Selecting the Right Charity: Understanding Form 990

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Need to check out a charity before you officially strike a partnership with them or make a donation? Then you’ll need to pull their IRS Form 990, which breaks down the organization’s operations. This is the form you want to spend some quality time with for a snapshot of the prospect’s financial health and wealth. As with most IRS exercises, the form 990 is about as clear to read as a dusty set of hieroglyphics.


There are over a million public charities in America, each with its own mission and mantra, which means selecting a non-profit partner to connect to your event can seem like a Herculean task.


Amid several high-profile charity scandals in 2015, marketers are more cautious about which charities they tie to event programs. Obviously your brand wants to tie to a charity that carries with it an appeal that will influence customers and a clean reputation.


Here are 10 things you’ll want to extract a form 990:


Identity and Tax Status


There may be more than one organization with the same name, so make sure you have the form 990 of the outfit you’re looking at. Check the info in Item C and the name and address of the filer. Item A shows whether the filer runs on a calendar or fiscal year, which will determine whether you’re checking the most current form (the 990 must be filed no later than five months after the end of a charity’s accounting year).


Income


Page one of Part One is divided into three sub-parts: revenue, expenses, and net assets. The revenue part reports the filer’s total income, broken down by 13 various sources (e.g., contributions and fees for services). The sum of these items appears on line 12 (total revenue) at the bottom. Go straight to line 12 to read the total income declared during the filer’s accounting year.


Expenses


How did the filer’s total expenses break down between program, management, and fundraising expenses? Get a look at where the money goes on lines 13-17 of Part One. Read the 990 to assure yourself that the prospective partner is spending most of its resources on program matters rather than salaries and marketing. By simply dividing a functional expense item (say, program services) by the total expense number, you can learn what cut of the overall pie has been spent on that function.


Net Assets


Indicates the level of resources the filer has on hand to support its activities in the future. Line 18 shows whether the charity ended the year in the red or black. Line 19 (assets at the beginning of the year) and line 21 (end of year) are important because they indicate assets over liabilities or what the charity’s net worth was at the beginning and end of the filing year.


The Programs


Part Three on page two tells you what the filer actually does. The filer states its primary purpose on a short line near the top, then describes each program it conducts. In a column to the right of each description, the filer lists its total expenses for that activity.


Pay Check


Part Five on page four contains the name of each board member. If the member receives any compensation for his or her duties, the amount is reported. Also included is compensation information (salaries, bonuses) about the charity’s top officials. Watch out for any big numbers.


New Activities


Line 76 asks whether the filer made any significant changes in the kind of activities it conducted to further its tax-exempt purposes. If the filer answers “Yes” to this question, look for an attachment describing the activity and see if it sounds legit.


In-house Transactions


Assure the nonprofit is not being used by someone to improperly transfer assets. An example is the sale by a board member of property he owns to the non-profit at a price in excess of its market value. Line 2a asks whether any sale, exchange, or leasing of property occurred between the filer and a board member, key employee, etc. There are five such questions (lines 2a-e). If the answer to any question is “Yes,” check the corresponding attachment.


Is Filer Private


All section 501(c)(3) non-profits are private foundations or non-private foundations. The distinction is important, because to qualify for 501(c)(3) status the non-profit has to swear it gets its financial support from a fairly wide range of sources and (sometimes government) agencies.


Lobby Activity


A number of non-profits engage in lobbying to advocate for changes in public policy. Line one of Schedule A’s Part Three asks (how dare they!) whether the filer attempted to influence national, state, or local legislation. If the answer is yes, it has to report the total of such expenses in Part Six of Schedule A. If Part Six is left blank or incomplete, find out why.


Charity watchdog groups mandate that organizations on the up and up spend at least half of their revenue, or 65 percent of expenses, on programs—and no more than 35 percent on fundraising. Get a look at 990s from hundreds of thousands of groups at guidestar.org.



Posted by Kristy Elisano | Request as a Speaker

Caffeine dependent Jersey girl. Northeast powder hound. Inspired by creative risk takers and underdogs. VP Marketing, Doodle owner and cocreator of my daughter.