Form 990

What Is Form 990?

Form 990, officially known as the "Return of Organization Exempt From Income Tax," is an annual informational return that most Tax-Exempt Organizations must file with the Internal Revenue Service (IRS) in the United States. This document falls under the broader category of Tax Compliance for nonprofit entities, providing a comprehensive overview of a Nonprofit Organization's activities, financial health, and Governance. Unlike a traditional income tax return, Form 990 primarily serves as a transparency and accountability tool, as tax-exempt organizations generally do not pay federal income taxes⁶¹, ⁶². It outlines details such as revenues, expenses, Assets, and Liabilities, offering insights into how the organization utilizes its resources to achieve its mission⁵⁹, ⁶⁰.

History and Origin

The requirement for tax-exempt organizations to file Form 990 dates back to the tax year ending in 1941, initially as a concise two-page document⁵⁸. Its introduction marked a significant step in providing oversight for organizations operating with tax-exempt status. Early versions required detailed schedules, including lists of highly compensated individuals and significant donors⁵⁷. Over the decades, Form 990 has undergone several revisions to enhance transparency and accountability, particularly following legislative changes like the Pension Protection Act of 2006, which expanded reporting requirements and mandated public inspection of Forms 990-T for 501(c)(3) organizations⁵⁵, ⁵⁶. The form evolved from a simple reporting tool to a comprehensive disclosure document, reflecting growing public and governmental interest in the operations and financial stewardship of the nonprofit sector⁵⁴.

Key Takeaways

• Form 990 is an annual information return filed by most tax-exempt organizations with the IRS.
• It serves as a public document, providing transparency into a nonprofit's financials, activities, and governance.⁵¹, ⁵², ⁵³
• The form helps the IRS ensure compliance with tax-exempt status requirements and provides data for public scrutiny.⁵⁰
• Organizations must file Form 990 by the 15th day of the fifth month after their fiscal year-end.⁴⁸, ⁴⁹
• Multiple versions of Form 990 exist, with filing requirements dependent on the organization's gross receipts and total assets.⁴⁶, ⁴⁷

Interpreting the Form 990

Interpreting the Form 990 provides stakeholders with a valuable window into a nonprofit's operations. The document goes beyond basic Financial Statements like the Balance Sheet and Income Statement, offering narrative sections that describe the organization's mission and its most significant program accomplishments⁴³, ⁴⁴, ⁴⁵. Users can examine revenue sources, expenditure categories (such as program services, management, and fundraising), and compensation of key employees and board members⁴¹, ⁴². This information allows potential donors to conduct Due Diligence, assessing the organization's financial efficiency and whether its spending aligns with its stated mission³⁹, ⁴⁰. Regulators also utilize Form 990 to monitor compliance and prevent potential abuses of tax-exempt status³⁸.

Hypothetical Example

Consider "Hope & Horizons," a hypothetical Public Charity dedicated to providing educational resources for underprivileged youth. At the end of its fiscal year, Hope & Horizons reviews its financial data to prepare its Form 990.

• Part I: Summary: The organization reports its mission and a brief snapshot of its total revenues, expenses, and net assets. For instance, it might show $1,500,000 in total revenue and $1,200,000 in total expenses for the year, resulting in a $300,000 increase in net assets.
• Part III: Statement of Program Service Accomplishments: Hope & Horizons details its key programs, such as "After-School Tutoring" and "Summer STEM Camps," describing the specific services provided and the number of beneficiaries served. This section might include a narrative explaining how 500 students received free tutoring, leading to an average 15% improvement in their math scores.
• Part VII: Compensation of Officers, Directors, Trustees, Key Employees, Highest Compensated Employees: The form lists the salaries of its executive director and other highly compensated staff, as well as indicating that its board members serve without compensation. For example, the executive director's compensation of $120,000 would be disclosed here.
• Part VIII: Statement of Revenue: The organization breaks down its Gross Receipts by source, showing amounts received from individual contributions, government grants, and program service revenue.
• Part IX: Statement of Functional Expenses: Hope & Horizons allocates its expenses across program services, management and general, and fundraising categories. This part might show that 80% of expenses were directly tied to program services, demonstrating efficient use of funds for its mission.

By completing Form 990, Hope & Horizons transparently communicates its financial health and impact to the IRS and the public, reinforcing donor trust and ensuring regulatory compliance.

Practical Applications

Form 990 is a cornerstone of transparency in the nonprofit sector, serving multiple practical applications for various stakeholders. For potential donors, it offers critical information for evaluating an organization's financial health, efficiency, and how contributions are utilized, directly influencing Philanthropy decisions³⁷. Grantmakers and foundations frequently require a copy of an applicant's Form 990 as part of their application process to assess financial stability and alignment with their funding priorities³⁶. Researchers and journalists use the publicly available data from Forms 990 to analyze trends in the nonprofit sector, study economic impacts, and conduct investigative reporting³⁴, ³⁵. Furthermore, state charity regulators often require the Form 990, along with supplemental reports, to oversee charitable solicitation and ensure compliance with state-specific regulations³³. The IRS also publishes data derived from Form 990 filings, making it a valuable resource for public analysis and oversight of tax-exempt entities.

Limitations and Criticisms

Despite its vital role in transparency, Form 990 has certain limitations and has faced criticisms. One significant drawback is the potential for delays in the IRS processing and public release of the forms, which can result in a significant lag between when a nonprofit files its return and when the data becomes publicly accessible³¹, ³². This delay can limit the timeliness of the information for those seeking current insights into an organization's financial state. Additionally, while comprehensive, Form 990 primarily focuses on financial data and may not fully capture the qualitative aspects of a nonprofit's impact, services, or the specific populations it serves²⁹, ³⁰.

Another criticism is that the data, though publicly available, can be complex to interpret without a strong understanding of nonprofit accounting and the various schedules attached to the form²⁷, ²⁸. For example, the form may not clearly differentiate between restricted and unrestricted revenue, potentially leading to a misleading picture of an organization's operating liquidity if a significant portion of its reported Assets are donor-restricted funds²⁶. While many organizations also provide Audited Financial Statements, these are not always publicly available, making the Form 990 the primary source of financial scrutiny for many²⁵. Researchers have also noted that self-reported information on Form 990 may have inconsistencies, which can impact studies relying on this data²⁴.

Form 990 vs. Form 990-EZ

Form 990 and Form 990-EZ are both informational tax returns filed by tax-exempt organizations with the IRS, but they differ significantly in their scope and the organizations eligible to file them. Form 990 is the standard, longer version, comprising 12 parts and requiring extensive financial reporting and organizational details²², ²³. It is generally required for organizations with Gross Receipts of $200,000 or more, or total assets of $500,000 or more¹⁹, ²⁰, ²¹.

In contrast, Form 990-EZ is a shortened, simplified version designed for smaller tax-exempt organizations¹⁷, ¹⁸. It has only six parts and requires less detailed information and fewer supplemental schedules¹⁵, ¹⁶. Organizations are eligible to file Form 990-EZ if their gross receipts are less than $200,000 and their total assets are less than $500,000 at the end of the tax year¹², ¹³, ¹⁴. While an organization eligible for Form 990-EZ may choose to file the full Form 990 to provide more detailed financial information for transparency or funder requirements, the reverse is not true; organizations exceeding the 990-EZ thresholds must file Form 990¹⁰, ¹¹.

FAQs

Q1: Who is required to file Form 990?

Most Tax-Exempt Organizations recognized by the IRS, including Public Charity and Private Foundation classifications, are required to file Form 990 or one of its variations annually⁹. Exceptions exist for certain organizations like churches and some governmental instrumentalities⁸.

Q2: Is Form 990 publicly available?

Yes, Form 990 is a public document. The IRS mandates that nonprofits make their three most recent Forms 990 publicly available, and they can often be found on the organization's website, the IRS website, or through nonprofit data platforms like Candid (formerly GuideStar) and Charity Navigator⁶, ⁷.

Q3: What kind of information is included in Form 990?

Form 990 provides detailed information on an organization's mission, significant activities, financial data (revenues, expenses, assets, liabilities), Governance structure, compensation of officers and key employees, and fundraising efforts³, ⁴, ⁵. It also includes various schedules providing additional details on specific areas, such as grants made or related organizations¹, ².