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, 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 high-level financial scandals of the early 2000s. The Sarbanes-Oxley Act of 2002 is intended to help protect investors and employees from corporate fraudulent financial practices.

Nonprofits are not public companies and are not required to comply by 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 doesn’t 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 that is available for public inspection and can be seen as an opportunity to display the accomplishments of the nonprofit and to share their value to the community which 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 of the organization, why it’s important, what services it offers to the community, and how it fulfills its mission. These are opportunities to create unique messages to share positive accomplishments. This should be used by the nonprofit to show achievements and to enhance transparency.

There are up to 16 schedules that could be required when completing the 990, such as the makeup of the organizations’ 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 to be included with the annual filing, depending on the specific nature of the organization’s purpose and activities.

It requires comprehensive financial information, as well as thorough information on the organization’s governance policies, procedures documentation, relationships with leadership, 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 providing 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, which is made evident in the 990 to the nonprofit’s donors and members, and to 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, to look for 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.