Reprinted with permission of The Berkshire Eagle
Most tax-exempt organizations that operate on the calendar fiscal year are expected to file their 2014 annual returns (IRS Forms 990) by May 15 this year.
Is your nonprofit organization ready to do it? Does your form accurately, if at all, describe the nonfinancial aspects of your nonprofit's operation such as governance, or fundraising? Has your form been reviewed by your board?
Asking and answering these questions is important not only because it ensures your organization's legal and financial compliance, but also because it changes your understanding of what that form and its schedules - if approached differently - can do for your organization.
Due to the text areas the Form 990 provides to describe your organization, the impact and practices, and the fact that most of your form is available for public review and scrutiny, filing is the single most powerful and public relations tool available to your nonprofit.
Let's look at some concrete examples to help you make the most out of filing your form:
When Do I File?
- According to the IRS, you must file your Form 990 by the 15th day of the fifth month after the end of your organization's fiscal year. For example, if your fiscal year ends on Dec. 31, you will be expected to file by May 15 of the following year; if it ends on Aug. 31 (like many Jewish organizations), the filing deadline will be by Jan. 15. People looking at your Form 990 can easily see if it was filed on time by looking at Line A on Page 1 and comparing it to the submission date indicated in the signature block. If the form was submitted on time, it projects an image of a reliable, professionally run organization. Isn't that what you want?
- From a legal standpoint, it is possible for an organization to file for two 90-day extensions (Section B on Page 1 of the form indicates if it is an initial return). While you may have really good reasons for taking advantage of one or both extensions, it may affect that "professionally-run-organization" perception that you want to project. From a public relations standpoint, use it cautiously, and don't make it a habit.
- Lines J and L on Page 1 allow you to fill in your organization's website and year of formation, respectively. All too often, though, those lines get neglected. If that happens, the potential for driving people to your website and managing their expectations based on the age of your organization remain unrealized.
- Part I, Line 1 on Page 1 allows for a brief description of the organization's mission or most significant activities. The entire second page, or Part III, allows for another brief description of the mission, and your three main programs with their accomplishments. All of these areas offer you a great opportunity to promote who you are, your main services and programs, the people you touch and the impact you can be proud of. Yet, these lines are most under utilized on the form - they are either not filled out at all, or the language is lacking.
- Page 6 (Part VI) of the form and the accompanying Schedule O provide a golden opportunity to let the world know how healthy and strong your organization and governance are so that you can inspire donors and other constituencies to invest in the organization.
Section A describes your governing body. Section B paints a good picture of the presence and use of the organization's four core policies (conflict of interest, whistleblower, document retention and destruction, and executive compensation). This section also explicitly asks the organizations if the complete copy of the Form 990 has been provided to all members of the governing body prior to filing it. Imagine my surprise when I see the same organization answering "no" to this question year-after-year.
In Schedule O you can provide descriptions of the processes and procedures associated with those policies and the governing body. Most organizations provide the bare minimum, thinking that they are just doing this for the Internal Revenue Service and not realizing that it may be perceived as a lack of transparency.
And, speaking of transparency, Section C along with Schedule O describe how an organization makes these documents - Form 990, financial statements, conflict of interest policy - available to the public. Most organizations choose "upon request" versus "own website" or "another website." While perfectly legal, how transparent is that really? Why not just post it on your website? Did you know that after filing your Form 990 with the IRS, you can also send a copy of it directly to GuideStar, one of the nonprofit world's watchdog organizations, to make it available to the public months before the IRS would? Guidestar can be found at www.guidestar.org.
- Pages 7 and 8 (Part VII) of the Form 990 deals with compensation of officers, directors, trustees, key employees, and highest compensated employees. This area can tell multiple stories - presence or lack of solid compensation policies, using nonprofit dollars responsibly or not, overpaying or underpaying your staff, etc.
The latter could be particularly difficult to deal with since people's opinions on the matter are formed by their personal experiences with compensation - a $100,000 annual salary will feel too high to someone who makes $50,000 and too low to someone who makes $150,000. This is where, once again, Schedule O offers a place to describe and explain anything related to Part VII, so don't pass it over.
Furthermore, if you are required to complete Schedule J, it will offer you additional opportunities to show organizational ethics; how employee compensation is determined (Line 3); and provides lots of space (Page 3) to offer any additional information.
- Schedule G - supplemental information regarding fundraising or gaming activities. If you are required to complete it, this section offers a new opportunity to promote the nonprofit's fundraising efforts.
In Part I, Line 1, you can describe various fundraising activities your organization engaged in. On Line 3, you have an opportunity - and an obligation - to list the states where the organization is registered to solicit contributions. Believe it or not, that line often stays completely empty. How do you think it makes your donors feel? Lastly, Part IV provides space for any additional information. Have you ever considered using it along with Schedule O to say thank you to your donors?
There are some nonprofits that qualify for filing shorter versions of the Form 990, such as the Form 990-N, or Form 990-EZ. For specific guidelines go to http://www.irs.gov/Charities-&-Non-Profits/Form-990-Series-Which-Forms-Do-Exempt-Organizations-File%3F-%28Filing-Phase-In%29. I would strongly encourage those organizations to consider filling out a regular Form 990 to take advantage of putting some information out there about the organization that otherwise would not be as available to the public. Please note, that even the IRS, in its guidelines, lists regular Form 990 to those organizations as a suitable alternative.
There are also nonprofits that are exempt from filing a Form 990. For a detailed list, go to http://www.irs.gov/Charities-&-Non-Profits/Annual-Exempt-Organization-Return:-Who-Must-File
My suggestion to those who are exempt is the same as it is for the others. The exemption, in this case, is a right, not an obligation. And while not filling it out might save you some time, the lost opportunity might be greater in marketing and public relations for the organization, board education, transparency and accountability.
Here are the links to the instructions for filing a 2014 Form 990 http://www.irs.gov/pub/irs-pdf/i990.pdf and to the actual form http://www.irs.gov/pub/irs-pdf/f990.pdf