The initial Form 990 Return of Organization Exempt from Filing Tax, deadline for calendar year nonprofits came and went. Now August 16th has come and gone. Assuming you filed your annual report with the IRS already, you may be dusting off your hands, thankful to have another year of filing and reporting behind you. If so, you can breathe a sigh of relief. If not, or you have a June 30 fiscal year end, are you ready for the filing deadline?
As you prepare to file your return, it is worthwhile to take careful consideration of this annual proof of tax exemption report, as it should more aptly be called. What can the Form 990 reveal about your organization? There are several areas to consider. I’ll address a few here.
How well do you communicate what your organization does and why it is appropriately considered tax-exempt? As nonprofit organization, you need to communicate a clear mission and objective that you intend to accomplish. Is your organization meeting the mission stated in its Form 1023, Application for Recognition of Exemption? Take time to list out all the services that your organization is providing and the amount that is spent on each activity. This part of the Form 990 is the part that can communicate your value to the community, as well as the IRS. Because the 990 is public, you need to make this section stand out and show that your organization is a crucial resource.
Form 990 also delves into your fundraising and administrative expenses compared to the expense of providing tangible program services. How effectively does your organization manage its resources? Are your administrative expenses high or are you maintaining low administrative expenses in order to accomplish more of the services that your organization provides. Similar organizations Forms 990 can also provide a benchmark for what is considered high or low administrative expenses in your industry. If you’re already on top of minimizing administrative expenses, communicate to the community and the IRS just how much of the resources coming into your organization are being put back into services that are desperately needed by the community.
Because of the detailed questions, Form 990 can also be a great tool to walk through with your board of directors to help them better understand what is required of an exempt organization to maintain their tax exempt status. Many of the questions on the 990 ask whether the organization has procedures in place that pertain to the use of tax-exempt resources and how well the organization and its directors follow those procedures. It can be a good gauge of the leadership’s knowledge if the language is familiar to you and your board.
Conclusions Re: Form 990
The bottom line is how well do you understand the Form 990 and how can you make that investment of time or money for preparing the form and schedules work to your advantage? Use the Form 990 as a management tool. Relate back to it as a compass to the direction you are moving as an organization. Use the form to really market the amazing things you are doing for the community. Also, let it help you analyze whether you are meeting your goals for resource efficiency. Finally, use it to dialogue with your board and management team to ensure you are managing your resources well and following the complex guidelines put in place by the IRS.
Since you invest so much time into filing the Form 990, get more benefit out of it!