Patricia A. O’Malley, CPA
As anyone who has had to compile information for the Form 990 knows, what the IRS is requesting is exceptionally time consuming to put together. If your organization is subject to an audit, you have already devoted a substantial amount of time to prepare for it. And, while a good bit of the information requested during the audit process can be used for the Form 990, there are major areas where the information needed varies between the two activities or additional information is requested.
There are many types of information that can be accumulated throughout the year, lessening the burden later. While the following list is not all inclusive, it provides details for many of the most time-consuming requests:
There are differences between the numbers included in the audited financial statements and the Form 990:
The income generated through investment activity can be summarized for financial statement purposes, but the components need to be broken out for the Form 990.
- Unrealized gains and losses are not included in the financial information for the form but are instead included as a reconciling item in the Form 990.
- The realized gains are included, along with the cost and the sales proceeds of the investments sold during the year.
- Investment expenses are shown in the functional expense statement in the Form 990 but are often netted against income in the financial statements.
Donated Goods and Services
There are limitations to recording the services in the audited financial statements, but all goods and many professional services are included in the revenue and expense accounts. In contrast, none the of the revenue or expenses associated with donated services are included in the Form 990 except as a reconciling item. Having a schedule available showing the break-out the services included in the trial balance accounts is helpful.
The presentation in the Form 990 is more extensive than that shown in the audited financial statements and is complicated. The revenue and expenses are segregated in the revenue section of the Form 990, while the audited financial statements may show this information as a net number. The total revenue is also broken out by contributions and gross receipts (the fair value of the benefits the participants receive). Further, depending on the amount of the revenue collected from special events, more detail for individual events may need to be disclosed. Maintenance of records detailing the activity by event during the year can save time after year-end.
If there is more than $10,000 in expenses related to foreign activities, the amounts will need to be reported by the regions indicated in the Form 990 instructions. These expenses are often not segregated from the accounts throughout the year, leading to a time-consuming task later.
Board of Directors
The need for information relating to the Board is found in several areas of the Form 990.
- First, all the voting members of the board who served at any time during the year must be disclosed with their title and a notation for the officers. An estimate of the hours spent weekly on the organization’s business is also needed for each.
- Are there any personal or business relationships between board members or with top management? If so, details will be requested.
- The number of board members at the end of the year will also be needed.
The definitions differ from those used for the audit when identifying organizations as related parties, so care should be taken when the determination is made. Generally, an organization is related to the filing organization if over 50% of the board members overlap between organizations, or one of the organizations has the right to appoint a majority of the board members of the other organization. A list of the related parties with the EIN, purpose, legal domicile and exemption code will be needed. In some cases, transaction totals by type between the organizations may be required if over $50,000.
The information needed in this area is dependent on whether the award is made to a foreign or US entity and the amount. Grants to organizations located in the US of more than $5,000 require names, addresses, EIN’s, exempt status, purpose and the amount. For all awards made to individuals, the types of awards and the number given by each type will be needed.
The compensation for the officers, directors, key employees and highest compensated individuals is shown on the calendar year for Part VII of the Form 990 and on the basis used by the organization for its accounting records in the statement of functional expenses. If the organization has a fiscal year, the calendar year ended within the fiscal year is used for Part VII.
The wages are based upon amounts shown in either the W-2 or Form 1099 for Part VII, but benefit information is also reflected. The amounts received from, or recorded by, related parties are also disclosed in this part.
The wage and benefit amounts in the statement of functional expenses for the officers, directors and key employees are recorded on a line other than those assigned for the other personnel. The totals also need to be broken out by function (program, general and administrative and fundraising).
In some cases, an individual listed in Part VII engages in other activities with the organization that result in payments to the individual. Examples include transactions in which the individual has a stake in an organization providing services to the organization, the child of one of these individuals works for the organization, loans are either given to, or received from, the organization and providing space under a lease. Each type of transaction has a threshold for reporting and will require additional information for disclosure if the requirements for the form are met. You may want to consider consulting with the preparer of the Form 990 to determine whether the transaction(s) are reportable.