Can you imagine a Form 990 that looked like a billboard or some other type of advertisement? It would be colorful, stand out, and catch your attention. Most good advertisements draw you in to take a second look or maybe a third. One statement we can make for certain: you'd prefer to have donors take a second look at your 990 and the Internal Revenue Service (IRS) to take as few as possible.
Consider these five reasons to take a second look at your Form 990 and make it as vibrant as you possibly can.
1. Marketing Opportunities
With charity-evaluating websites forming and growing with every day, it's no wonder so many donors and stakeholders are reviewing the publicly disclosed Form 990. One website has over 6.2 million views in 2012 alone. That being said, the 990 has many opportunities for you to tout the accomplishments of your organization. It all starts with page one and each page has an opportunity for you. Review your return carefully for these chances to make your organization shine. Fill every space that you can!
2. Governance Check
Use your Form 990 as a governance check for your organization. Take notice of the questions which you answer "NO" to and see what it would take for you to implement the change. Sometimes I notice that an organization doesn't have a conflict of interest policy. So I will always tell my clients that this is a simple change to make - create a conflict of interest policy. This is a chance to improve your organization and show donors that proper governance is a priority. And believe it or not, donors and charity-rating websites take notice of each and every question.
3. IRS Red Flags
The IRS is scrutinizing tax exempt organizations now more than ever. It's for certain that the scrutiny will only increase with additional compliance requirements and tools the IRS can use to detect organizations that may not be compliant. You may be thinking that your organization is totally compliant and has no wrongdoing going on. That's great, but one question on the Form 990 may cause your organization's tax return to be reviewed or further examined by the IRS. As with any IRS examination, the costs are high while enduring them. Avoid an IRS exam by reviewing your 990 thoroughly.
Check out this GuideStar article for more information on IRS scrutiny: http://www.guidestar.org/rxa/news/articles/2012/insights-from-irs-on-nonprofits.aspx
4. Appropriate Allocations
Always check to make sure your allocations between program services, management, and fundraising are reasonable. When I review a tax return I pay special attention to payroll allocations. Your officers, management, and staff will all be doing different tasks. In fact, one of my clients takes each employee's function separately when determining allocations. Keep your employees involved in the process and this will generate very accurate payroll allocations.
5. Does the Return Make Sense? If not, explain it.
It's certainly no surprise that not every form the IRS issues makes sense to a business owner or nonprofit leader. The Form 990 has many different spaces for you to explain anything that doesn't seem right. Allow me to share two instances that I've run into already this year. One item related to compensation. The CEO left the organization mid year so the CFO had compensation that exceeded the CEO. I recommended that my client explain it on Schedule O. We inserted the CEO's period of employment and clarified any skepticism from donors or other stakeholders. Another instance related to an explanation as to the financial health of a program service. We beefed up the description to show other metrics which spoke to the vibrancy of that program service. Take your time and explain anything that may cause questions from donors or stakeholders.
If your donors take a second look and the IRS doesn't, your nonprofit wins. So let me ask you one question: will you take a second look at your Form 990 today to position your nonprofit for success?
The above is a guest post by Andrew J. Gray, a CPA in the Tax Services Department of Daszkal Bolton LLP, based in the firm's Jupiter, FL, office. His tax practice focuses on public charities and providing tax compliance and planning services for these clients. He is passionate about serving the nonprofit sector. Andrew also assists individuals and small to medium size business clients with tax planning and compliance. Andrew received his Bachelor of Science degree in Accounting from Miami University in Ohio. He is a member of the American Institute of Certified Public Accountants. Andrew is licensed as a Certified Public Accountant through the State of Ohio, and he is a member of the Ohio Society of CPAs. You can reach Andrew at firstname.lastname@example.org.