Editor's note: This is a sidebar to "The Redesigned Form 990: Advising Nonprofit Organizations," March 09.
Part I provides a snapshot of the entire organization
because it summarizes the income statement and balance sheet on the
first page. It also asks for a description of the organization’s
mission. Since this is the first thing that a donor will see, it
provides a great opportunity to make the case why this organization
deserves to be funded. The organization’s development staff could be
very helpful in drafting this mission statement.
In Part III, Statement of Program Service
Accomplishments, the organization is asked to describe its exempt
purpose achievements for the three most expensive services. This gives
the organization another opportunity to tell its donors what a great
job it is doing and how it is affecting the community.
In Part IV, Checklist of Required Schedules, the
answers to this checklist help determine which of the 16 schedules
need to be completed.
Part V, Statements Regarding Other IRS Filings and Tax
Compliance, provides a checklist for the nonprofits to report
their tax filing practices. Information provided in the attached
schedules will allow the IRS to double-check this section to determine
that the filings and tax compliance are in fact correct. An
organization that is not meeting its tax compliance requirements is
probably not being managed very well.
Part VI, Governance, Management, and Disclosure,
is a dramatic addition to the Form 990 because it focuses on the
board: whether it is independent and information about how it provides
oversight. Part VI asks for specific information such as whether the
board reviews the Form 990 before it is filed. It also asks if there
is a written conflict-of-interest policy that requires annual
disclosure of conflicts. It asks for a description of how this policy
is monitored and enforced. It also asks if the organization has a
written whistleblower policy and a written document retention and
destruction policy.
If an organization does not have these policies, there is a sample conflict-of-interest policy in the instructions to Form 1023 posted at www.irs.gov. Samples of the conflict-of-interest, whistleblower and document retention and destruction policies can be found in The Nonprofit Policy Sampler, by Barbara Lawrence and Outi Flynn, which is published by BoardSource (2006). Another helpful resource is the book Managing Conflicts of Interest—A Primer for Nonprofit Boards, 2nd edition, by Daniel L. Kurtz and Sarah E. Paul, which is also published by BoardSource (2006).
Another resource designed to help organizations understand what is expected of them in terms of their ethical conduct, accountability and transparency is the Principles for Good Governance and Ethical Practice: A Guide for Charities and Foundations, by the Panel on the Nonprofit Sector, which was convened by the Independent Sector. It can be found at www.nonprofitpanel.org.
Part IX, Statement of Functional Expenses, while
not new, provides a more detailed breakdown of how money is spent.
Anyone with a calculator can determine what percentages of revenue are
actually paid for program services as opposed to management and
fundraising expenses.
Comments About the Schedules
Schedule A, formerly Organizations Exempt Under
Section 501(c)(3)—Supplementary Information, has been renamed
and much of its contents moved elsewhere. It is now titled Public
Charity Status and Public Support and has been revised to focus
on how affected organizations meet their public support test. An
organization must report as a private foundation if it does not meet
the 331⁄3% test or the 10% facts-and-circumstances test described in
Treas. Reg. § 1.170A-9(f)(3). Moreover, it reflects changes in the
support schedule to include the current tax year plus four previous
years, rather than just the previous four years, and requires accrual
accounting, rather than cash accounting as it formerly did.
Schedule C, Political Campaign and Lobbying
Activities, needs to be carefully and accurately prepared. Certain
organizations can have their tax-exempt status revoked or sanctions
imposed for these activities.
Schedule F, Statement of Activities Outside the United
States, is designed to obtain specific information about an
organization’s foreign activities. It requires reporting for
geographic regions of the organization’s activities, its grants to
foreign organizations or entities, and its grants or assistance to
foreign individuals.
Schedule G, Supplemental Information Regarding
Fundraising or Gaming Activities, asks for information regarding
an organization’s fundraising activities, events and gaming. It also
asks for information to determine if the organization has properly
registered for charitable solicitation. (If an organization needs
information regarding registration for charitable solicitation, it can
be found at www.multistatefiling.org.)
It asks for the identification and payment arrangements for
professional solicitors.
Schedule H, Hospitals, will dramatically affect
tax-exempt hospitals. For a hospital to maintain its tax-exempt
status, it must demonstrate that it operates for a charitable purpose.
The intent of Schedule H is to make tax-exempt hospitals report
uniformly and to measure their charitable purpose. In 2009 hospitals
will be required to calculate their charity care, community benefits
and community building activities. For 2008 they will only be required
to list the locations of their facilities.
Schedule I, Grants and Other Assistance to
Organizations, Governments, and Individuals in the U.S.,
asks about an organization’s records to substantiate its grants, the
grantee’s eligibility, its selection criteria and its methods for
monitoring the use of the grant funds. For grants to organizations, it
asks for information about the organization, including its IRC
section. This will provide an in-depth look at the organization’s
grants administration program and how it dispenses money.
Schedule M, Non-Cash Contributions, has a detailed
list of various types of property that an organization could receive
as contributions. It also asks for the amount of revenue that resulted
from each type of contribution and the method used for determining revenue.
Schedule N, Liquidation, Termination, Dissolution or
Significant Disposition of Assets, asks to whom the organization
distributed its assets, whether it went through the appropriate
procedure with the IRS, and whether it filed with the appropriate
state official.
Schedule R, Related Organizations and Unrelated
Partnerships, asks for information regarding transactions and
significant activities with related organizations. The intent is to
put together all the fragments of the organizational structure and
look at it in its entirety. This sum may provide a very different
picture than each part separately.
(Download Form 990 and related schedules from the IRS Web site.)
