What Is a 990 Form? Your Complete Guide

What Is A 990 Form? It’s an essential document for tax-exempt organizations, and WHAT.EDU.VN is here to demystify it for you. We provide a clear explanation, its purpose, and why it matters. Understand nonprofit compliance and annual filings with expert insights, ensuring transparency and accountability for your organization.

1. Understanding the Basics of Form 990

Form 990 is an information return that most tax-exempt organizations in the United States must file annually with the Internal Revenue Service (IRS). It’s not a tax return in the traditional sense, as these organizations are generally exempt from federal income tax. Instead, Form 990 provides the IRS and the public with a comprehensive overview of the organization’s activities, finances, and governance. This information is crucial for ensuring transparency and accountability within the nonprofit sector. The IRS uses Form 990 to assess an organization’s compliance with tax laws and regulations, while the public can use it to evaluate the organization’s performance and impact.

1.1. What is the Purpose of Form 990?

The primary purpose of Form 990 is to provide the IRS with detailed information about a tax-exempt organization’s operations. This includes:

Financial Information: Revenues, expenses, assets, and liabilities.
Program Service Accomplishments: A description of the organization’s activities and their impact.
Compensation of Officers, Directors, and Key Employees: Details on salaries and benefits paid to top leadership.
Lobbying and Political Activities: Disclosure of any involvement in political campaigns or lobbying efforts.
Relationships with Other Organizations: Information on related entities and transactions.
Governance and Management Practices: Policies and procedures related to board oversight and internal controls.

By collecting this information, the IRS can monitor tax-exempt organizations and ensure they are operating in accordance with their stated mission and purpose. The public availability of Form 990 also promotes transparency and allows donors, stakeholders, and watchdogs to assess the organization’s effectiveness and financial health.

1.2. Who is Required to File Form 990?

Most tax-exempt organizations recognized under Section 501(c) of the Internal Revenue Code are required to file Form 990 annually. This includes a wide range of organizations, such as:

Charities: Organizations dedicated to charitable, religious, educational, scientific, or literary purposes.
Private Foundations: Nonprofits that receive their funding from a small number of sources, such as individuals or corporations.
Social Welfare Organizations: Groups that promote social welfare, such as civic leagues and homeowner associations.
Labor Unions: Organizations representing workers in collective bargaining.
Trade Associations: Groups that represent businesses in a particular industry.

However, there are some exceptions to the filing requirement. For example, organizations with gross receipts of less than $50,000 and assets of less than $100,000 may be eligible to file Form 990-N (e-Postcard), a simplified version of Form 990. Religious organizations, such as churches and mosques, are also generally exempt from filing Form 990.

1.3. Different Versions of Form 990

There are several versions of Form 990, each designed for specific types and sizes of tax-exempt organizations. The most common versions include:

Form 990: The standard form for most large tax-exempt organizations.
Form 990-EZ: A simplified version of Form 990 for smaller organizations with gross receipts of less than $200,000 and assets of less than $500,000.
Form 990-N (e-Postcard): A very short online form for the smallest organizations with gross receipts of less than $50,000.
Form 990-PF: For private foundations, providing detailed information about their financial activities and grantmaking.

The choice of which form to file depends on the organization’s size, structure, and activities. Organizations should consult the IRS instructions for each form to determine the appropriate filing requirements.

2. Key Sections of Form 990

Form 990 is a comprehensive document with multiple sections, each designed to capture specific information about the organization. Understanding these key sections is crucial for both filing the form accurately and interpreting the information it contains.

2.1. Part I: Summary

Part I provides a brief overview of the organization’s activities and financial data. It includes key information such as:

Organization’s name and address
Mission statement or a brief description of the organization’s mission
Primary exempt purpose
Number of employees and volunteers
Gross receipts and total assets
Statement of program service accomplishments

This section offers a snapshot of the organization and its activities, allowing readers to quickly grasp its purpose and scope.

2.2. Part III: Statement of Program Service Accomplishments

This section is where the organization describes its program service accomplishments for the year. It requires a clear and concise explanation of:

The organization’s three largest program services
The specific goals or objectives of each program
The activities undertaken to achieve those goals
The number of people served
The expenses related to each program

This section is crucial for demonstrating the organization’s impact and how it is fulfilling its exempt purpose.

2.3. Part VI: Governance, Management, and Disclosure

Part VI focuses on the organization’s governance and management practices. It asks a series of questions about:

The composition and independence of the board of directors
The existence of written policies on conflicts of interest, whistleblower protection, and document retention
The process for determining the compensation of the organization’s top executives
The availability of the organization’s governing documents and financial statements to the public

This section provides insights into the organization’s internal controls and ethical standards.

2.4. Part VII: Compensation of Officers, Directors, Trustees, Key Employees, Highest Compensated Employees, and Independent Contractors

This section requires the organization to disclose the compensation paid to its officers, directors, trustees, key employees, and highest compensated employees. It includes information on:

Salaries and wages
Bonuses and incentive compensation
Deferred compensation
Benefits and other allowances

This section is often scrutinized by the public and the media, as it provides transparency into the financial rewards of those who lead the organization.

2.5. Schedules

In addition to the main body of Form 990, there are several schedules that may need to be completed depending on the organization’s activities. Some of the most common schedules include:

Schedule A: Public Charity Status and Public Support – Used to determine whether the organization qualifies as a public charity.
Schedule B: Schedule of Contributors – Lists the names and addresses of substantial contributors to the organization.
Schedule C: Political Campaign and Lobbying Activities – Details any involvement in political campaigns or lobbying efforts.
Schedule D: Supplemental Financial Statements – Provides additional information on specific financial items, such as investments and fundraising activities.
Schedule O: Supplemental Information to Form 990 – Used to provide explanations or additional details on any section of Form 990.

The schedules provide more granular information on specific aspects of the organization’s operations.

3. Filing Requirements and Deadlines

Understanding the filing requirements and deadlines for Form 990 is crucial for tax-exempt organizations to avoid penalties and maintain their tax-exempt status.

3.1. When is Form 990 Due?

Form 990 is due on the 15th day of the fifth month after the end of the organization’s accounting period. For organizations that follow a calendar year, the due date is typically May 15th. However, if the due date falls on a Saturday, Sunday, or legal holiday, the deadline is extended to the next business day.

3.2. How to File Form 990

Form 990 can be filed electronically through an IRS-approved e-file provider. The IRS encourages electronic filing, as it reduces processing time and errors. However, some smaller organizations may be eligible to file a paper version of the form.

3.3. Penalties for Late Filing or Non-Filing

Failure to file Form 990 on time or filing an incomplete or inaccurate return can result in significant penalties. The penalties vary depending on the size of the organization and the length of the delay. For example, the penalty for late filing can range from $20 per day for organizations with gross receipts of less than $1 million to $100 per day for larger organizations. In addition, the IRS can revoke an organization’s tax-exempt status for repeated failures to file Form 990.

3.4. Extensions

Organizations can request an automatic six-month extension to file Form 990 by submitting Form 8868, Application for Extension of Time To File an Exempt Organization Return. The extension must be filed on or before the original due date of the return.

4. Public Disclosure of Form 990

One of the key features of Form 990 is its public availability. This transparency is intended to promote accountability and allow donors, stakeholders, and the public to assess the organization’s operations and financial health.

4.1. Why is Form 990 Publicly Available?

The public disclosure of Form 990 is based on the principle that tax-exempt organizations are supported by the public and should be accountable to the public. By making Form 990 available, the IRS aims to:

Promote transparency and accountability in the nonprofit sector
Enable donors to make informed decisions about which organizations to support
Allow stakeholders to monitor the activities and financial performance of tax-exempt organizations
Provide watchdogs and the media with information to identify potential fraud or abuse

4.2. Where Can You Find Form 990?

Form 990 is publicly available from several sources, including:

IRS Website: The IRS provides access to Form 990 filings through its Tax Exempt Organization Search tool.
Guidestar: Guidestar is a leading online database of nonprofit information, including Form 990 filings.
Foundation Center: The Foundation Center also provides access to Form 990 filings, particularly for private foundations.
The Organization Itself: Tax-exempt organizations are required to make their Form 990 filings available for public inspection upon request.

4.3. What Information is Not Publicly Disclosed?

While most of the information on Form 990 is publicly disclosed, there are some exceptions to protect the privacy of donors and other individuals. For example, Schedule B, which lists the names and addresses of substantial contributors, is generally not available for public inspection. However, the IRS may release Schedule B in certain circumstances, such as in response to a Freedom of Information Act (FOIA) request.

5. How to Read and Interpret Form 990

Form 990 can be a complex document to read and interpret. However, understanding the key sections and financial metrics can provide valuable insights into the organization’s operations and financial health.

5.1. Understanding Key Financial Metrics

Several key financial metrics can be derived from Form 990, including:

Revenue: Total income received by the organization from all sources, including contributions, grants, program service revenue, and investment income.
Expenses: Total expenses incurred by the organization, including program service expenses, administrative expenses, and fundraising expenses.
Net Assets: The difference between the organization’s assets and liabilities, representing its net worth.
Program Service Expenses Ratio: The percentage of total expenses that are spent on program services, indicating the organization’s efficiency in fulfilling its mission.
Fundraising Efficiency Ratio: The percentage of contributions that are used for fundraising expenses, indicating the organization’s efficiency in raising money.
Executive Compensation: The compensation paid to the organization’s top executives, providing transparency into the financial rewards of leadership.

By analyzing these metrics, donors and stakeholders can assess the organization’s financial performance and efficiency.

5.2. Assessing Program Effectiveness

In addition to financial metrics, Form 990 provides information on the organization’s program service accomplishments. By reviewing Part III of Form 990, readers can assess the organization’s effectiveness in achieving its mission. Key factors to consider include:

The clarity and specificity of the organization’s goals and objectives
The activities undertaken to achieve those goals
The number of people served
The evidence of impact or outcomes

5.3. Red Flags to Watch Out For

While Form 990 provides valuable information, it’s important to be aware of potential red flags that may indicate problems within the organization. Some common red flags include:

High executive compensation relative to the organization’s size and activities
Excessive fundraising expenses
A low program service expenses ratio
Related-party transactions that benefit insiders
A lack of transparency or disclosure

If you notice any of these red flags, it’s important to investigate further and consider whether the organization is operating ethically and effectively.

6. Common Mistakes to Avoid When Filing Form 990

Filing Form 990 accurately and completely is crucial for tax-exempt organizations to maintain their tax-exempt status and avoid penalties. However, the form can be complex and confusing, and many organizations make common mistakes.

6.1. Incorrectly Determining Which Form to File

One of the most common mistakes is incorrectly determining which version of Form 990 to file. Organizations should carefully review the IRS instructions for each form and consider their size, structure, and activities to determine the appropriate filing requirements. Filing the wrong form can result in delays, penalties, and even revocation of tax-exempt status.

6.2. Missing Schedules

Another common mistake is failing to complete all required schedules. The schedules provide more granular information on specific aspects of the organization’s operations, and missing them can result in an incomplete and inaccurate return. Organizations should carefully review the instructions for Form 990 and identify all schedules that are applicable to their activities.

6.3. Inaccurate Financial Reporting

Accurate financial reporting is essential for Form 990. Organizations should ensure that their financial data is complete, accurate, and consistent with their accounting records. Common mistakes include:

Misclassifying revenue or expenses
Failing to report all assets and liabilities
Using incorrect accounting methods

6.4. Inadequate Description of Program Service Accomplishments

The description of program service accomplishments in Part III of Form 990 is crucial for demonstrating the organization’s impact and how it is fulfilling its exempt purpose. Organizations should provide a clear and concise explanation of their activities, goals, and outcomes. Common mistakes include:

Providing vague or general descriptions
Failing to quantify the number of people served
Not providing evidence of impact or outcomes

6.5. Failure to Disclose Conflicts of Interest

Transparency and disclosure are essential for tax-exempt organizations. Organizations should disclose any conflicts of interest involving their officers, directors, or key employees. Common mistakes include:

Failing to identify potential conflicts of interest
Not disclosing related-party transactions
Not having a written conflict of interest policy

7. Form 990-N (e-Postcard)

Form 990-N, also known as the e-Postcard, is a simplified version of Form 990 for small tax-exempt organizations. It’s designed to reduce the reporting burden for organizations with limited resources.

7.1. Who is Eligible to File Form 990-N?

Organizations with gross receipts of less than $50,000 are generally eligible to file Form 990-N. However, there are some exceptions. For example, organizations that are required to file Form 990 or Form 990-EZ are not eligible to file Form 990-N.

7.2. What Information is Required on Form 990-N?

Form 990-N requires minimal information, including:

Organization’s name and address
Employer Identification Number (EIN)
Name and address of a principal officer
Confirmation that the organization’s gross receipts are less than $50,000
Website address, if applicable

7.3. How to File Form 990-N

Form 990-N must be filed electronically through the IRS website. There is no paper version of the form.

7.4. Consequences of Failing to File Form 990-N

Failure to file Form 990-N for three consecutive years can result in the automatic revocation of an organization’s tax-exempt status.

8. Resources for Filing Form 990

Filing Form 990 can be a challenging task, but there are many resources available to help tax-exempt organizations comply with their reporting requirements.

8.1. IRS Publications and Instructions

The IRS provides numerous publications and instructions on Form 990 and other tax-related topics. These resources include:

Instructions for Form 990
Publication 557, Tax-Exempt Status for Your Organization
Publication 4221, Compliance Guide for 501(c)(3) Public Charities
StayExempt.irs.gov – An online resource with interactive training and educational materials

8.2. Professional Assistance

Many tax-exempt organizations seek professional assistance from accountants, attorneys, or consultants to help them file Form 990. These professionals can provide expert guidance on complex tax issues and ensure that the organization is in compliance with all applicable laws and regulations.

8.3. Online Resources and Software

Numerous online resources and software programs can assist organizations in filing Form 990. These tools can help automate the filing process, reduce errors, and ensure compliance with IRS requirements.

9. Understanding the Impact of Form 990 on Donors

Form 990 plays a crucial role in informing donors about the organizations they support. It provides transparency and accountability, allowing donors to make informed decisions about their charitable giving.

9.1. How Donors Use Form 990

Donors use Form 990 to assess an organization’s:

Financial Health: Donors review the organization’s revenue, expenses, assets, and liabilities to determine its financial stability and sustainability.
Program Effectiveness: Donors evaluate the organization’s program service accomplishments to determine its impact and effectiveness in achieving its mission.
Efficiency: Donors analyze the organization’s program service expenses ratio and fundraising efficiency ratio to determine how efficiently it is using its resources.
Governance and Management: Donors assess the organization’s governance and management practices to determine its ethical standards and internal controls.

9.2. Factors Donors Consider

When reviewing Form 990, donors often consider the following factors:

Mission Alignment: Does the organization’s mission align with the donor’s values and priorities?
Impact: Is the organization making a meaningful difference in the community or the world?
Financial Stability: Is the organization financially stable and sustainable?
Efficiency: Is the organization using its resources efficiently and effectively?
Transparency: Is the organization transparent and accountable in its operations?

9.3. Making Informed Giving Decisions

By reviewing Form 990, donors can make informed giving decisions and support organizations that are aligned with their values and priorities.

10. The Future of Form 990

Form 990 is an evolving document, and the IRS is constantly making changes to improve its effectiveness and transparency.

10.1. Recent Changes to Form 990

In recent years, the IRS has made several changes to Form 990, including:

Adding new schedules to collect more detailed information on specific topics
Revising the instructions to provide clearer guidance to organizations
Enhancing the electronic filing system to improve efficiency and accuracy

10.2. Future Trends and Developments

Looking ahead, several trends and developments are likely to shape the future of Form 990, including:

Increased emphasis on transparency and accountability
Greater use of technology to improve data collection and analysis
Enhanced enforcement of compliance requirements

10.3. Staying Informed

Tax-exempt organizations should stay informed about the latest changes to Form 990 and other tax-related topics by:

Monitoring IRS publications and announcements
Attending professional conferences and workshops
Consulting with qualified tax professionals

FAQ: Common Questions About Form 990

Here are some frequently asked questions about Form 990:

Question	Answer
What is the difference between Form 990 and Form 990-EZ?	Form 990-EZ is a simplified version of Form 990 for smaller organizations with gross receipts of less than $200,000 and assets of less than $500,000. Form 990 is for larger organizations.
What is Form 990-N (e-Postcard)?	Form 990-N is a very short online form for the smallest organizations with gross receipts of less than $50,000.
Where can I find a copy of an organization’s Form 990?	You can find Form 990 filings on the IRS website, Guidestar, and the Foundation Center. Tax-exempt organizations are also required to make their Form 990 filings available for public inspection upon request.
What happens if an organization fails to file Form 990 on time?	Failure to file Form 990 on time can result in significant penalties and even the revocation of an organization’s tax-exempt status.
What are some common mistakes to avoid when filing Form 990?	Common mistakes include incorrectly determining which form to file, missing schedules, inaccurate financial reporting, inadequate description of program service accomplishments, and failure to disclose conflicts of interest.
How can donors use Form 990 to make informed giving decisions?	Donors can use Form 990 to assess an organization’s financial health, program effectiveness, efficiency, and governance and management practices.
What is the program service expenses ratio?	The program service expenses ratio is the percentage of total expenses that are spent on program services, indicating the organization’s efficiency in fulfilling its mission.
What is the fundraising efficiency ratio?	The fundraising efficiency ratio is the percentage of contributions that are used for fundraising expenses, indicating the organization’s efficiency in raising money.
What are some red flags to watch out for when reviewing Form 990?	Some common red flags include high executive compensation, excessive fundraising expenses, a low program service expenses ratio, related-party transactions, and a lack of transparency.
Where can I find resources to help me file Form 990?	The IRS provides numerous publications and instructions on Form 990. You can also seek professional assistance from accountants, attorneys, or consultants. Numerous online resources and software programs can also assist you in filing Form 990.

Form 990 is a critical tool for transparency and accountability in the nonprofit sector. By understanding the basics of Form 990, its key sections, and filing requirements, tax-exempt organizations can ensure compliance with IRS regulations and maintain their tax-exempt status.

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