The new 990 will make your board work harder

On Jan. 10, 2009, I attended a seminar sponsored by the Staten Island branch of SCORE about the new 990 tax form. The 990 is the main income-tax form for non-profit organizations: If you’re an individual, you fill in a 1040; if you’re a non-profit, you fill in a 990. Unlike 1040 forms, however, 990s are public documents and are posted on state websites and on sites such as GuideStar and the Foundation Center, which help the public review and select organizations to which they may want to donate money.

The new 990 contains provisions that should lead to greater transparency but, of course, also create more work for your board. Your accountant is probably already familiar with the changes. However, he or she won’t be able to help you with them since most are not financial or accounting changes. Rather, they are governance and oversight changes that may require your board to create new documents.

The changes are related to the 33 principles agreed upon by the Independent Sector and described in the book Principles for Good Governance and Ethical Practice: A Guide for Charities and Foundations, available both as a download and in print (see http://nonprofitpanel.org/).

Here is a quick summary of changes that your board may have to address before the end of your fiscal year (990s are due on the fifteenth day of the fifth month after the last day of the fiscal year):

  • In Part VI, Section A, question 10: Did your board review the 990 before it was filed? What process did the board use to review the form? The process has to be described in Schedule O.
  • In Part VI, Section B, question 12: The IRS wants to know if your organization has a written conflict of interest policy.
  • In Part VI, Section B, question 13: Does your organization have a whistleblower policy—in other words, policies and procedures that enable individuals to come forward with information on illegal practices or violations of organizational policies? This policy should specify that the organization will not retaliate against, and will protect the confidentially of, individuals who make good-faith reports.
  • In Part VI, Section B, question 14: Does your organization have a written document retention and destruction policy?
  • In Part VI, Section C, question 18: The IRS wants charitable organizations to make information about its operations, including its governance, finances, programs, and activities, widely available to the public. The 990 lets you indicate how you make this information available: on your own website, on another website (Guidestar, for example), or upon request (at your office or via mail within 14 days, for example). Suggestion: Post the 990 on your own website if at all possible. However, make sure that you don’t include Social Security numbers, home addresses, or other private information anywhere in the materials you post. As one organization found out to its dismay, once a 990 is sent to the state or IRS, there’s no way to take it back and remove the board members’ Social Security numbers.

Maria Bianco, an IRS revenue agent who spoke at the session, pointed out that your organization won’t be penalized if you don’t have, say, a whistleblower’s policy. However, as more non-profits make these documents available, donors might start to question organizations that don’t have them.

Principles for Good Governance and Ethical Practice also lists other principles that boards should consider, although they are not included in the 990 form. I’ve highlighted a few that may be new to some boards:

11. The board of a charitable organization should include members with the diverse background (including, but not limited to, ethnic, racial, and gender perspectives), experience, and organizational and financial skills necessary to advance the organization’s mission.
16. Board members should evaluate their performance as a group and as individuals no less frequently than every three years, and should have clear procedures for removing board members who are unable to fulfill their responsibilities.
17. The board should establish clear policies and procedures setting the length of terms and the number of consecutive terms a board member may serve.
18. The board should review organizational and governing instruments no less frequently than every five years.
19. The board should establish and review regularly the organization’s mission and goals and should evaluate, no less frequently than every five years, the organization’s programs, goals and activities to be sure they advance its mission and make prudent use of its resources.
25. A charitable organization should establish clear, written policies for paying or reimbursing expenses incurred by anyone conducting business or traveling on behalf of the organization, including types of expenses that can be paid for or reimbursed and the documentation required. Such policies should require that travel on behalf of the organization is to be undertaken in a cost-effective manner.
32. A charitable organization should not compensate internal or external fundraisers based on a commission or a percentage of the amount raised.

The session also covered the Donor Bill of Rights, with which all board members should become familiar; maintaining your tax-exempt status (if you fail to file a 990 or 990-EZ for three years in a row, you may lose your status); and when gift shop or other sales become taxable “unrelated business income.” See the Links below for more information on these topics.

Links:

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3 Responses to “The new 990 will make your board work harder”

  1. livingthenonprofitlife Says:

    Two questions from a reader:

    1. I would imagine that orgs doing less than 250K annual budget come under less scrutiny??

    2. AND, why have edited 990 on our site when it available at the Foundation Center and Guidestar sites??

    Answer to #1: If your organization brings in less that $25K, you fill in Form 990-N; if between $25K and $100K, you can use Form 990 EZ; and if more than $100K, you have to use Form 990. My understanding is that 990-N and 990-EZ are much less stringent (for example, only 10 questions on 990-EZ). However, this is something I’d check with an accountant.

    Answer to #2: The reason to post the 990 on your own site is just public relations. You’re saying that you’re so above board that you’ve made your 990 available as soon as it was filed. (It takes at least a few months for GuideStar or the states to post 990s.)

  2. Lancine DIAKITE Says:

    When filling the 990 EZ for non-profit, their is so much information to submit but it is so compicated. It is not the same as the one I filed. What to do?

    • livingthenonprofitlife Says:

      Hi Lancine:

      Which version of the 990 did you fill in? If your organization’s income is $25,000 or less, you can use the 990-N, which is basically a postcard.

      The information requested for 990-N is

      * Employer identification number (EIN), also known as a Taxpayer Identification Number (TIN)).
      * Tax year
      * Legal name and mailing address
      * Any other names the organization uses
      * Name and address of a principal officer
      * Web site address if the organization has one
      * Confirmation that the organization’s annual gross receipts are normally $25,000 or less
      * If applicable, a statement that the organization has terminated or is terminating (going out of business)

      See http://www.irs.gov/charities/article/0,,id=169250,00.html for more information.

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