1 – Contributions – of the Statement of Revenue, the IRS has Line 1b for Memberships and Line 1c for Fundraising events. This means that 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. Including a schedule of your income categories and just writing “see attached” on the IRS Statement of Revenue is frowned upon. You may need to modify your chart of accounts and general ledger to more easily complete the form 990 in the degree of detail desired by the IRS.
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!
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.
On Line 2 – Program Service Revenue – the 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.
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. Once again, this is not an opportunity to list revenue that should have been reported on a pre-defined IRS line.
Some amounts form this page are carried forward and reported on page 1 of the 990 form. Although the detail included on page 9 occupies a position of lesser importance way 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 this 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.