Understanding Form 990 is crucial for anyone involved in the nonprofit sector, whether you're a board member, an executive director, or a donor. This form serves as the primary way the IRS and the public assess a nonprofit's financial health, governance, and overall impact. Think of it as the organization's annual report card, offering insights into where the money comes from, how it's spent, and who's in charge. So, let's dive in and demystify this essential document, making sure you're equipped to navigate its complexities and use it to support informed decision-making. We'll break down the key sections, explain the jargon, and highlight what to look for when evaluating a nonprofit's Form 990. This knowledge empowers you to ensure accountability and transparency within the organizations you care about. Because, let's face it, a well-understood Form 990 translates to greater trust and confidence in the nonprofit sector as a whole. The better we understand these financial documents, the more effective we can be in supporting causes that matter.

What is Form 990?

Form 990, officially titled the "Return of Organization Exempt From Income Tax," is an annual information return that most tax-exempt organizations in the United States must file with the IRS. It provides the IRS and the public with a comprehensive overview of the organization's activities, finances, and governance. It's essentially a window into how the nonprofit operates, ensuring transparency and accountability. The form includes detailed information about the organization's mission, programs, revenue sources, expenses, assets, liabilities, and compensation of officers, directors, and key employees. By filing Form 990, nonprofits demonstrate their compliance with tax laws and maintain their tax-exempt status. The public availability of Form 990 also allows donors, stakeholders, and watchdogs to scrutinize the organization's financial health and operational practices, promoting responsible stewardship of resources. Think of it as the nonprofit's way of saying, "Here's what we did with the money, and here's how we're making a difference." This transparency is vital for building trust and maintaining the integrity of the nonprofit sector. It allows everyone to see how the organization is run, ensuring that it aligns with its stated mission and operates ethically. Furthermore, the information provided in Form 990 helps the IRS monitor compliance and identify potential issues, such as excessive compensation or unrelated business income. So, in short, Form 990 is the cornerstone of nonprofit accountability, serving as a critical tool for both oversight and public understanding.

Key Sections of Form 990

Navigating Form 990 can seem daunting, but breaking it down into key sections makes it much more manageable. Let's explore the most important parts:

Part I: Summary

This section offers a high-level overview of the organization's activities and financial data. It includes information about the organization's mission, significant accomplishments, and key financial figures, such as total revenue, expenses, and assets. It's like the executive summary of a business plan, providing a snapshot of the organization's overall performance. Here, you'll find the organization's primary exempt purpose, a brief description of its mission, and a summary of its achievements during the year. This section also highlights any significant changes in programs or activities. From a financial perspective, Part I presents the organization's total revenue, expenses, net assets, and fundraising expenses. It also includes information about the number of volunteers and employees. By reviewing Part I, you can quickly assess the organization's size, scope, and financial health, helping you determine whether it aligns with your philanthropic goals.

Part III: Statement of Program Service Accomplishments

This section details the organization's program service accomplishments, providing a narrative description of its activities and their impact. It's where the nonprofit showcases its work and demonstrates its effectiveness in achieving its mission. Here, the organization describes its most significant program services, quantifying their impact whenever possible. For example, a food bank might report the number of meals served, while an educational organization might report the number of students served and their academic outcomes. The organization also explains how these activities align with its exempt purpose and benefit the community. By reading Part III, you can gain a deeper understanding of the organization's activities and their tangible results. This section helps you assess whether the organization is truly making a difference in its chosen field and whether its programs are aligned with your values. It's a critical component in evaluating the organization's overall impact and effectiveness.

Part VI: Governance, Management, and Disclosure

This section focuses on the organization's governance practices, management policies, and disclosure procedures. It provides insights into how the organization is governed, who makes decisions, and how it ensures accountability. Here, you'll find information about the organization's board of directors, its committees, and its policies on conflicts of interest, whistleblower protection, and document retention. The organization also discloses its processes for determining the compensation of its officers and key employees. Part VI also addresses the organization's efforts to promote transparency and accountability, such as making its governing documents, conflict of interest policy, and financial statements available to the public. By reviewing Part VI, you can assess the organization's commitment to good governance and ethical practices. This section helps you determine whether the organization has strong leadership, sound policies, and effective controls in place to ensure responsible stewardship of resources.

Part VIII: Statement of Revenue

This section provides a detailed breakdown of the organization's revenue sources, including contributions, grants, program service revenue, and investment income. It offers insights into how the organization generates income and whether it relies on a diversified funding base. Here, you'll find information about the organization's sources of funding, such as individual donations, corporate sponsorships, government grants, and earned revenue from programs and services. The organization also discloses the amount of revenue received from each source. Part VIII helps you understand the organization's financial sustainability and its reliance on different funding streams. A diversified funding base is generally considered a sign of financial stability, as it reduces the organization's vulnerability to changes in any single funding source. By reviewing Part VIII, you can assess the organization's ability to generate income and support its programs and activities over the long term.

Part IX: Statement of Functional Expenses

This section breaks down the organization's expenses by functional category, such as program services, management and general, and fundraising. It provides insights into how the organization allocates its resources and whether it prioritizes program-related activities. Here, you'll find information about the organization's expenses for program services, which are the direct costs of carrying out its mission. You'll also see expenses for management and general activities, which include administrative overhead and governance costs. Finally, you'll find expenses for fundraising, which include the costs of soliciting donations and grants. Part IX helps you understand how the organization spends its money and whether it is allocating its resources effectively. A high percentage of expenses allocated to program services is generally considered a sign of efficiency, as it indicates that the organization is prioritizing its mission-related activities. By reviewing Part IX, you can assess the organization's spending priorities and its ability to maximize its impact.

How to Find and Access Form 990

Finding and accessing Form 990 is easier than you might think. Thanks to the internet, these documents are readily available for public review.

IRS Website

The IRS website is a reliable source for obtaining Form 990. You can search for an organization's Form 990 using the IRS Tax Exempt Organization Search tool. Simply enter the organization's name or EIN (Employer Identification Number) to locate its filings. The IRS provides access to digitally submitted Form 990s, making it a convenient option for researchers and donors.

Guidestar

Guidestar is a comprehensive database of nonprofit information, including Form 990 filings. It offers advanced search capabilities and allows you to access multiple years of filings for a specific organization. Guidestar is a valuable resource for in-depth analysis and comparative research.

Foundation Center

The Foundation Center, now known as Candid, also provides access to Form 990 filings. It offers a range of resources for grantmakers and nonprofits, including information on funding trends, best practices, and nonprofit management. Candid is a useful tool for understanding the broader landscape of the nonprofit sector.

Analyzing Form 990: What to Look For

Once you've obtained a Form 990, it's time to analyze the data and draw meaningful conclusions. Here are some key areas to focus on:

Financial Health

Assess the organization's financial health by examining its revenue, expenses, assets, and liabilities. Look for trends over time and compare the organization's financial performance to that of similar organizations. A healthy nonprofit should have a stable or growing revenue stream, manageable expenses, and sufficient reserves to cover unexpected shortfalls.

Program Efficiency

Evaluate the organization's program efficiency by comparing its program expenses to its administrative and fundraising expenses. A high percentage of expenses allocated to program services indicates that the organization is prioritizing its mission-related activities. However, it's important to consider the organization's size and complexity when assessing its efficiency. Some organizations may require higher administrative overhead to support their programs effectively.

Governance Practices

Review the organization's governance practices to ensure that it has strong leadership, sound policies, and effective controls in place. Look for evidence of an active and engaged board of directors, a comprehensive conflict of interest policy, and a whistleblower protection policy. A well-governed nonprofit is more likely to operate ethically and responsibly.

Executive Compensation

Examine the compensation of the organization's officers and key employees to ensure that it is reasonable and justified. Excessive compensation can be a red flag, indicating that the organization is not using its resources wisely. However, it's important to consider the organization's size, complexity, and geographic location when assessing executive compensation.

Common Red Flags in Form 990

While Form 990 provides valuable insights into a nonprofit's operations, it's also important to be aware of potential red flags that may indicate problems or concerns:

• Declining Revenue: A consistent decline in revenue may indicate that the organization is struggling to attract funding or is losing support from donors.
• Excessive Expenses: Unusually high administrative or fundraising expenses may suggest that the organization is not managing its resources effectively.
• Related-Party Transactions: Transactions between the organization and its officers, directors, or key employees should be carefully scrutinized to ensure that they are fair and transparent.
• Lack of Transparency: A reluctance to provide information or answer questions may indicate that the organization is trying to hide something.

Conclusion

Form 990 is a powerful tool for understanding nonprofit finance and ensuring accountability. By learning how to find, access, and analyze Form 990, you can make informed decisions about which organizations to support and how to hold them accountable. So, dive in, explore the data, and become a more informed and engaged supporter of the nonprofit sector. Guys, understanding these forms helps make sure the non-profits are legit and doing good, right?