Getting Ready to Submit Your Form 990? Don’t Forget These Tips.

For most people, springtime heralds the beginning of tax season and its time-consuming filing responsibilities. Now imagine that your tax information is public record—anyone who is interested can easily access the financial, governance, executive compensation and operational details of your organization.

That is what Form 990 represents for nonprofits and higher education institutions. Form 990—Return of Organization Exempt From Income Tax—is a comprehensive information request that goes beyond just the financial details of nonprofit and higher education institutions. It is intended to provide the IRS with enough information to confirm an organization is operating in accordance with its mission and tax-exempt status.
If an organization files an incomplete return, does not file a required return or files late, the IRS may assess penalties. Organizations that do not file for three consecutive years will automatically lose tax-exempt status. Since Form 990 must be made available for public inspection, any member of the public who requests a copy of the form from the organization must be provided one. Forms 990 are also available online via the IRS website, and many entities choose to post their Forms 990 on their own websites.
All these factors mean that while the 990 may appear to be a tax form like any other, it is vital to the reputation and wellbeing of an organization.

Here are some key considerations for this filing season.

No Deadline Extension

Typically, organizations must file Form 990 by the 15th day of the 5th month following the end of the organization's taxable year. For organizations operating on a calendar year basis, Form 990 is due on May 15 of the following year. However, organizations can file for an automatic six-month extension if needed, using IRS Form 8868.

In 2020, the IRS extended the original May 15 deadline to July 15 as a result of the COVID-19 pandemic. While the IRS has announced an extension for individual taxpayers for this year, it has yet to adjust the deadline for Form 990. This means that if an organization with a May 15 deadline needs more time to complete Form 990, it will need to file for an extension.  

COVID-19 Impact

The pandemic undoubtedly impacted all nonprofit organizations, including their fundraising efforts and donation levels. Some organizations involved in combatting the effects of COVID-19 saw a spike in revenues, while others reported significant drop-offs in funding. It’s likely that these scenarios will be reflected within an organization’s Form 990.

Nonprofits and higher education institutions may not have considered how—or if—they need to report funding received via relief programs included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act and other pieces of legislation. For example, many nonprofits took advantage of the employee retention credit (ERC) included as part of the CARES Act. While this credit provided a much-needed lift to struggling organizations, it does not need to be highlighted within the 990 itself, as it is considered an employment tax expense rather than revenue. You can read more about this credit and how nonprofits can benefit from it in our recent blog “CARES Act Employee Retention Credits for Nonprofit Employers.”

Executive Compensation

Executive compensation is typically among the most controversial pieces of information coming out of an organization’s Form 990. Given that many organizations had to furlough or lay off employees as a result of the pandemic, scrutiny of executive compensation will likely be magnified even further this year. Organizations should consider proactively addressing these concerns in Part VII and Schedule J of Form 990.

Nonprofits also should consider that it is not a matter of whether they will get questions regarding compensation practices; it’s a matter of when. Thus, they should ensure they have designated spokespeople who are ready with approved messaging around why compensation is structured as it is. These points should connect compensation to the type of organization and its mission. A large nonprofit healthcare system, for example, may have thousands of employees and serve thousands of patients. Securing effective leadership for an organization of that size and scope requires competitive compensation.

How to Make the Most of Your Form 990

When it comes to optimizing your Form 990, the best practice is to ensure you’re thinking about it as more than just a document for the IRS. It is one of the best opportunities an organization has to tell its story to government regulators, media, charity watchdog groups and donors.
As such, it is critical that the organization tell the best story it possibly can within the confines of the form. Organizations should ensure that the information they include in Form 990 clearly details the depth and scope of its work. One way to achieve this goal is to have the organization’s marketing or communications department review and edit messaging in the portions of the 990 that highlight its programs and their impact.
Another often-overlooked storytelling opportunity regarding Form 990 is to ensure that the messaging the organization is using within the form itself is consistent across all external platforms and materials, including the company’s website, social media accounts, annual reports and more. It is important to align these channels because the IRS monitors these platforms to ensure organizations are operating in accordance with their mission and tax-exempt status.
Although completing Form 990 can be an intimidating task, every organization should be prepared to outline its own financials, programmatic achievements, executive compensation and governance policies. Keeping these tips in mind will help you create a document that best reflects the organization and its values to the IRS and other stakeholders.
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