LEADING THE NONPROFIT: THE NEW LOOK 990
By Charles Bogguess, CPA
Many nonprofits are beginning to review their 990 tax returns and noticing changes. The
IRS has redesigned the informational form 990 (Return of Organization Exempt From
Income Tax). For tax years beginning in 2008, they have included many new disclosure
requirements designed to enhance transparency. The intent of the IRS is to give the public
(including your corporate partners) the necessary tools to determine if their contributions
are being used wisely. In this way the IRS is trying to facilitate market forces to weed out
organizations that manage their assets poorly and bring change to the nonprofit sector.
In the past, the form 990 was required only of larger organizations. Prior to tax year 2007,
nonprofit organizations with gross receipts of $25,000 or less were not required to file IRS
forms. No more! Now, although abbreviated forms, 990-EZ and 990-N are available for
smaller organizations, all nonprofits except religious, governmental, or political
organizations must submit one of these informational returns. The income thresholds that
determine which form is appropriate changed and will continue to change over the next two
years. The objective of the changes is to provide a transition period for all organizations to
adjust to the increased information requirements.
Tax Year Average Gross Receipts Total Assets Form Required
2008 $1,000,000 or more or > $2,500,000 990
25,001 – 999,999 and less than $2,500,000 990-EZ
25,000 or less 990-N
2009 > $ 500,000 or > $1,250,000 990
25,001 – 499,999 and less than $1,250,000 990-EZ
25,000 or less 990-N
2010 > $ 200,000 or > $ 500,000 990
50,001 – 199,999 and less than $ 500,000 990-EZ
50,000 or less 990-N
The new 990 Form has grown to 11 pages, two more than in previous years. It also
includes 16 accompanying schedules, many of them new. Some of the new questions are
simply informational. However, other questions can trigger punitive actions by the IRS
either against the organization or against the management or board members.
A number of the new questions are designed to support greater scrutiny on compensation.
Since most organizations are led by volunteers and are without paid staff, many of these
sections will not be pertinent. However, if your officers do receive compensation, know that
the arrangements must be approved by the board or compensation committee and that they
are expected to use a method to establish that the compensation package is reasonable and
comparable to similar positions elsewhere.
Another schedule that merits attention is Schedule G (Supplemental Information Regarding
Fundraising or Gaming Activities). This schedule asks for detail of events and fundraising
events that generate $5,000.00 or more in gross receipts. The organization should review
its system of bookkeeping to confirm that records of revenue and expenses for activities
that meets this threshold are segregated throughout the year so they can be properly
reported. Beyond the requirements of the tax returns, this information is part of good
organization management, The recap of activity revenue and expenses can be one of the
key metrics by which the success of organization initiatives are measured. If a program
brings recurrent losses, perhaps the organization may want to discuss objectives and/or if
corrective actions are warranted.
Part III of the Form 990 (Statement of Program Service Accomplishments) asks the
organization to describe its exempt purpose achievements over the year from the three most
expensive services. This provides the organization another opportunity to tell its donors
what a great job it is doing and how it is affecting the stakeholders.
The form also explicitly inquires about the organizations conflict of interest policies. Part
VI of the form, 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. It asks for specific information such as whether the board
reviews the Form 990 before it is filed. Tax professionals that serve nonprofit
organizations are encouraging their client boards to review the forms and record approval
of returns in the meeting minutes. This section also asks if there is a written conflict-of-
interest policy that requires annual disclosure of conflicts. The organization must also
disclose how the policy is monitored and enforced. Many times, collecting signed conflict
of interest statements from organization officers is easily overlooked. If that is the case for
your organization, rectify it now. It is a simple process to require officers to attest to
compliance with conflict of interest policies annually. It also asks if the organization has a
written whistleblower policy and a written document retention and destruction policy.
Nonprofit organizations with calendar year-end must file the Form 990 by May 15. Any
returns filed after the due date must include a statement explaining the late filing. If
necessary an automatic extension up to six months can be obtained with reasonable cause.
Failure to file timely can result in hefty penalties. A penalty of $20 a day not to exceed the
smaller of $10,000 or 5% of the organization’s gross receipts may be assessed. An
organization that fails to file its 990 return for three consecutive years will have its tax-
exempt status terminated.
.The 990 returns must be complete, accurate and signed by an authorized officer of the
organization. Further, if the IRS requests missing or corrected information, and does not
receive responses within a specified period, the IRS may also assess penalties against the
officer personally in the amount of $10 per day up to $5,000. The form must also contain a
telephone number that the public can contact during normal business hours to get additional
information. If requested, the organization must fulfill any request for a copy of the 990
return or make it widely available through the organization website. Records related to
information on the return must be retained a minimum of three years. Remember the tax
forms are all publicly available directly from the organization or online at:
www.guidestar.org. Increasingly donors can be expected to reference this information
when deciding to invest in your organization. So take this opportunity to meet the IRS
filing requirements and demonstrate your professionalism and the professionalism of your
organization and its members.