Telling the not-for-profit story through Form 990

Sec. 6033 of the Internal Revenue Code requires most tax-exempt organizations to file an annual information return containing income, receipts, disbursements, and other information. This seems to be a straightforward requirement—not-for-profit organizations complete and submit a Form 990, Return of Organization Exempt From Income Tax, to the IRS for filing. Charitable organizations, however, can capitalize on this compliance requirement by using it to educate donors and market their organizations and programs. Consider these scenarios:

• Scenario No. 1: Students in Science Inc. has a new funding organization that requires a financial audit. The executive director contacts S & Co. CPAs to inquire about obtaining the audit and the associated fees. Before agreeing to meet with Students in Science, S & Co. looks up the organization’s Form 990 to learn more about its operations and viability.
• Scenario No. 2: Protecting Pets Charities has applied for a grant from Sunshine Bank Foundation. Part of the award selection process involves reviewing Form 990 to determine whether the mission and accomplishments of Protecting Pets’ programs are aligned with the purposes of the foundation grants.
• Scenario No. 3: JT, CPA, has been asked to serve on the board of Best Bet Family Solutions. Before accepting the offer, she examines the organization’s Form 990 to determine whether the mission and programs of Best Bet are aligned with her values and priorities, and if the governance structure has been established in a way that will protect her as a board member.

While the names have been changed, these scenarios illustrate how individuals use Form 990 to perform due diligence in considering whether to commit time or resources to a not-for-profit, whether as a service provider, a grantor, or a board member. In fact, the 2015 instructions for Form 990 state, “Some members of the public rely on Form 990 or Form 990-EZ as their primary or sole source of information about a particular organization. How the public perceives an organization in such cases can be determined by information presented on its return.”

With an increased number of not-for-profits competing for the same pool of donors, each not-for-profit needs to be strategic in communicating its mission, marketing, and fundraising. Brochures and websites should not be the extent of a not-for-profit’s external communications. Although it is an information tax return, Form 990 is a key component of an overall communications plan designed to enhance a not-for-profit’s fundraising and marketing efforts.

Debra Faulk, vice president of Community Affairs at Wells Fargo, reviews current- and prior-year Forms 990 in her evaluation of not-for-profit grant applications to get a more comprehensive picture of the organization. “The [Form] 990 gives me a snapshot of the financial health, governance, and operations of our applicants in one document,” she said. “I can’t emphasize enough how important it is for nonprofits to sell themselves in the mission and program descriptions required on the Form 990.”

While CPAs prepare Forms 990 because of the financial reporting requirements, they can add value to their preparation services by ensuring that the form’s narrative sections tell the not-for-profit’s story of how it is fulfilling its mission. Paul Horowitz, CPA, a partner with FRSCPA PLLC, recognizes the value-added services he provides by considering the nonfinancial sections of Form 990. “By paying closer attention to the narrative sections, I am able to help my clients market their services and their organizations to potential donors,” he said. “The Form 990 is not just a tax return.”

Simply inserting information from the not-for-profit’s website or other marketing materials does not ensure the mission and program descriptions reported on Form 990 are current, accurate, and compelling. This article provides tools to assist CPAs with ensuring this important aspect of Form 990 is used to benefit the not-for-profit organization.

WHO IS READING AND WHY?

Not-for-profit organizations and CPAs are mistaken if they think no one is actually reading the information on Form 990. The scenarios presented at the beginning of this article illustrate some of the reasons people read Form 990 and how the information is used. A number of organizations provide information online about Form 990 and the not-for-profit’s financial statement, which many donors use before donating. In addition, in June, the IRS announced that it would make Forms 990 available electronically.

Sec. 6104(b) requires not-for-profits to make their Form 990 available to the public, unlike their financial statements. Consequently, savvy not-for-profit evaluators take advantage of this resource. Rather than shrinking back from this requirement and minimizing the amount of information provided on Form 990, organizations can make the most of the requirement by telling their story and selling their organization. The chart, “What Readers Look for on Form 990,” lists different users’ nonfinancial objectives in examining a Form 990.

What readers look for on Form 990

WHAT READERS LOOK FOR ON FORM 990

What is a common thread among these readers? They all use Form 990 to make decisions that affect the organization’s ability to obtain funding, provide services, maintain proper governance, and, ultimately, achieve the goals for which it exists. Clearly and compellingly explaining the mission and program accomplishments communicates the organization’s value for these and other stakeholders.

NARRATIVE SECTIONS

Some not-for-profit executives think that since Form 990 is submitted to the government, less information is better. Although the IRS and some states use the form for compliance and monitoring purposes, not-for-profits should be eager to take advantage of the opportunity to tell their story through Form 990’s narrative sections. According to Faulk, “The 990 tells a story; a story of the nonprofit organization’s mission, partnership, and client/constituent support.” The sections that organizations can use to convey this information include:

• Part I, “Summary,” line 1 (mission or most significant activities).
• Part III, “Statement of Program Service ­Accomplishments,” line 1 (mission).
• Part III, “Statement of Program Service ­Accomplishments,” line 4 (description of individual program service accomplishments).
• Schedule O, Supplemental Information to Form 990 or 990-EZ (continuation of the narrative sections as well as explanations of answers in other sections).

COMMUNICATING WITH WORDS AND NUMBERS

CPA preparers may find it efficient to lift content from the organization’s website or other marketing materials and place it on Form 990 (see the sidebar, “Examples of Ineffective and Effective Narratives”). However, this may not be the best way to communicate the organization’s mission, programs, and values—to tell the organization’s story. Effective Form 990 narrative descriptions that tell the organization’s story will begin with two communications fundamentals.

• Consider the audience. Who is likely to read the Form 990? Donors, third-party evaluators, potential board members, etc.?
• Develop focused messages. What are the main points that will resonate with the audience? The efficiency of the organization, the effectiveness of the programs, information about the clients and staff, etc.?

After these two issues are determined, messages can be crafted that focus on communicating with particular audiences. The content should be centered on the organization’s unique qualities, programs, and clients; the method of accomplishing its mission; the results of its programs (quantitative and qualitative); its value to the community; and its effectiveness and efficiency in using resources and responding to challenges. As an example, for an educational program, describe the type and number of classes offered, the number of pupils participating and completing the program, and how successful the participants were (perhaps using employment statistics) compared with a similar population not receiving the same services.

The style of writing used in the Form 990 narrative sections is just as important as the content. These sections should be clear and convincing. Not-for-profits tend to use terminology or jargon that may be unique to the sector or to the particular field of work. Donors and other Form 990 audiences may not understand terms such as “mission-driven,” “capacity,” or “development.” Using terms that lay people understand ensures the messages are clear. For potential donor audiences, these messages should convince readers that the organization is worthy of their contributions. Assuming that the audience has the same affinity or commitment to a cause or the organization as the staff or board may hinder the message’s effectiveness.

CPA preparers are encouraged to ask their clients to put careful thought into writing these narratives, and they should ensure the financial and nonfinancial information communicates a cohesive story about the organization. Preparers should work with the organization to craft these sections and then insert them in the form. This is how the Nonprofit Leadership Center in Tampa, Fla., completes its Form 990. “While our CPA firm prepares the form, we write the mission and program descriptions in a way that communicates the value our organization offers to the community and the quality with which we carry out our work,” said Emily Benham, the organization’s CEO.

TELLING THE STORY

CPAs generally prefer working with quantitative and precise information, an attribute not usually associated with storytelling. However, CPAs preparing Forms 990 are uniquely situated to partner with not-for-profit clients in telling their story through both the financial and nonfinancial narrative sections of Form 990. With a competitive market for donors, organizations need to be strategic in their external communications. A well-crafted Form 990 can work in addition to websites, brochures, and other marketing materials to meet not-for-profit communication objectives.

Examples of ineffective and effective narratives

What do actual narratives look like? They can be brief or extensive. They can be clear or confusing. They can spur the reader to seek more information, or they can miss an opportunity to inform the reader. Here are examples of actual Form 990 content.

• Part I, “Summary,” line 1: Briefly describe the organization’s mission or most significant activities.

Nonprofit A

Answer: See Schedule O.

Ineffective: Misses an opportunity to provide the mission at the top of the form; no information is provided that will encourage readers to go to Schedule O.

Nonprofit B

Answer: Financial support to cancer patients.

Effective: States what the organization does and for whom.

Nonprofit C

Answer: Care for the homeless and those at risk of becoming homeless.

Effective: States what the organization does and for whom.

• Part III, “Statement of Program Service Accomplishments,” line 1: Briefly describe the organization’s mission.

Nonprofit A

Answer: See Part I

Ineffective: Does not provide new information; refers to Part I, which refers to Schedule O; no information is provided regarding the mission in Part I or Part II.

Nonprofit B

Answer: Financial support for cancer patients.

Adequate: Restates the mission in Part I but misses an opportunity to provide additional information.

Nonprofit C

Answer: To care for the homeless or those at risk of becoming homeless in our community through services that alleviate suffering, promote dignity, and instill self-sufficiency . . . (See Sch O)

Schedule O information: 10,500 volunteers . . . Support from private donations, businesses and corporations, private and corporate foundations, and government grants . . . $5,000 in-kind services and $10,000 in-kind food and material donations above financial donations . . . Volunteer time valued at more than $3 million . . .

Effective: States the mission and provides additional information about how the organization fulfills its mission in Part III, then expounds in Schedule O with more qualitative and quantitative information describing how the mission is accomplished.

• Part III, “Statement of Program Service Accomplishments,” line 4: Describe the organization’s program service accomplishments.

Nonprofit A

Answer: Provides funding for basic needs of our clients and training for our volunteers.

Ineffective: Does not describe program or provide quantitative and qualitative information about the program’s effectiveness.

Nonprofit B

Answer: Worked with over 90 participating community charities to provide funds for their charitable activities through a matching program based on pledges obtained by charity volunteers.

Adequate: Briefly describes the program and how it works; provides some quantitative information indicating the magnitude of the program.

Nonprofit C

Answer: Provided meals to 50 partner organizations located throughout the local area where anyone who is hungry is fed . . . 3,000,000 meals, helped 50,000 people with clothing . . . 6,000 at-risk children received new backpacks . . . See Schedule O.

Effective: Describes the activities and results of the program using quantitative information to explain the program’s magnitude and effectiveness.

About the authors

Maureen Butler (mbutler@ut.edu) is an associate professor of accounting at the University of Tampa in Tampa, Fla., who specializes in teaching management and not-for-profit accounting. Brian Butler (Brian@ConsultVistra.com) is the president and CEO of Vistra Communications, a public relations and marketing agency in Tampa.

To comment on this article or to suggest an idea for another article, contact Sally P. Schreiber, senior editor, at sschreiber@aicpa.org or 919-402-4828.

AICPA resources

Articles

• “Form 990: Late Filing Penalty Abatement,” Nov. 2014
• “Best Practices for Exempt Organizations and Form 990,” Sept. 2010

CPE self-study

• Form 990: Mastering Its Unique Characteristics (#741154, text; #163401, one-year online access)
• Introduction to Form 990: Not-for-Profit Tax Compliance (#165143, one-year online access)
• Not-for-Profit Certificate II—Tax Compliance (#165410, one-year online access)
• Not-for-Profit Tax Compliance (#165140, one-year online access)

For more information or to make a purchase, go to aicpastore.com or call the Institute at 888-777-7077.

Online resources

• Not-For-Profit Section, aicpa.org/nfp

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