All I Want for Christmas Is… a 990?

It’s that time of year again.  Yes, we realize the holidays are here, but (being the hopeless nonprofit lawyers that we are) we actually had tax and governance issues on our minds!

Although the holidays will provide a much-needed break for many of us, nonprofit organizations everywhere will find themselves spending these last few weeks of 2009 and the early part of 2010 thinking about the tax, accounting, and governance issues involved with transitioning into a new year.

The most noticeable change for organizations in recent years is probably the newly revised IRS Form 990, “Return of Organization Exempt from Income Tax,” which nonprofit organizations began filing for the 2008 tax year.   In this post, we hope to share with you some ways to capitalize on the IRS’s recent 990 requirements by helping you find the right questions to ask yourself as an organization.

Although there’s a tendency to see any additional paperwork as a negative, there are actually some good reasons for your organization to embrace the new 990 as an opportunity to further your mission.

As Joel Wilson noted in an article for Guide Star, the IRS’s new 990 requirements, with the right preparation, organizations will be able to “capitalize on the opportunities created by the increased transparency. If unprepared, they may be unnecessarily subjected to potentially damaging external risks.”

The new IRS requirements mean that the 990 is no longer merely a tax-exemption compliance measure, but can now be leveraged by organizations as a tool for reaching out to potential donors.  990 forms filed with the IRS are public record, and the recent changes to the 990 requirements gives potential donors greater access to important funding-related considerations such as the organization’s mission statement.  For example, many potential donors might not be aware of an organization’s mission statement, which was previously buried on page three of the 990.  Following the new changes, however, potential donors won’t be able to miss the mission statement, which now appears prominently on page one.

So what are some things your organization should think about when preparing its 990?

  • Know your mission. Your organization should have a clear understanding of its mission and be able to articulate its mission in a manner that helps maintain its exempt status and attracts new donors at the same time.
  • Know your board. Your organization’s board should be engaged, informed, and independent.  They should be aware of and abide by all rule related to conflicts of interest, self-dealing, and private inurement. Board meeting minutes should be duly recorded and kept on file by someone in your organization.
  • Know your budget. Your organization should ensure appropriate use of assets and should develop and implement policies and practices that address executive compensation, support independent financial audits.
  • Know your lawyer. If the advice here seems like a lot to take in, the good news is you’re not alone.  Most smart nonprofit organizations rely on the advice of skilled nonprofit lawyers to help them with these questions and in the preparation of 990 forms as well as other IRS documents. Please contact a nonprofit lawyer before attempting to prepare your 990 or any other documents related to tax, accounting, or governance. Our firm would love to start a new relationship with you today!

In general, it very important that all nonprofit publish their 990s in some manner.  This may be done in one of two ways—either by making 990s available via the organization’s website or through GuideStar, a service that enables nonprofits to disclose various information.  For more information about GuideStar, visit www.guidestar.org .

Please feel free to contact Elliott & Davis, PC with all of your questions about 990s, as well as nonprofit formations and management.  Elliott & Davis is a full service law firm with expertise in the areas of nonprofit law, civil litigation, corporate law, real estate law, estates & trust, immigration law, entertainment law, civil rights law and domestic relations law.  For more information about these or any of our other practice areas, please visit our website at: www.elliott-davis.com.

Happy Holidays!

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