Guest Post: Susan Hammerman
IRS form 990s are loaded with valuable financial information, but that information can be buried within dozens of pages, endless tables, addendums, and attachments. In this blog, and in greater detail during a webinar scheduled on May 20, 2020, you will learn how to streamline your review process. Find out which fields and tables to focus on, how to understand the information presented, and learn how to interpret that information to determine capacity.
A 990-tax return is the equivalent for a nonprofit of a personal tax return for an individual. A 990, like a 1040, is a financial document that most tax-exempt/nonprofit organizations are required to file annually with the Internal Revenue Service. A significant difference between personal tax returns and 990s is that 990s are made public, making them an excellent source of financial information for prospect research and fundraising.
In most cases, for prospect research and fundraising purposes, the 990s you will be reviewing will be for private foundations and public charities. Which fields you look at, and how you interpret the information depends on the entity type. Some of the information reported on in a 990, and what will be identified here, includes: the nonprofit’s official name, address, the IRS designated nonprofit type, the mission statement, grant guidelines, assets, giving, staff and board membership, and donations made by board members to the nonprofit.
You can find 990s through your iWave subscription, by searching under the “Foundations” tab. 990s for both public charities and private foundations are searchable by name.
Most nonprofits file 990s. All private foundations and nonprofits with gross receipts totaling greater than $50,000 file 990 tax returns. (Gross receipts are a tally of all sources of revenue for the filing year.) Nonprofits with gross receipts totaling $50,000 or less are eligible to file shorter e-forms, 990-N forms.
Most entities designated as nonprofits by the Internal Revenue Service file 990s. Entities without that designation do not file 990s. Unsure whether an organization is a nonprofit? Look it up by entity name here: IRS Tax Exempt Organization Search. Donor-advised funds can cause some confusion, as they seem to resemble nonprofit entities, but donor-advised funds are administered by community foundations or charitable arms of companies, such as Vanguard, Fidelity or Charles Schwab. The administrating nonprofit will file a 990, but the individual donor-advised fund does not.
It might be helpful to look at examples of 990s as you read along. Start on page one, and search through the 990 for the fields and pages described below.
A private foundation will be identified at the top of the 990 form as the, “Return of Private Foundation.” A public charity will have, “Return of Organization Exempt From Income Tax,” at the top, with the specific type of tax-exempt status recorded below in Box I. The options for tax-exempt status types are: public charities and other types of 501 (c) entities (access the complete list here); 4947(a)(1), which is a charitable trust that is treated as a private foundation; and 527, which is a political organization.
(A private operating foundation is different from a private foundation. A private operating foundation supports its own exempt programs/activities and has different IRS rules from private foundations. Learn more about private operating foundations in the webinar on May 20th.)
The official, full name of the nonprofit is listed at the top of the 990 form, as is the mailing address, the principal officer’s name and address, and the telephone number.
The filing year is listed in bold in the right margin at the top of the form. Under the filing year, you will find a beginning and ending date. This is the nonprofit’s fiscal year, which may differ from the calendar year. It is useful to know the fiscal year, as a nonprofit is required to file an annual 990 five months and fifteen days after the end of the organization’s fiscal year.
Public charities that do not have websites or a public presence still will have mission statements listed on the first page, under Part I, line 1, or Part III, line 1. Under Part XV, line 2, a to d, for private foundations with assets of $5,000 or more, you will be able to determine whether grants are given only to preselected organizations, see a description of grant applications guidelines, and find directions for sending grant applications and letters of inquiry.
Box I on page one of a private foundation’s 990 lists the fair market value of all assets. Private foundations, excluding private operating foundations, payout or donate five percent of assets annually. The five percent total, or the payout figure, includes any qualifying charitable activities including grant awards, as well as the money needed to run the foundation. If your organization assigns capacity ratings to foundations, you could use five percent of the assets, listed in Box I, as the basis for an estimate of the foundation’s capacity.
All nonprofit organizations that received grants and donations from the foundation during the reporting year are listed under Part XV, line 3. The ranges of grant amounts or the largest grant amounts could serve as a guide for your organization’s ask or as the basis for an estimate of the foundation’s capacity rating.
Under Part VII, section A for charities, and Part VIII, lines 1 to 3 for foundations, are lists of all officers, directors, and foundation/charity managers, key employees, and the highest compensated employees and trustees. When you are researching an individual, who is a trustee or a high-ranking employee of a nonprofit, look at these sections to find his or her compensation.
Contributions of money or property of $5,000 or more from a single contributor to a private foundation are listed on Schedule B, which is a supplemental form to the 990. The name of the contributor, address, and total contributions are listed. Contributors can be trusts, companies, associations, or people. Contributions from people are usually made by members of the foundation’s board and might be the largest donation you will be able to find for the individual.
There is a lot more information included in 990s than what was described here. After you get a feel for the sections described above, you may want to dig further for more financial information for specific charities and foundations in 990s. The Internal Revenue Service provides plenty of assistance. Start with the instructions for 990s for private foundations and public charities. Google is your friend here too. When you don’t understand a term or a section, try a quick search, find the answer, and keep digging!
Susan Hammerman is a former librarian with more than fifteen years in the field of prospect research. She is the owner of Prospect Research Consulting LLC.