Telling Your Story with Form 990

Attracting and retaining donors can be among the more challenging tasks for your nonprofit organization. So you’ll want to take every opportunity to help potential supporters recognize the value of your mission. IRS Form 990, Return of Organization Exempt From Income Tax, offers a convenient vehicle for getting your story out.

The Internal Revenue Code generally requires most tax-exempt organizations to file a Form 990. In addition to providing your organization’s financial information, Form 990 gives you a venue for describing your mission, programs, and accomplishments in detail. Would-be donors may rely on this form as their primary source of information about your organization, so take the opportunity to shape their perception with the information you present.

Your Audience

Who is looking at your organization’s information? Donors and grantors, potential board members, creditors, and third-party evaluators may rely on nonfinancial information from Form 990 to ensure that the organization’s mission aligns with their values and goals; assess program accomplishments and their alignment with the mission; and evaluate governance structure, policies, and compliance.

Vendors and service providers may also use Form 990 to determine whether your nonprofit could benefit from their services.

Creating the Narrative

After you’ve defined your readership, think about the story you want to tell. Your message should focus on points that are most likely to resonate with your audience, such as your organization’s unique programs or services, their effectiveness, and your methods for accomplishing your mission. Financial and nonfinancial information on Form 990 should work together to communicate your story.

Writing should be clear, concise, and free of jargon. Remember that your goal is to convince potential donors and others that your organization is effective in carrying out its mission and worthy of receiving their charitable contributions.

Places To Shine

Charitable organizations can educate donors and other interested parties on their work in these sections of Form 990:

Part I — Summary. In this section, you’ll be able to describe your organization and/or its significant activities and the population it serves.

Part II — Statement of Program Service Accomplishments. This section allows you to highlight your nonprofit’s most important accomplishments. This is your opportunity to include specific information about your programs and services, such as the number of clients served, events held, the geographical area of the program’s outreach, etc.

Schedule O. Here you can expand on and support the description in Part 3 by presenting quantitative information to explain the effectiveness of your programs.

Using Form 990 to increase awareness of your not-for-profit’s programs and activities can be a strategy that will pay off by attracting donors to your cause.

Changes to Nonprofit Accounting Standards: An Update

The Financial Accounting Standards Board (FASB) is working on a proposal that would make substantive changes to not-for-profit financial statement reporting.* The FASB’s objective is to improve net asset classification requirements and the information provided in the financial statements and notes about liquidity, financial performance, and cash flows. This initiative represents the first effort to update the fundamental reporting model for nonprofit entities in more than 20 years.

In its initial redeliberations of the proposal in December 2015 following a comment period on the exposure draft, the Board decided not to require organizations to use the direct method of presenting operating cash flows. Use of either the direct or the indirect method would continue to be allowed. Additionally, nonprofits choosing to use the direct method would no longer have to provide the indirect reconciliation.

The Board affirmed its original proposals that would require nonprofits to:

  • Present only two net asset classifications: net assets with donor-imposed restrictions and net assets without donor restrictions
  • Disclose the amounts and purposes of board-designated net assets on the face of the financial statements or in the notes
  • Classify the entire amount by which endowment funds are “underwater” within net assets with donor restrictions rather than within the unrestricted category
  • Disclose certain information with respect to underwater endowment funds, including the organization’s policy to either reduce expenditures or not spend from underwater endowment funds, the aggregate fair value of underwater funds, the aggregate original endowment gift amount or level required to be maintained (by donor stipulations or by law), and the aggregate amount of the deficiencies

* Presentation of Financial Statements of Not-for-Profit Entities

News from the IRS

The following are some additional tax-related developments of interest to nonprofit organizations.

Donee reporting regulations. The IRS has withdrawn proposed regulations regarding the contemporaneous written acknowledgments taxpayers must have on hand to substantiate their charitable contributions of $250 or more. The regulations would have given organizations the option of reporting the information their donors require for substantiation purposes on a new IRS information return to be sent to the IRS and the donor.

Although the proposed donee reporting method was to be optional, organizations and charity regulators expressed concerns about it. A key concern was the potential for taxpayer identity theft, since organizations electing to use the new method would have been required to obtain, store, and send to the IRS their donors’ personal information (names, addresses, and Social Security or other taxpayer identification numbers).

Social welfare organizations. The IRS has announced its intention to issue temporary regulations implementing a new tax law provision added by the Protecting Americans from Tax Hikes (PATH) Act of 2015 that requires a Code Section 501(c)(4) social welfare organization formed after December 18, 2015, to provide the IRS with notification that it is operating as a Code Section 501(c)(4) organization. Certain existing social welfare organizations also must provide the notification. Affected organizations will have at least 60 days from the date the regulations are issued to submit the notification.

Transportation fringe benefits. For 2016, employers may provide up to $255 a month in transit passes or transportation in a commuter highway vehicle as a nontaxable fringe benefit. This figure reflects the PATH Act provision creating parity between the exclusion for transportation fringe benefits and the exclusion for qualified parking benefits.

A Look at Donor Retention

A recent report* suggests that retaining donors remains challenging for many organizations. The report examines the 2013 – 2014 fundraising results of 8,025 U.S. nonprofit organizations — most of them small to midsize organizations — averaging $833,475 in annual giving. Among the findings:

  • The median donor retention rate in 2014 was 43% (meaning only 43% of 2013 donors made repeat gifts to participating nonprofits in 2014)
  • Year over year, there was a 3% net loss in donors (3.615 million new and previously lapsed donors compared to 3.713 million lapsed donors)

 

Overall, gift dollars grew by $173 million. However, for every $100 gained in 2014, $95 was lost through attrition (i.e., reduced gifts and lapsed donors). For purposes of the analysis, funds raised include cash gifts, pledge payments, recurring gift payments, gifts of marketable securities, and the gift portion of special event income.

* 2015 Fundraising Effectiveness Project Survey Report, Association of Fundraising Professionals, 2015