Understanding Your 990s and How Billhighway Can Help
What are 990s?
990s are nonprofit tax forms filed annually by applicable nonprofit organizations such as private foundations, small nonprofits, larger nonprofits, public charities, sororities, fraternities, and associations. Although these businesses typically don’t have to pay federal income tax, they still have to declare their income. A 990 form is how they report their income to the IRS and retain their tax-exempt status.
There are traditionally twelve parts of a 990 form. The form begins with a nonprofit’s statement of purpose and includes governance all the way to financial statements from the previous fiscal year. A finished annual report will give the IRS, and public viewers, a detailed understanding of what a nonprofit does and how they work towards its organization’s mission.
Think of 990s as a way for a nonprofit business to prove that they’re financially honest while demonstrating their overall mission.
Who uses 990s?
Most commonly, 990s are used by nonprofit organizations to document their financial history. The vast majority of tax exempt organizations, including sororities, fraternities, and associations, file a 990 IRS form at the end of the tax year.
There are several types of 990s that nonprofits have to file depending on the size of their gross receipts and total assets. Possible types of 990s include a 990-EZ and a 990-N. For example, a nonprofit with gross receipts of $50,000+ must use a form 990 EZ.
Regardless of income, every nonprofit must file a 990-PF annually.
Why are 990s so important?
At their core, 990s have two distinct functions. The first and more straightforward of the two is that a 990 must be submitted to the IRS for them to grant a nonprofit their tax-exempt status. Failure to submit a 990 three years in a row will result in an organization’s tax-exempt status being revoked.
Another vital function of 990s is that they act as a way to communicate a charity‘s mission, as well as document their sustainability to donors. As 990s are visible to the general public, a potential investor can check out a nonprofit’s 990 to determine if the charity is fiscally sound and sustainable in the long term.
Key information, from how a charity uses and sources its income to its financial reserves, is all present on a 990. If a nonprofit has a well-documented 990, they’ll be able to demonstrate to potential donors exactly why they should receive additional funding.
A 990 tax form can be used to tell the story of a nonprofit, garnering support and boosting potential donations. Part of the 990 process involves documenting the breakdown of a nonprofit’s mission and how they are working to achieve those goals, as well as other useful financial information.
Due to this, a comprehensive 990 form can result in a convincing document that details the good a nonprofit is doing in the world. When individual donors read these statements, and also see a history of financial honesty, they are more likely to trust a nonprofit and follow through with donating.
In addition to maintaining a tax-exempt status, 990s can be converted into a successful PR tool.
Why Collect 990s
Why would Headquarters/National collect 990s from chapters?
- Compliance
- Commitment to competence
- Risk identification
- Financial risk
- Integrity and ethical values
- Tax exempt status
- Member trust
Billhighway Can Help
When thinking about all the exciting plans you have for your chapters, fraud and embezzlement policies likely don’t jump to the front of the line. Yet you might feel a pang of anxiety when reading the headlines of another seemingly infallible organization collapsing due to malicious activity.
We’ve all seen headlines about embezzlement at local nonprofits. You can’t help thinking:
- How could someone like that get into a position of responsibility?
- How could they get away with their crime for so long?
- Weren’t there any warning signs?
- Didn’t the organization have controls in place?
It’s time to shake off the “it would never happen to us” mindset. In the end, the time spent organizing prevention strategies will be less costly than the legal, financial and reputational damage of the fraud crisis.
Learn More
Alleviate the financial burden and administrative stress on your chapter leaders! Learn how Billhighway can help your chapter leaders focus on delivering value to members, not balancing spreadsheets.
