Nonprofit Boards and Form 990

The board has responsibilities to your nonprofit organization‘s Form 990. All directors/trustees should receive and review Form 990. The board of directors must critically analyze and evaluate policies, practices, and finances without “rubber-stamping” its approval.

Because Form 990 is a public document and can be viewed on sites such as GuideStar, CrowdRise, and Network for Good, board members can view this as a potential marketing tool. Form 990 can shine a light on their organization’s accomplishments and attract support for their causes.

In Brief: If the Board of Directors does not require a board review of Form 990 filed with the IRS each year, they may want to reconsider this policy.

• A nonprofit Board’s review and approval of Form 990 helps directors observe their fiduciary duties of care.
• Exempt organizations are well-advised to implement and follow a Form 990 review policy and related procedures.
• Certain parts of Form 990 may require heightened review

Form 990 is required to be available for public inspection for three years and is posted on the web at www.guidestar.org. While federal tax law doesn’t require such a review, it is regarded as a best practice and is asked about on Form 990. The objective of Form 990 is to demonstrate that the organization is fulfilling its tax-exempt purpose, that financial resources are used to further these purposes and to ensure accountability and transparency of activities, governance, and relationships. Review the return with an eye toward what you would want the general public to see.

A nonprofit board member has a fiduciary duty of care to the organization. Duty of care is the duty to take care to refrain from causing another person injury or loss. In tort law, a duty of care is a legal obligation imposed on an individual requiring that they adhere to a standard of reasonable care while performing any acts that could foreseeably harm others. It is the first element that must be established to proceed with an action in negligence. This duty may be elevated to one of utmost care in certain situations such as bailors.

This duty generally requires the nonprofit director to act with the care an ordinarily prudent person would in a like position under similar circumstances. At a minimum, the duty of care requires a nonprofit director to keep apprised of and understand financial and executive reports, strategic initiatives, budgets, fundraising developments, and other operational matters that materially impact the organization.

GOVERNANCE, MANAGEMENT, AND DISCLOSURE

Part VI, Section A of Form 990 requires an organization to report the total members of the governing body with the power to vote on all matters. If there are different voting rights for different members of the governing body, that should be explained on Schedule O, Supplemental Information to Form 990. In this same Part VI, Section A, the number of independent voting members must be reported. The following conditions must not be present for a board member to be considered independent. The board member must not (1) be involved in a transaction directly or through a family member, with the organization, or a taxable or tax-exempt organization that would be reportable on Schedule L, Transactions with Interested Persons (2) receive total compensation, including as an independent contractor, exceeding $10,000 during the tax year from the organization or a related organization, other than as reasonable compensation for service provided in the capacity as a board member (3) be compensated as an officer or other employee of the organization or of a related organization.

Part VI, Section B, asks if the complete copy of Form 990 has been provided to the governing body before filing the return. Seems simple, but per the Form 990 instructions, a complete copy includes all required schedules. The method of providing the return to the governing body may be in paper form or electronically and is less important than making sure the copy provided is complete. However, simply informing the members of the governing body that Form 990 is available upon request does not satisfy this requirement. Part VI, Section B, requires the organization to describe the review process by which the organization’s governing board and management reviewed Form 990. The explanation should include details about who conducted the review when they conducted it, and the extent of the review – or, if no review was conducted (not a best practice) the answer should state that no review was conducted. One last item that is wise to review carefully on Part VI, Section B, relates to whether an organization has a Conflict of Interest policy, which is a policy that defines conflicts of interest and details procedures to follow in managing conflicts of interest. Part VI, Section B asks if the organization regularly monitors and enforces compliance with the policy and asks that the process for doing so be described on Schedule O, Supplemental Information to Form 990. The description on Schedule O should include an explanation of who is covered under the policy, the level at which it is determined whether or not a conflict of interest exists, and the level at which actual conflicts are reviewed. In addition, the explanation should include the restrictions imposed on those with a conflict, such as not being allowed to vote on the particular item for which a conflict exists.

Duty of care requires the board of directors of tax-exempt charities to review and approve the organization’s annual Internal Revenue Service (IRS) Form 990. The Board and senior staff should work collaboratively to properly complete Form 990 in advance of the due date for its filing.

Form 990 is an important communication tool for non-profit organizations and review by the governing body is important. A focused review by the governing body will help organizations to communicate the story of the organization in a way that aligns with the organizations’ mission and purpose.

Review checklist

Many non-profit organizations outsource the preparation of their Form 990 to their CPA, legal counsel, or other tax professionals. Fiduciaries should use a checklist to review the completed form. Several websites (i.e., https://www.irs.gov/instructions/i990, https://boardsource.org/form-990-checklist) offer a Form 990 Review Checklist pertaining to governance.

Distribution of Form 990

One way to simplify the distribution of the 990 Form (securely, privately, and bypassing email) is to use a board portal like Board Director.

Board Director allows management to easily upload the 990 Form into our document management system. From there you can set permissions, notify and share this or any document with the whole board or individual director or staff.

Directors can privately review the 990 Form and make full annotations on it the form. Collaboration has never been more fun or easy!