One question I get asked on occasion, from clients, colleagues and others, is “Why is IRS Form 990 so important?” That’s a “good question”, as they say on ‘CCO. Here are some answers to that question – for associations, their members and boards of directors.
Form 990 is the annual information return filed by tax-exempt organizations with the Internal Revenue Service, and provides a wealth of information to the IRS and to readers of the return. Form 990 is a public document, meaning anyone can ask to see your association’s 990, and you are required to allow them to see it, or send a copy of it to them (most of it, anyway). Many organizations choose to post their 990s on their own websites. Also, Form 990s filed with the IRS can be viewed online by anyone at the website www.guidestar.org.
In addition to providing financial information, including statements of revenue and expenses, beginning and ending balance sheets, the 990 is the tax-exempt organization’s annual report to the Internal Revenue Service that it is (or isn’t):
- Continuing to serve the mission for which the IRS granted it tax-exempt status, by reporting its activities and accomplishments of the past year.
- Complying with many other areas of Federal tax law, from payroll and information reporting, to unrelated business income taxes, lobbying and political activity reporting compliance, foreign activities and accounts, and more.
- Utilizing best practices of governance by having independent and involved leadership, documenting decisions made, and following written policies that demonstrate accountability and transparency (adherence to a strong conflict of interest policy, for example.)
An association can utilize Form 990 as a great public relations tool with its members and the public in several ways. For example, the association can:
- Inform members of the important resource the association is to them by relaying the association’s mission, providing a detailed narrative of the association’s activities and accomplishments during the reporting year, and how they provide significant benefits and value to the members. The people who are most involved in providing these benefits (i.e. educational opportunities, publications, advocacy on behalf of the members’ interests, keeping up with industry standards, etc.) are the most able to identify and write this positive narrative for the Form 990.
- Provide financial reports that demonstrate responsible financial stewardship of members’ investments in their association. Members want to know that the dues and fees that they pay are fair, and that they get as much benefit as possible from the dollars they invest.
- Demonstrate the commitment of association leadership to responsible governance through compliance with all laws and adherence to best business practices. For example, providing explanations on how executive compensation and benefits are determined, how potential conflicts of interest are managed, even how the Form 990 itself is reviewed before filing, illustrate a board of directors’ commitment to fulfilling their fiduciary responsibilities to the membership, and to the organization itself.
Much of the attention gets focused on 501(c)(3) public charities. We are all aware of local and national charities that have come under fire because of improprieties. Information found on the public Form 990 has contributed fuel to the public relations fires that have erupted around these organizations.
Still, other tax-exempt organizations, including 501(c)(6) associations, need to understand the public nature of their Form 990 when filing their returns each year. The IRS goal in redesigning the Form 990 several years ago was to strengthen “accountability, transparency and governance” of tax-exempt organizations. Your association’s leadership can use your annual 990 filing as an opportunity and reminder of what your association is and can be. Your organization can use its Form 990 as a springboard toward being more accountable, transparent and well governed.
Olsen Thielen has a long history of working with tax-exempt organizations. Contact us to discuss your organization’s tax and attest needs.
Originally printed in the February 2015 issue of the Midwest Society of Association Executives MSAE FOCUS newsletter.