More and more donors are looking at a charity's Form 990 (or as we call them, "990s") before they decide to give. How can nonprofits prepare their 990s to best engage the attention and heart of their readers while explaining their mission, work, and results in concise and compelling ways?
David Reape, CPA and Tax Department Principal in the Not-for-Profit Group at Ciuni & Panichi, Inc., provided answers to this question and practical advice on "Using 990s to Tell Your Story", a free program hosted by Foundation Center Midwest on February 5.
First: What are 990s? Form 990 is the annual tax return that exempt organizations must file with the IRS under Section 501(a). Exempt organizations include most nonprofit and charitable organizations. More about Form 990.
What foundations look for in 990s
Foundations and corporations often ask for a grant applicant's 990s, which is one reason these tax returns are so important. We are often so relieved to make that proposal deadline, we don't think about what happens after the grant is submitted. Here is a snapshot of what happens after you press the "Send" button or drop your proposal in the mail:
Initial Assessment: Does your request meet the funder's application guidelines?
- Financial Scrutiny: This is when funders look deep into the charity's financials, starting with its Form 990.
- Legal Review: Do you have all the forms and requirements done? Have you been complying with the laws regarding tax exemption?
As part of their due diligence process, funders need evidence that your organization will be able to carry out the project described in your proposal:
"A nonprofit needs appropriate financial systems for developing budgets based on realistic plans, plus the capacity to monitor those plans - Does the organization have what it needs to support operational requirements in areas from staff salaries to technology and other infrastructure?" (Grantmakers for Effective Organizations)
990s show your immediate past year's financials as well as those from several previous years. If it shows that your organization has been struggling to pay its staff, how will you assure potential donors that you'll be able to successfully implement the project you've submitted in your proposal?
Beyond the numbers
990s also allow the numbers to be supplemented by words to really tell your story to potential donors. In Part I, Question 1, and most of Part III, the IRS requires exempt organizations to explain how the work they are doing is fulfilling a societal need, i.e., why you received tax exemption in the first place. In fact, almost a whole page is devoted to Part III, Question 4, which prompts you to describe the accomplishments (i.e., direct impact) of your three largest program services, as measured by expenses.
In Part VI, Section A, and Part VII, Section A, the IRS wants to know that your organization is run properly. Is your board of directors fulfilling its role of governance? Are directors, trustees, and key employees receiving reasonable compensation?
Individual donors look at 990s, too
Besides the funder's due diligence process, the 990 is another opportunity to show your best to your community supporters. In an effort to make informed, responsible decisions about the organizations they support, donors of all sizes - from individuals giving $25 to $25,000 or more - are digging deep to learn about the charities that they're thinking of supporting. Tools like Foundation Directory Online, Guidestar, and Charity Navigator are making it easier for donors to access 990s, and now that the forms soon will digitally searchable, they'll be even more accessible than they are now.
Replay the highlights in the YouTube window below to learn about several other places in your 990s where you can tell your story.
CARRIE MILLER is a Capacity & Leadership Development Manager at Foundation Center. Carrie is active in the Cleveland community, working with organizations and events such as Brews + Prose, Social Venture Partners, the Neighborhood Connections Grantmaking Committee, and Equality Ohio. She received her master's degree in nonprofit management from Case Western Reserve University and a B.S. in history from The Ohio State University.
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