How To Read IRS Form 990: Part 2

by October 7, 2019
Image by Steve Buissinne from Pixabay

This is the second of a three-part series on IRS Form 990. The third part will be published Monday, October 14.

IRS Form 990 is a goldmine of financial information about non-profit organizations, giving you a starting point for additional reporting. To learn how to find 990s and what to look for in Parts 1 through 6 of the form, check out the first part of this series. This piece continues where that one left off.

Part 7 of IRS Form 990 is aptly titled Compensation of Officers, Directors, Trustees, Key Employees, Highest Compensated Employees, and Independent Contractors. It shows you how much both current and former executives, key employees and the most highly compensated employees (who earned more than $100,000) are paid. This also includes information on their position and average hours per week. You can use Part 7 to determine if someone was paid to leave, how much an organization is spending on, say, its lawyer, and even the number of contractors earning six figures.

Part 8 is the Statement of Revenue and shows you how the organization raised money (membership dues, fundraisers, government grants, etc.) You can even see if the organization has gained or lost money from fundraising events.

Part 9 is the Statement of Functional Expenses. Among other things, it’ll show you how much money in grants and assistance the non-profit paid, and whether this was to governments and organizations in the U.S., individuals in the U.S, or to organizations, governments or individuals outside the U.S. It also has officer and employee compensation. Additionally, it’ll show you how much is spent on fundraising services and the catch-all “other expenses.” Looking for the “joint costs” to see if it included fundraising solicitation combined with education will give you additional insight.

Part 10 is the Balance Sheet, which goes into more detail on assets and liabilities. Again, it has the year of the form as well as the year prior. Pledges and grants receivable shows you how much money the organization has been promised, while loans and other receivables from current and former officers/directors/trustees/key employees/highest compensated employees/other disqualified persons can tell you whether the organization is donating money to insiders. You can also dig into investments in the “assets” section. The “net assets or fund balances” part will show you the amount of donations that are temporarily restricted, or earmarked for specific purposes, and “permanently restricted” endowments, where only the interest can be spent.

Part 11 is the Reconciliation of Net Assets, including the revenue minus expenses and fund balances at the end of the year.

Part 12 is Financial Statements and Reporting, which gives information on whether financial statements were compiled, reviewed or audited by an independent accountant.

Make sure to pull any schedules that are filed. Schedule A gives insight into the past five years of public support, Schedule B lists donations above $5000 or 2 percent of total donations (whichever is higher), though names are often redacted. Other schedules provide information on political activity and lobbying, fundraising or gaming activities, compensation information, and more.

To practice, pull three Form 990s for organizations you’re familiar with and, using this guide, see what you find. You can also reverse engineer business news stories to see if any of the information discussed was in this form. Happy hunting!

Check out the third part of this post to learn what you’ll find in Schedules A, B, C, D, E, F, G, H, I, J, K, L, M, N, O and R.