IRS Form 990 Return of Organization Exempt From Income Tax

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1 IRS Form 990 Return of Organization Exempt From Income Tax Evolution of the Form 990 Complete redesign in 2008 Previous significant revision was 1979 Emphasis on the transparency and accountability needs of the states, the public, and communities served by the organizations Includes a summary page with mission statement, a core form to be completed by all organizations, and schedules to be completed by organizations based on their activities

2 Three levels of filing Form 990, Form 990EZ and Form 990N 990EZ thresholds Gross Receipts > $50,000 and < $200,000 and Total Assets < $500,000 Three years and you re out rule auto-revocation for failure to file Form 990N Resource for page by page review of the Form 990 from the Nonprofit Coordinating Committee of New York

3 Major realignment of IRS TE/GE Exempt Division in 2013 following tea party controversy Review of applications for exemption process streamlined Emphasis on certification and representations; lean, assembly-line approach has succeeded in reducing backlog of applications Successful implementation of Form 1023EZ for small organizations Budget cuts will likely mean fewer audits and scaleddown sector reviews; data-driven approach to compliance

4 IRS Form 990 Consider the Form 990 the source of financial and organizational information about your organization for outsiders. Including: current and potential funders current and potential employees potential Trustees the media Whistleblowers competitor and partner organizations

5 Favorite 990 schedules - Getting to Know You Part I Summary - who and why Board members Employees Volunteers Mission statement 2-year trend summary financial data

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7 Favorite 990 schedules - Getting to Know You Part III Statement of Program Service Accomplishments - what and how much Program descriptions Program budgets This important schedule links the financial with the programmatic. Answers the question: On what does the organization spend its money?

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11 Board of Directors The redesigned Form 990 is first and foremost about the Board of Directors Part VI Governance Management & Disclosure Part VII Board Listing and compensation Schedule L Transactions with Interested Persons

12 Board of Directors Part VI Governance Management & Disclosure Section A Governing Body Family relationships and Business relationships Delegate control of the organization? Cannot delegate fiduciary responsibility The IRS wants you to take notes at your Board meetings

13 Board of Directors Part VI Governance Management & Disclosure Section B Policies For the most part, Yes answers are not required, but are clearly in your nonprofit s best interest. Conflict of Interest Whistleblower Document Retention Reasonable Compensation (safe harbor) Other

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15 Board of Directors Part VI Governance Management & Disclosure Section B Policies Board of Director review of Form 990 Before filing Full copy *including Schedule B*

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17 Board of Directors Part VII: Compensation of Officers and Key Employees Who is an Officer? May or may not include the Executive Director Who is a Key Employee? Always the Executive Director, maybe others. IRS rules are very specific. Who are the Highest Compensated Employees? Anyone else who made over $100,000 (top 5)

18 Board of Directors Part VII: Compensation of Officers and Key Employees What types of compensation have to be reported? Follows payroll reporting Calendar year Form W-2 tie out All benefits cash or noncash Compensation from related organizations

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20 Board of Directors The Audit Committee The role of the Audit Committee expanded with passage of the Sarbanes-Oxley Act of Hire the external auditor and approve non-audit accounting services; oversee the audit engagement Provide procedures to handle whistle-blower complaints confidentially and in a timely manner Audit committee members must be independent board members with authority to hire outside counsel Audit committee reviews the Form 990 first

21 Favorite 990 schedules - Quantitative Part VIII Statement of Revenue revenue trajectory and mix i. % of revenue from Contributions (line 1h) ii. % of earned revenue, Program Services activities (line 2g) iii. All other, includes investments, royalties, rents, inventory sales, fundraising events, gaming

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23 Favorite 990 schedules - Quantitative Part IX Statement of Functional Expense - focus on the rows, not the columns % of expenses from payroll and related (lines 5-10, and summarized on Part I, line 15) Avoid too many other expenses

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25 Favorite 990 schedules - Quantitative Part X Balance Sheet comparative years and net asset types Unrestricted Net Assets Temporarily Restricted Net Assets Permanently Restricted Net Assets Net assets are the equity of the organization; the organizational reserves and the investment for the future. There are only a few ways to build net assets

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27 Ratio 1 Unrestricted Net Asset Reserve Ratio: 3-year trend Unrestricted net asset reserves are the resources available for current programming; and an indication of the tolerance for cash flow fluctuations Formula: Unrestricted Net Assets Avg. monthly operating expenses

28 Ratio 2 Temporarily Restricted Net Asset Funding Ratio: 3-year trend Temporarily restricted net assets are a secure funding source for the organization s future Formula: Temp. Restricted Net Assets Avg. monthly operating expenses

29 Form 990 data in excel Monthly Expenses 137, , ,425 Part I Unrestricted Net Assets 332, , ,071 Part X Temp Restricted Net Assets 179, , ,442 Part X UR reserves TR future funding

30 Ratio 1 # of months of unrestricted net asset reserves

31 Ratio 2 # of months of future funding

32 The audit vs. the Form 990 Schedule D of the Form 990 reconciles the audit to Form 990 In-kind gifts and donated services not included on 990 Unrealized gains/losses on investments not included on 990 Schedule D also indicates the complexity of an organization Investments, endowment, art collections, capital assets, conservation easements The audit maybe more useful for larger organizations because it presents operating results separate from capital and endowment functions, and unrestricted activity and net assets separate from restricted

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34 IRS Form 990 When and how to use the IRS Form 990 as a marketing and communications tool? Most important for the largest and smallest nonprofits Do not pass on the opportunity the form provides to highlight mission and accomplishments (narrative vs. check box) Include the public relations and development staff in the process; borrow language from the Annual Report and other pieces