The Form 990, along with forms associated with it, is the primary reporting tool the IRS uses to obtain information from tax-exempt organizations in order to confirm compliance with rules and regulations and detect abuse. The forms’ questions are designed to probe into areas of potential concern which go well beyond the presentation of financial information. The consequences of a wrong answer can run the gamut between a standard inquiry and an invasive IRS audit. Beyond the costs of an audit, the organization can be exposed to significant penalties and potentially lose its tax-exempt status. Individuals associated with the organization can face significant penalties and unanticipated public disclosure.
The areas of inquiry are numerous and varied. For example, the forms probe into whether the non-profit organization is being operated properly and is not unfairly competing against for-profit companies, that no individuals obtain unregulated access to organization assets, that funds are not diverted toward activities not approved by the IRS (e.g., political activities), and that donors’ charitable contribution deductions are limited to those that are appropriate.
In addition to the IRS filings, many non-profit organizations must also provide Form 990 to state taxing authorities, including the state’s attorney general, for additional scrutiny. The attorney general’s office uses Form 990 to look for potential fraud, gross mismanagement and wrongfully diverted funds. Form 990 is also readily available to an inquiring public on a variety of websites, and it is often included on a non-profit’s own website.
Corporate officers in charge of the Form 990 face the daunting task of fully understanding the breadth of questions and disclosures requested, while having to obtain the litany of information required, not to mention framing the activities of the organization in such a way as to attract anyone who surveys the organization’s Form 990 as part of their grant-making due diligence. And for their trouble, they get to sign the forms and attest under the penalty of perjury that everything reported is true, correct and complete to the best of their knowledge and belief.
Many of us participate on the board of one or more non-profit organizations, though few of us take direct responsibility for what is reported on Form 990. Given the intended uses of the form and the pressure the organization is under to prepare the form accurately, our interest in what goes on the form can be one of the more valuable contributions we can make to the organization as board members.
So, what can board members do? Good governance begins with interest, understanding and the commitment of time and resources required to ensure that the organization is obeying the tax laws, safeguarding its assets and serving its charitable interests.
Although a detailed description of all the elements constituting good governance is beyond the scope of this article, we can offer some support that will help with the proper development of information and preparation of Form 990.
The identification of key members of the board to take responsibility for Form 990 is important. In practice, this task is the responsibility of the audit or finance committee. If approached mid-year, the committee will allow itself adequate planning and lead time.
To help with the preparation of Form 990 and the need to respond to questions involving the activities of trustees, directors, employees, donors and members, a questionnaire sent out after year-end is an effective tool. The duty to complete the questionnaire can be a clear obligation encompassed within the organization’s policies. Appropriate sanctions for non-compliance are recommended.
Form 990 specifically asks if the organization provides a copy of the form to all members of the governing body before filing. In addition, the organization is asked to describe the process used to review the form. To help the non-profit organization’s trustees, directors and management meet their review requirements; a board review checklist can provide guidance leading to a meaningful and efficient review of the form and can be a key component of the process followed to ensure an appropriate review.
CBIZ MHM is dedicated to assisting the non-profit community with resources and guidance to help ensure efficient operations and compliance with federal and state rules. For more information, please contact your local CBIZ MHM tax professional.
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