Just the thought of an IRS form can bring out the clouds
on a sunny day. But now that this annually required nonprofit form is
on the web for everyone to see (at GuideStar.org), it goes beyond compliance to being an important way to tell your organization's story.
Federal Form 990 from the Internal Revenue Service (IRS) is like a tax
return for nonprofits, but since we are tax-exempt, it's called an
"information return."
You may have heard by now that the IRS Form 990 has been
substantially revised for the fiscal years beginning in 2008 and in the
future. The issues disclosed on the form that especially interest the
media, potential donors, and the general public still include executive
compensation and overhead costs, but with this revised form, the IRS
has entered the territory of "good governance" as well.
In fact, in a speech this week,
IRS Commissioner Steve T. Miller said, "We have pushed to require [new]
reporting on how organizations are managed. The crown jewel of this
effort is the governance section of the revised Form 990, effective for
[tax years beginning in] 2008." This broader IRS scrutiny means that
board members and executives of community nonprofits should feel even
more urgency to review and understand what's being submitted each year.
Here, very briefly, are six things that you should know about the
revised nonprofit tax return. You can find all the details about these
and other changes -- and download forms -- at www.irs.gov/charities.
1. Your organization's 990 is due 4 and one-half
months after the close of your fiscal year: if your fiscal year ends
June 30 your 990 is due on November 15; if your fiscal year ends
December 31 it s due May 15, and so on. It is very common to obtain an
extension of time to file by submitting Form 8868, so that you can use
your final audit numbers in completing the Form 990. Our
recommendation: the Board Chair should review and sign the 990, and
copies should be given to each board member. P.S. The penalties are
substantial so be sure either to get it in on time or to request an
extension by the filing date.
2. It used to be that most small tax-exempt organizations -- those
with annual gross receipts below $25,000 -- didn't have to file the 990
annually, but now every year they must file the new Form 990-N, "Electronic Notice (e-Postcard) for Tax-Exempt Organizations Not Required to File Form 990 or 990-EZ." This "proof of life" form will allow for a much more accurate count of nonprofits and what we do.
3. Part III of the new 990 is an expanded Program Service Accomplishments
section that requires you to describe your three largest programs, how
much you spent on each of them in the prior year, and even whether you
discontinued any core programs since your last filing. Our
recommendation: don't just let your auditor or bookkeeper complete this
section as a routine task. This is a key opportunity to tell the story
of your organization's impact to the world: make full use of it.
4. A new section is Part VI of the revised form Governance, Management, and Disclosure that
asks about the organization's board structure, policies, and practices.
Examples: whether your organization has a conflict of interest policy,
whether it posts its 990 on its website, and whether there was an
annual compensation review for the executive director and other key
employees that included a review by independent persons, the use of
comparable salary data, other factors.
5. The expanded scrutiny of employee, director, and contractor compensation
requires that full compensation be disclosed for all key employees and
current board members. It also asks whether the organization paid a former
board member or key employee more than $100,000 in the prior year. And,
the organization must disclose its five highest paid employees and
independent contractors making more than $100,000.
6. Part IX, the Statement of Functional Expenses,
is still the place readers will find out how much of every dollar your
organization spent last year on your non-program activities:
fundraising and management. It is important not to overstate these
overhead costs due to poor accounting allocation methods. We recommend:
Board members should ensure that finance staff or contractors have
appropriately classified both direct and shared costs across the core
functions of the organization.
The IRS is allowing for a rolling adoption
of the new form depending on current organizational revenue and asset
size. Again, be sure to check the directions and download blank forms
at www.irs.gov/charities.
See also: Is It Time to Get an Audit?
Jeanne Bell is CEO
of CompassPoint Nonprofit Services and a nationally recognized
researcher and writer on nonprofit finance, executive transition, and
other issues.
Editor's note: Starting in January 2009 we'll be having a
series on board policy documents with model templates including
conflict of interest policy, bylaws, whistleblower policy, document
retention policy, ethics policy, and more. Stay tuned to your Inbox!