Tax Form 990: A treasure trove of information for strategic philanthropy

To achieve their goals, philanthropic families and businesses seek to partner with nonprofits that can demonstrate operational sustainability and effectiveness over the long term. For those making this decision, IRS tax form 990 contains a treasure trove of available information. Many otherwise-savvy donors fail to take advantage of this useful tool.

Each year, tax-exempt organizations are required to file a version of tax form 990 with the IRS. Think of this form as a tax return for nonprofits. Even private foundations are required to file a 990PF. In this column, I will focus on nonprofit organizations.

To anyone who requests it, a nonprofit is required to furnish the last three years of 990 filings. Many reputable nonprofits make their 990s (as well as current financial statements – preferably audited) available on their websites. It is a contemporary “best practice” to do so. It surprises me whenever a nonprofit organization fails to proactively post this information.

In addition to the nonprofit itself, 990s are available free online, including at CitizenAudit, Guidestar, National Center for Charitable Statistics and Foundation Center.

990s are packed with useful information

Like all IRS tax forms, 990s are densely packed with useful information, including details about a nonprofit’s:

  • Current tax status
  • Mission statement
  • Revenue received and from what sources
  • Internal expenses, including program, accounting, management and fundraising expenses
  • External fundraising expenses
  • Legal and accounting expenses
  • Net assets and cash reserves
  • Investments
  • Use of program-related investments
  • Identity (and salaries) of board members
  • Salaries of key employees
  • Key programs as well as expenses associated with each program
  • Significant changes in financial condition
  • Conflicts of interest among professional and staff leadership
  • Important governance policies and practices that demonstrate use of best practices in nonprofit management
  • Lobbying activities

Comparing several years of a nonprofit’s 990s can uncover significant changes in its leadership, revenue, expenses and governance. This information can be extremely useful in philanthropic decision-making.

Are religious institutions required to file 990s?

Unlike other nonprofits, religious institutions are not required to file a 990 tax form even though they receive nearly one-third of all U.S. charitable donations.

In 2015, 32 percent of all donations — totaling more than $119 billion — were made to religious institutions. Each donation was tax-deductible for the donor. Federal and state governments sacrificed significant tax revenues in order to encourage charity for the public good.

However, these donors as well as the public were denied access to any information on the religious entities’ finances, salaries, expenses or governance. Because of this lack of transparency, several “bad apples” have taken advantage of the regulations, using the pretext of religion as a cover for personal enrichment.

Such abuse was publicized last year when, to illustrate the point, television comedian John Oliver created a legal church called Our Lady of Perpetual Exemption and began to accept tax-deductible donations. After his point was made, Oliver closed the church and donated its revenues to a well-respected nonprofit that files form 990.

The vast majority of religious organizations provide powerful and meaningful benefits to society. For these entities, transparency would pose no problem or threat. But in those instances when public benefit is outweighed by private inurement, the transparency of some version of a form 990 would provide useful information to the government, donors and the public.

After all, “Sunlight is said to be the best of disinfectants; electric light the most efficient policeman,” said U.S. Supreme Court Justice Louis Brandeis.

The 990 tax form offers philanthropists an important tool for understanding the operational sustainability and effectiveness of prospective nonprofit partners. They are a valuable and readily available resource for donors, helping people make better-informed and more-strategic philanthropic decisions.