5 things to improve within your IRS Form 990 filings

1. Go ahead, boast about all the cool things you do in your program service accomplishments.

It always breaks my heart a bit when I see a one-liner, or even worse, spelling errors in a client’s forms. The IRS form 990 is not only a tax return—it’s a public informational document. It’s posted on the IRS site and on charity watchdog and informational sites. Educated donors read it, grantors read it, your board and volunteers read it. Page 2 of the 990 allows NFPS to break down their top three program service accomplishments including revenue and expenses. This section includes a blurb to say all the amazing things you’ve done during the year, so take advantage of that. (And put some stats in while you’re at it!) It’s a huge (and free) way to link your financial data in with your mission and success stores.

2. Check to make sure you can say yes to policies that you don’t have or aren’t formally approved.

Oh boy, this one. IRS Form 990, page 6, part VI, sections A and B (I know, hang in there) is probably one of the most important sections to pay attention to as a board member and management. Policies are not officially approved unless voted and documented as approved by the board. You cannot check “yes” unless they are officially approved. With board turnover or lack of documentation of approval within board minutes, this information is easily (and often) lost. We recommend keeping a folder with all required policies and a checklist in a safe placeavailable to the board and staff. On a regular basis (i.e. annually), review the policies for any necessary updates.

Per IRS instructions, “Answer “Yes” to any question in this section that asks whether the organization had a particular policy or practice only if the organization's governing body (or a committee of the governing body, if the governing body delegated authority to that committee to adopt the policy) adopted the policy by the end of its tax year, and if the policy applied to the organization as a whole. If the policy applied only on a division-wide or department-wide level, answer “No.” The organization may explain the scope of such policy on Schedule O (Form 990).”

3. Make sure your annual Conflict of Interestsurvey or review process and Schedule O disclosure is actually complete.

Most states require a NFP to have a COI policy. The IRS asks if you have one and goes a bit further with more details. The question asks if you have a review or survey process and how it’s done:

Part VI Section B, Line 12b says, “answer “Yes” if the organization's officers, directors, trustees, and key employees are required to disclose or update annually (or more frequently) information regarding their interests and those of their family members that could give rise to conflicts of interest, such as a list of family members, substantial business or investment holdings, and other transactions or affiliations with businesses and other organizations and those of family members”

4. Nail your functional expense breakdown.

This section is so important because charity watchdog websites read this data to complete their, “for every $1 donated, x% goes to management.” Usually allocation methods just need to be updated and reviewed. Read my, “Top 5 things we cleanup in books of NFPs” for more details.

5. Make sure your Schedule O disclosures are actually complete.

I’m going to be honest, often when I have a new 990 client, these disclosures come to us incomplete. Questions go half-answered or only a couple sentences. I’ve included the IRS instructions right here so you can see exactly what they’re asking for in a snapshot for each of the most common disclosures that we see incomplete.

1. Conflict of Interest Review Process

Line 12b. Answer “Yes” if the organization's officers, directors, trustees, and key employees are required to disclose or update annually (or more frequently) information regarding their interests and those of their family members that could give rise to conflicts of interest, such as a list of family members, substantial business or investment holdings, and other transactions or affiliations with businesses and other organizations and those of family members.

Line 12c. If “Yes,” describe on Schedule O (Form 990) the organization's practices for monitoring proposed or ongoing transactions for conflicts of interest and dealing with potential or actual conflicts, whether discovered before or after the transaction has occurred. The description should include an explanation of which persons are covered under the policy, the level at which determinations of whether a conflict exists are made, and the level at which actual conflicts are reviewed. Also explain any restrictions imposed on persons with a conflict, such as prohibiting them from participating in the governing body's deliberations and decisions in the transaction

2. Director and Key Employee (this includes the finance person) compensation review process

“Line 15. Answer “Yes” on line 15a if, during the tax year, the organization (not a related organization or other third party) used a process for determining compensation (reported on Part II or Schedule J (Form 990), Compensation Information) of the CEO, executive director, or other person who is the top management official, that included all of the following elements.

• Review and approval by a governing body or compensation committee, provided that persons with a conflict of interest regarding the compensation arrangement at issue weren't involved. For purposes of this question, a member of the governing body or compensation committee has a conflict of interest regarding a compensation arrangement if any of the following circumstances apply.

1. The member (or a family member of the member) is participating in or economically benefitting from the compensation arrangement.

2. The member is in an employment relationship subject to the direction or control of any person participating in or economically benefitting from the compensation arrangement.

3. The member receives compensation or other payments subject to approval by any person participating in or economically benefitting from the compensation arrangement.

4. The member has a material financial interest affected by the compensation arrangement.

5. The member approves a transaction providing economic benefits to any person participating in the compensation arrangement, who in turn has approved or will approve a transaction providing economic benefits to the member. See Regulations section 53.4958-6(c)(1)(iii).

• Use of data as to comparable compensation for similarly qualified persons in functionally comparable positions at similarly situated organizations.

• Contemporaneous documentation and recordkeeping for deliberations and decisions regarding the compensation arrangement.

Answer “Yes” on line 15b if the process for determining compensation of one or more officers or key employees other than the top management official included all of the elements listed above. If the answer was “Yes” on line 15a or 15b, describe the process on Schedule O (Form 990), identify the offices or positions for which the process was used to establish compensation of the persons who served in those offices or positions, and enter the year in which this process was last undertaken for each such person. If the organization didn't compensate its CEO, executive director, or top management official during the tax year, answer “No” to line 15a. If the organization didn't compensate any of its other officers or key employees during the tax year, even if such employees were compensated by a related organization, answer “No” to line 15b.”

3. How to make documents available to public

“Line 18. Check the box for “Own website” only if the organization posted an exact reproduction (other than for information permitted by law to be withheld from public disclosure, such as the names and addresses of contributors listed on Schedule B (Form 990)) of its Form 990, Form 990-T (for section 501(c)(3) organizations), or application for recognition of exemption (Form 1023, 1023-EZ, 1024, or 1024-A) on its website during its tax year. Check the box for “Another's website” only if the organization provided to another individual or organization and that other individual or organization posted on its website, an exact reproduction (other than for information permitted by law to be withheld from public disclosure, such as the names and addresses of contributors listed on Schedule B (Form 990)) of any such forms during the tax year. If “Other” is checked, explain on Schedule O (Form 990)…"

Organizations that file Form 990 must make it publicly available for a period of 3 years from the date it is required to be filed (including extensions) or, if later, is actually filed. Organizations aren't required to make publicly available the names and addresses of contributors (as set forth on Schedule B (Form 990), and on Form 1023, 1023-EZ, 1024, or 1024-A). Section 501(c)(3) organizations that file Form 990-T are also required to make their Forms 990-T publicly available for the corresponding 3-year period for forms filed after August 17, 2006 (unless the form was filed solely to request a refund of telephone excise taxes). See Appendix D for more information on public inspection requirements. Line 19. Explain on Schedule O (Form 990) whether the organization made its governing documents (for example, articles of incorporation, constitution, bylaws, trust instrument), conflict of interest policy, and financial statements (whether or not audited) available to the general public during the tax year, and if so, how it made them available to the public (for example, posting on the organization's website, posting on another website, providing copies on request, inspection at an office of the organization, etc.). If the organization didn't make any of these documents available to the public, enter “No documents available to the public.” Federal tax law doesn't require that such documents be made publicly available unless they were included on a form that is publicly available (such as Form 1023, 1023-EZ, 1024, or 1024-A).”

D. 990 review process by the board

“Line 11a. Answer “Yes” only if a complete copy of the organization's final Form 990 (including all required schedules), as ultimately filed with the IRS, was provided to each person who was a voting member of the governing body at the time the Form 990 was provided, whether in paper or electronic form, before its filing with the IRS. The organization can answer “Yes” if it emailed all of its governing body members a link to a password-protected website on which the entire Form 990 can be viewed, and noted in the email that the Form 990 is available for review on that site. However, answer “No” if the organization merely informed its governing body members that a copy of the Form 990 is available upon request. Answer “No” if the organization redacted or removed any information from the copy of its final Form 990 that it provided to its governing body members before filing the form. For example, answer “No” if the organization, at the request of a donor, redacted the name and address of that donor from the copy of its Schedule B (Form 990), that it provided to its governing body members. Under those circumstances, the organization may explain on Schedule O (Form 990) why it answered “No” to line 11a.”