4 Tips to Rock That 990 and Why You Should Care
You tell your story through the IRS Form 990, or the 990 will tell it for you — the good, the bad, and the ugly. The 990 — and its instructions — are a comprehensive guide to running an effective nonprofit organization. It's also a predictor of future funding success.
The size of your organization and the type of your organization determines whether you are required to file and which form is required. (My tips are generalizations, and not hard and fast rules. Consult your CPA or tax attorney for those.) Many small nonprofits with revenue less than $50,000 file the 990-N. Many with revenue and assets less than $200,000 may file the 990-EZ while those with revenue and assets less than $500,000 may have the option of filing the 990. Most of those with annual revenue of $500,000 or more are required to file the 990.
There are 99 reasons why you should care about the IRS Form 990, but let's stick to four helpful tips and why it matters most to you.
1. Break Down the Silos Among Finance, Leadership and Fundraisers
Fundraisers are very interested in telling stories, yet they so often miss what is, in my mind, the main stage — the 990. Your CPA is essential in delivering a quality, complete form. Let's be honest though. The folks who chose accounting as a profession differ from those who chose storytelling and fundraising, not better or worse, just a difference in skill sets.
The 990 takes teamwork. Don't outsource it solely to finance. Working hand in hand with finance on your 990 effectively ensures your vision and mission are infused along with your financial and operational capabilities. Finance staffers are the experts in taxes but don't necessarily know how to move a donor. They move numbers and make magic and numbers. The 990 is a leadership guide for executives and the board.
2. File Your 990 Early
Strictly from an approach of putting your best first foot forward, ensure your 990 is filed on time and correctly for professionalism reasons and to prevent delays. Make sure it is clear, legible and signed. Additionally, avoid including unnecessary information. This could slow down the process even further as the IRS ensures no personal information is disclosed.
When a funder looks up an organization and its 990 is outdated, this reflects poorly on the organization and is not helpful to potential partners, grant monitors, large donors, foundation funders, and state, local and federal agencies.
Older versions are red flags often created by delays in filing and processing. However, as of December, the IRS was behind on releasing about half a million tax records, according to ProPublica, which has its own IRS-powered database called Nonprofit Explorer. This processing delay is unrelated to your nonprofit, but filing delays on your end can be magnified by governmental delays, resulting in less funding for your nonprofit.
IRS regulations set the filing due date for most organizations on the 15th day of the fifth month after the end of their fiscal year, often May 15 for those whose fiscal year matches the calendar year.
3. Don’t Raise Red Flags
The 990 is your calling card to the world; don't fill it with red flags.
To put the 990’s importance into context, it is arguably more important than your credit report, line of credit and social media postings. It is not something to get out of the way or to do because it needs to be done. Its content has a legitimate and significant impact on your organization's future revenue and viability.
The first thing I do before even contemplating working with a nonprofit is 990 deep diving because it tells me everything I need to know. Again, if I can't even find a recent one, that's a huge red flag. Those are red flags for me and the majority of individuals in philanthropy.
An on-point detailed, timely, and regularly filed 990 eliminates those red flags. It shows that you are on top of your game.
4. Use the 990 as a Guide for More Donations and Grant Funding
Use the 990 as a guide as you run and operate your business. Set it on your desk. It's a reminder that what you do will be communicated to the world. It can speak to your accomplishments for your largest program services. The 990 can serve as a guide to best practices as you run and manage your organization.
It is the best way to position yourself for philanthropic funding as well. Granted, the 990 reflects what you do every day, so if your organization is a mess, then the 990 can't clean that up for you. You're not going to approach a commercial lender with a poor credit score. Neither should you expect financial funding with a subpar 990.
Charity oversight organizations, such as GuideStar and Charity Navigator, pull your data from the 990, making it easy for donors to locate and review your finances. Although there is much room on those sites for self-reporting, a lot comes from the 990.
Why Should You Care?
Most nonprofits must make the 990 available to the public, so it all comes out in the 990. What funders and donors see in that document could dictate how they interact with a nonprofit. Big time! The list of what it spills is endless, creating an undisguisable story. Additionally, three years of non-filing could potentially cause you to lose your tax-exempt status.
Here are a few plot twists that are found in your 990 story. These and more paint a numeral picture of how your organization is doing if you're on an upward growth trajectory or experiencing difficulties.
- Your revenue and how it is trending
- How you run your business
- Accomplishments for your largest program services
- How you spend your money
- Reliance on income ratios
- Fundraising efficiency
- How you compensate your leadership staff
- How many employees and volunteers you have
- Your financial reserves
- How you interact with your board
- If you are exempt from filing (This says a lot in itself, as you are more than likely a fledgling or religious organization.)
- If you are local or domestic
- Whether you hire consultants and how much you pay
- If you’re still paying an executive who no longer works for your nonprofit
- Who sits on your board
- How you spend your money
- How you make money: events, dues, grants or selling products
- If you are controlled by or control another entity
It also provides blank space to add your input (attention storytellers!) to allow greater inclusion of your mission, vision and programs that you deliver to the communities you serve. Use that space!
It is great to be on TikTok (No judgment. OK, maybe a little). I much rather see an organization's reality on government paper with a guaranteed viewership than a video with two likes. However, if your 990 shows a downward trajectory, salaries that raise eyebrows or aberrations without explanation, a funder may have just swiped left, moving to the next potential organization.
You thought that tax was boring! It can be, but the 990 is a deceptively powerful beast. Make sure you understand and optimize the 990 to position your organization for optimal growth and funding.
I can't overstate how critical it is to excel in the delivery of this simple tax form. If you rock your 990, you are positioning yourself for success. Remember, a nonprofit CPA, tax attorney or nonprofit tax assistance organization can help with this process — all the more reason to have a CPA on your board as a second set of eyes.
Good luck, and rock that 990!
The preceding article was provided by an individual unaffiliated with NonProfit PRO. The views expressed within do not directly reflect the thoughts or opinions of NonProfit PRO.