Form 990 Featured

7:00pm EDT March 21, 2006
In 2004, charitable giving in the United States reached an estimated record total of nearly $250 billion, according to “Giving USA,” the 2005 annual report by the Giving USA Foundation.

Form 990 is an annual information return that non-profits file with the Internal Revenue Service that contains information about the organization’s programs and accomplishments, financial condition and board members. An organization’s Form 990 is open to inspection by the general public and available upon request online at www.GuideStar.com.

Form 990 can be useful in showcasing an organization’s strengths to potential donors, according to Angela Dotson, tax manager for Tauber & Balser, P.C., an Atlanta, Ga.-based accounting and consulting firm whose clients include public and privately held companies in the construction, hospitality, manufacturing, not-for-profit, professional services, real estate, retail, technology and wholesale/distribution industries.

Smart Business talked with Dotson to discover how Form 990 can be used to communicate non-profit organizations’ missions as well as their financial condition.

Who must file IRS Form 990 and when is it due?
In general, tax-exempt organizations with annual gross receipts of more than $25,000 must file Form 990 or Form 990-EZ. Non-profit organizations should consult their tax advisors to determine their filing requirements. Forms must be filed on the 15th day of the fifth month following the close of the organization’s year. Non-profits with $100,000 in revenue and total assets of more than $250,000 must file Form 990 rather than Form 990EZ.

What kind of information is disclosed on Form 990?
Information related to an organization’s income in terms of how much income and the sources from which it is derived, which provides readers with an indication of the size of an organization’s operations and its ability to garner financial support in the future. The revenue section on the first page is broken down into 11 different sources. Revenue source information is critical because it demonstrates whether organizations rely primarily on contributions from the public or whether they are more entrepreneurial in nature by earning revenue based on their services. A steady flow of income from one source over several years may indicate the likelihood this income stream will continue into the future.

Form 990 contains information related to an organization’s expenses. Expenses are broken down into three functional categories — program services, management and fund-raising — and depict how non-profits spend the resources they receive. The public wants to know what portion of the resources are being used for the actual mission and program services versus the other categories. For example, the executive director’s salary of a typical organization should be allocated to all three categories due to the director’s involvement with each.

An organization’s net assets are listed on Form 990. Net asset information is useful in making reasonable assumptions as to the future of the non-profit. It can be analyzed to determine what portion of the assets are available to help meet future financial obligations. By comparing the beginning and ending net asset balance, you can determine if the organization operated at a surplus or deficit for the year. Unrestricted net assets are not subject to donor-imposed restrictions. Permanently restricted and temporarily restricted net assets, which are restricted by the donor, can only be used for the specific purpose intended.

It is recommended that three years of 990 returns be reviewed to obtain a better idea of the organization’s overall financial condition.

Beyond the numbers, what do 990 forms say about an organization?
Form 990 lists the organization’s mission and accomplishments and is an excellent place for organizations to market or advertise their activities. The information is used by the public to compare one non-profit organization to another. It also provides accountability to the regulatory authorities by ensuring their exempt purpose. Board members and the compensation of key staff are listed on Form 990.

Organizations should have written policies on how compensation is determined. It is a good practice to compare salaries of other organizations that are similar in size and nature to determine reasonableness.

What are the most common errors found on Form 990?
According to the IRS the five most common mistakes are:

  • Not completing Schedule A, which requires organizations to list the salaries and benefits of the key people and the top paid independent contractors;
  • Not completing Schedule B, which all organizations must complete and requires the reporting of contributions made over $5,000 by single donors or certifying they are not required to attach the schedule because they did not meet the $5,000 single donor requirement;
  • Filing the wrong form;
  • Not signing the return and
  • Listing the incorrect tax year at the top of the form.

ANGELA DOTSON is a tax manager for Tauber & Balser P.C., an accounting and consulting firm in Atlanta, Ga. Contact her at (404) 814-4981 or e-mail adotson@tbcpa.com.