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Making the Most of Your IRS Form 990

September 17, 2012

Make Sure You Answer Important Sections of the Form 990 Correctly.

We are approaching the time of year when many organizations start filing their IRS Form 990 – Return of Organizations Exempt from Income Tax. Although this form looks like a tax return, notice that the IRS does not call it a tax return. As a matter of fact, the IRS refers to this as the nonprofit organization annual report.

If you own any stock in a publicly held company and you receive their annual report, you have read a document that is significantly different from a tax return. So why does the IRS think that the Form 990 is the nonprofit annual report? Because the new 990 provides the reader with much more information about an organization than just the financial results.

The 990 contains a core form of 12 pages and then requires a number of additional schedules depending on the activities of the reporting organization. The core form starts with a summary page of facts and figures that have come from other pages later on in the form. This is the page on which to make a good first impression. For example, the first line of Part 1 asks for a brief description of your mission or significant activities. It only has three and one-half lines available on which to write. Try to think of some great single sentence that captures the essence of your organization – like Sunbeam Bread – we help build strong bodies 12 ways! If you try to write more than fits in this small space, it will be carried forward to another page in the form that might be 20 or more pages from this first page. You don’t want to miss this opportunity to tell your story in a short powerful statement.

On the second page of the form 990, the IRS asks for a longer description of the organization’s mission and then asks for a description of the top three program service accomplishments. This portion of the form is like that corporate annual report I referred to earlier, and is a place where you should brag about what your organization has accomplished during the past year. You should try to note specific accomplishments with numerical data wherever possible; e.g. we served 300 at risk youth in a safe and educational environment where they worked on life skills with qualified teachers and counselors.

Next, the following 4 pages of questions (68 questions in total) ask about policies, board governance, procedures and compliance with IRS regulations. While I know that most of you have your CPA prepare the form for you, it is very important that you understand all of these questions and what the answer means to the reader of this form. It’s important to think about who you expect the readers of the 990 to be. Almost all resource providers – foundations, corporations, individuals, etc., are now looking at the form 990 prior to making their funding decisions. If you are lucky, some will ask questions when they do not understand information imparted by your 990. However, it is more probable that these resource providers will just eliminate your organization from their funding consideration when they see something in the 990 that raises a concern in their mind.

Part VII of the 990 asks a number of questions about compensation – a hot topic in the nonprofit world. In addition to salary and wages, the form also asks for the value of fringe benefits provided to the employee. Compensation is what it is, but if there is an unusually high amount reported for someone, perhaps due to severance or the vesting of deferred compensation, you might explore ways of reporting this information that makes it clear to the reader exactly what it is so that there is not an assumption that this large figure is normal, annual compensation.

The last part of the core portion of the form 990 – on pages 9 through 12 – is the financial information. Just by its placement, at the end of the core form, we can tell the relative importance of this financial information compared to the information requested by the IRS earlier in the form. This does not mean that you should ignore this portion of the 990. There are still opportunities to tell your story with the numbers so, as with all portions of the form, you want to clearly understand exactly what information is being requested on each line and respond appropriately.

The 990 may look like a boring tax return, but it is a public relations opportunity for your organization, and those who realize this can utilize its potential. Don’t miss your opportunity to positively impact people who come into contact with your agency or read your 990.

Questions? Comments? Contact us.

As one of the largest CPA firms in Boston, KLR is unique because they service over 220 not-for-profit organizations with compliance and consulting services. We have extensive experience helping Nonprofit organizations regarding boards, and board responsibilities, charitable contributions, taxes and 990 filing requirements.

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