If you’re in the nonprofit world, you likely have heard before that a Form 990 is more than just a tax return and also can be used as a ‘marketing tool’. I’ll bring in three different perspectives to help explain what all this means and how you can make your Form 990 work for you!
DONOR
As someone with limited excess funds who gets a bunch of unsolicited requests for donations, I’ve had to learn how to sort through and prioritize my charitable giving. Every donor has their favorite cause to support, however, within each cause are several worthy organizations needing support. So, as a nonprofit advocate, what on your Form 990 can a person view to help them select your organization over the others?
The first thing to know is that unlike other tax returns, your informational nonprofit return is a public document that savvy donors will review in determining if they will support your organization. Sites like the IRS Tax Exempt Org Search, Guidestar.org, and charitynavigator.org house significant information on exempt organizations, including several years of a nonprofit’s Form 990.
Potential donors and grant makers will review your Form 990 for some key information listed below:
Primary exempt purpose
Here is your chance to tell sell yourself and let people know why your organization exists. Make sure to draft a narrative that is brief, but well written, and compels donors to choose you over the rest, or want to know more. It’s a good idea to sync this mission with your website language and marketing objectives, as most donors will be checking out your information in multiple places, and having a fluid message will help draw in potential donors and volunteers.
For example, if your organization is passionate about helping special needs donkeys live a full and peaceful life (yes, it’s a thing and I’ve donated!), then in your exempt purpose you’ll want to make sure to encapsulate what it is that you do for these donkeys to impact their lives in meaningful way that also touches the hearts of potential donors.
Ex: We rescue, rehabilitate, and provide medical care to the thousands of neglected, abandoned, and abused donkeys across the nation with ongoing protection and a team of highly dedicated volunteers and staff. Our organization also brings awareness to the fact that so many donkeys are mistreated and in need of our help.
Top program service accomplishments
Showcasing rather than just listing basics on the top program service accomplishments is another great opportunity to gain support. Be more specific here than in your exempt purpose statement, quantify results, and again make sure the wording aligns with the overall exempt purpose and messaging. It’s not a bad idea to emphasize how much need still remains; this helps donors feel important.
In our donkey example, say your main function is to rescue, rehabilitate, and provide veterinary care for these sweet furry creatures. Your program service description would be most effective if you expanded on in the past year how many donkeys were rescued, rehabilitated, and cared for during that time. Detail how many needed skilled medical treatment and rehab, the extent of the travel required to perform rescues, etc. Also list if new land was acquired for them to happily roam and live out their days, or what new significant equipment or buildings were purchased to aid in their rehabilitation.
The point is to explain how the donor’s dollar is being used, because any donor wants to know they are making a real impact in whatever the cause may be. Don’t be afraid to run out of room on the given Form 990 space; you can use the overflow attachment schedule if needed. I think the goal here is don’t be too long winded, but don’t skimp either.
Expenses
Donors love to see a major percentage of expenses going towards program services that support the exempt purpose, rather than general administration and fundraising costs. It’s to be expected that a nonprofit will have both general and fundraising expenses, but the more that can be attributed or allocated to serving your exempt purpose, the better. Personally, I get tired of being offered a stuffed animal or t-shirt with the nonprofit logo on it! I get that marketing is necessary to bring awareness to the cause, but it’s a fine line between necessity and frivolous spending. Full disclosure: I do use the blank Christmas cards with puppies on them…and it does make me send in a donation. But that’s it!
Officer compensation is generally a source of potential debate as well. Many smaller nonprofits are fortunate enough to survive on volunteer assistance, but larger ones will need to pay qualified individuals to lead on a full-time basis. The controversy comes in when donors feel too much of their money is going towards non-program related expenses they feel unnecessary or excessive. Just be aware that donors are going to look at how their money is being spent, and that it’s important to use it wisely.
BOARD MEMBER
Treasurer
Lucky CPAs, we always get picked as board treasurer! One of the duties you may oversee or be tasked with as treasurer is preparing the Form 990 for the organization. Fortunately, or unfortunately, I started my tax career as a generalist with areas of focus on banking and its complete opposite industry, exempt organizations. Not only does this mean I was super busy from January 1 through May 15 (not February - April 15 like many others), but it means I prepare the Form 990 for the organization I serve, rather than outsource the task. However, I highly recommend getting outside help to assist in its preparation if no one on the board has a nonprofit background, as the form has can be very involved, very different than other returns, and as mentioned above…is a public document! And even though I feel comfortable preparing the return, I'll still have another CPA review it - there's no shame in getting help!
Other Board Members
All board members should be aware of the organization’s financial health and should ultimately make sure to review the Form 990 before filing. It’s important for the board to understand its contents enough to share insight with potential donors and grant makers. Most grant applications will require financials and/or the Form 990 to be attached. And if given the chance to make a presentation in person, it will only further the potential donor’s perceived strength of the organization if the board is familiar with the 990’s key contents that were listed above in the donor perspective section.
It’s also a good idea to use the 990 and financials to benchmark, or measure your organization’s metrics against others in the same space. Make sure to compare apples to apples and then think of how the organization could improve based on this information. Our donkey rescue friends could compare their specific expense ratios to other animal rescue/rehab organizations and see if they are spending too much, but will probably want to avoid a direct comparison to nonprofits whose mission is primarily to adopt out little animal friends to new loving families. The two seem similar on the surface, but the inherent goals are different enough to throw off comparative measures.
IRS
Obviously, the IRS requires the filing of your organization’s Form 990, and will in part review the form to ensure the nonprofit is acting in the interest of its exempt purpose and not profiting tax free from activities that wouldn’t qualify for exempt status. It’s important to file a timely, complete, and accurate return, including all required schedules and attachments. If a return is not filed in this manner, the organization could potentially get a notice from the IRS requesting more information, and have penalties assessed if that information isn’t provided. If no return is filed at all, the organization could potentially lose its exempt status, which would not be a good outcome!
There are different ‘sizes’ of the nonprofit filing requirement for publicly supported charities, depending on the organization’s assets and annual revenue. Form 990 is the most comprehensive, followed by the Form 990-EZ which as its name states is easier than completing the full 990, but still gives a good amount of information. Lastly, the postcard Form 990-N is used by small organizations and provides very limited information.
It’s worth noting the possibility of filing a Form 990 or 990-EZ even if the organization falls below the filing threshold, doing so for the marketing ability we’ve discussed that can be provided on such forms. Say your donkey rescue is at first small, but gearing up for big things! This would be a good opportunity to use a more inclusive filing to show big donors and grant makers what you’re all about! If you do choose to file a form that’s more comprehensive than your filing requirement, make sure to complete that form in its entirety, not just the parts you’re wanting to use to your advantage.
In Summary
Use your Form 990 as a place to showcase your nonprofit’s mission and accomplishments!
Be descriptive, use quantitative facts, and have an overarching continuous message that aligns with other marketing efforts.
Let the public know their dollar will go far by being aware of the organization’s financial health, spending, and future needs.
Get help if it’s needed in preparing the appropriate return; it’s a public document!
Thank you for whatever role you play – helping others in need is one of the most genuine things you can do in this world.
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