Monday, March 12, 2007

The Grant Writer's Little Helper: IRS Tax Form 990 Post 2 of 2

[Note: This post, as with each of my posts, is in no way legal or accounting advice. This post should only be used to learn what the benefit of the IRS form 990 can be to grant writers and fundraisers.]

In the previous post, post 1 of 2 about the IRS form 990, I list the questions that come to mind when considering who to apply to for a grant.

This post will get specific about form IRS form 990 and using it for research to help you get that grant.

What is this IRS form 990? When a public non profit forms it has to apply to the federal government, among other entities, to incorporate. Federally designated (legal) non profit grant donors, commonly called foundations, are required to report their financial situation, annually. But, form 990 is not a tax form (as US non profits do not pay federal taxes). It is a report of the non profit charity's finances for a given fiscal year. If a legal, public, non profit charity receives more than $25,000 annually, is not a religious organization, and is not a subsidiary organization - they must file either IRS form 990 or 990 EZ. In 2005 the 990 form changed but the information is the same, more or less. You just have to find a couple of line items in different locations on the forms. [Update: The IRS, as of 2007, will require all non profits, even those receiving less than $25,000 in income, to file a tax form 990. In order to maintain their legal non profit status, every American non profit organization will have to report to the IRS the information that the 990 asks for.]

Where can I locate a 990 for a given potential grant donor? The handiest resource is the non profit . While memberships are an option and donations help Guidestar continue to provide 990's, there is no charge to search for, and read over, 990's. To use it you will need to register (for free) and they do not sell your information or solicit you. Guidestar began scanning charities' 990's in 1998. Since then, they have continued to do so. So, you can potentially research a charity's finances as far back as 1998, if you'd like; but looking back three to five years should be enough. You can also look up 990's at The Foundation Center's website ( under "Find Funders" and cursor down to the "990 Finder". Each of these methods of reading 990 scans requires the free/safe Adobe Acrobat Reader software available at

How do I interpret the information on a 990? There are some great step by step, line by line directions on the web that explain how to interpret the answers to each item on the 990. If you go to any of the following links, you can read or print out their handy 'how to' guide. Three 'how to interpret the 990' documents are available, for free, at Go to "Find Funders", then "990 Finder" and on that page, in the middle of the page, there is a paragraph that begins "For an at a glance look...". Click on whichever set of directions sounds helpful. Another free resource that will help you understand the 990 is the Non Profit Coordinating Committee of New York's info sheet available at

Having said what I did in the previous post (Post 1 of 2) , let me temper my encouragement to use 990's by saying - while you should use them in research, a grant donor's 990 should not be your sole source of information about them. Why?

- IRS Form 990 was designed for the IRS (and states) to check that charitable services are being served, and that the organization is not funneling wealth instead of giving charity. In other words, this IRS form was not designed to be easily read by the public.

- The 990 does not require a Schedule A list; the compensation of the five highest paid employees (other than directors, officers, and trustees).

- The 990 form does not tell us whether the filer has fulfilled their organization's objectives or not.

- in 2003 researched what is reported on 990's and found; 29% of their sample had mistakes, 11% had three or more mistakes, required attachment documents were usually not submitted to the IRS, and there were inconsistencies. For instance, many public organizations who raise money, reported no fundraising expense!

- Remember, it is not always required that non profits complete audits, according to federal law. This is why the 990 is not technically a tax report. It is an accounting of the organization's finances - and perhaps unchecked by a professional audit.

- A 990 shows a snapshot of time (one fiscal year). Organizations change. This is another reason to look over more than one year of the organization's reporting. Health one year does not automatically indicate health another year. Organizations are required by law to provide, upon a member of the public's request, their three most recent year's 990 filings for a fee.

- All factors need to be considered when comparing potential donors. Financial indicators can be misleading. For instance, organizations in different regions, fields, or at different ages will have different amounts of money and costs. They do not compare to each other easily.

- The mark of a good organization (non or for profit) is if it is effective and efficient in its operations. The 990 does not indicate that.

- You can not determine who made large donations to a non profit via their 990, except for private foundations. If a donation is $5,000 or more, the donor and their contact information is masked.

- 990's are filed at different times of the year, for a given fiscal year, because organizations may (legally) have different fiscal year cycles (i.e. 7/1 - 6/30 vs. 1/1 - 12/31). With extensions and other legal filing allowances, it turns out that non profits can legally file their 990 up to 11 months after a fiscal year has ended. Time lines are different organization to organization.

- Not all organizations that file 990s are available on Only 990's filed by 501(c)(3) groups (public charities and private foundations) are available for reading.

Research potential donors in a few different ways. Never rely on one source. Having said this, yes, the 990 is a good resource for grant writers/fundraisers. As I state over and over again, relationships are everything. Building relationships with potential donors, including potential grant donors, will help you know your potential grant donor's trends, likes, and dislikes.

IRS Form 990 can be extremely helpful in research when tempered with an understanding of what it does and doesn't tell, and when it's coupled with further research.

[If any of my links no longer link, please e-mail me via the "My Complete Profile" link at the upper left side of my blog home page, under "About Me". Thank you so much.]


Anonymous said...

This was really helpful. Thank you for your precious time to explain this to beginners like my self.

Arlene M. Spencer said...

You are so welcome! Good luck in your important work for the community! Best, Arlene