Preparation of Tax Form 990
The IRS Form 990 is an informational tax return required of many nonprofits. The IRS uses Form 990 returns as tools to monitor federal tax law compliance from tax-exempt organizations.
It is a public document—and therefore it is available for regulators and the public to review and scrutinize. Donors, grant recipients, media, and anyone interested in the nonprofit can use the 990 to evaluate the organization’s performance.
Tax-Exempt Organizations and SOX
In July 2002, the United States Congress enacted the Sarbanes-Oxley Act of 2002 in response to the high-level financial scandals of the early 2000s. The Sarbanes-Oxley Act of 2002 is intended to help protect investors and employees from fraudulent corporate financial practices.
Nonprofits are not public companies and are not required to comply with the Sarbanes-Oxley Act (SOX) in total. However, there are at least two sections of SOX that nonprofits are required to conform with. While the Act does not target tax-exempt organizations directly, nonprofits might consider adopting the outlined practices in full. One step toward applying the guidelines of SOX to nonprofits is the required annual Form 990.
“A charitable nonprofit’s Form 990 must be filed with the IRS on the 15th day of the 5th month after the close of the nonprofit’s fiscal year.”
– National Council of Nonprofits
With the informational Form 990, the IRS attempts to make tax-exempt organizations, charities, and foundations adhere to some of the requirements outlined in the Sarbanes-Oxley Act, to ensure the integrity of their financial reporting and to conduct their business consistent with their responsibilities.
IRS Form 990 For Transparency And Accountability
Form 990 is a public document—meaning it is available for public inspection and can be seen as an opportunity to display the accomplishments of the nonprofit and share its value among the community it serves.
Form 990 applies to most tax-exempt organizations under Section 501(a):
- Tax-exempt organizations, nonprofits, not-for-profits
- Section 501(c)(3) charities
- Nonexempt charitable trusts
- Section 527 political organizations
The Form asks questions about the organization—including why it’s important, what services it offers to the community, and how it fulfills its mission. These are opportunities to create unique messages and share positive accomplishments. The nonprofit should use this Form to show achievements and enhance transparency.
There are up to 16 schedules that could be required when completing the 990, such as the makeup of the organization’s Board of Directors, the compensation habits, transactions with entity insiders, and disclosure of policies and practices.
Why Quality in the Preparation of Form 990 Matters
Form 990 is an exhaustive form that requires as many as 16 additional schedules included with the annual filing, depending on the specific nature of the organization’s purpose and activities.
It requires comprehensive financial information and thorough information on the organization’s governance policies, documentation of procedures, relationships with leadership, and associations with third parties. Because of the amount of detailed information required, there is significant potential for providing incomplete or incorrect information. The IRS is allowed by Federal law to assess penalties on the organization and its leadership for filing an incorrect 990.
The CPA Firm’s Role In Preparing the Form 990
At Griffin and Furman, our accounting team is practiced at preparing Form 990 for nonprofits. The Board of Director’s responsibilities include confirming compliance with the tax code and establishing or fortifying sound governance, evident in the 990 to the nonprofit’s donors, members, and the public.
After meeting with management, the 990 is prepared on behalf of the organization and the Board of Directors. Our accounting team reviews the prepared Form as a quality check by comparing it again to the financials.
We also conduct another review to look for any red flags and anything that could lead to increased government scrutiny and to reconcile the information that may be represented in multiple places among the schedules. There are multiple reviews to reduce the potential for an IRS audit.
Form 990 Prepared By Griffin & Furman
The accounting team at Griffin & Furman is engaged in thoroughly reporting your tax-exempt organization to the IRS.
Give us a call to talk more about your nonprofit’s accounting and tax needs.