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 IRS 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' worth 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 in several online places _ including Citizen Audit, Guidestar, the National Center for Charitable Statistics and Foundation Center.
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
_And much more
Comparison of a nonprofit's 990s over a period of several years can uncover significant changes in its leadership, revenue, expenses and governance. This valuable information can be extremely useful in philanthropic decision-making.
RELIGIOUS INSTITUTIONS
Unlike other nonprofits, however, religious institutions (such as churches, synagogues and mosques) 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 historically have taken advantage. Among these are some televangelists and others who use 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 completely legal church called Our Lady of Perpetual Exemption _ and began to accept tax deductible donations. After his point was made, Oliver closed down the church and donated its revenues to a well-respected nonprofit that files form 990.
The vast majority of churches and other 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.
990 tax forms offer 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 _ to help them make better-informed and more-strategic philanthropic decisions.
