Form 990

Definition

Form 990 is an annual information return that most tax-exempt organizations in the United States must file with the Internal Revenue Service (IRS). This form provides detailed financial information about the organization's revenue, expenses, and activities, serving as a tool for transparency and accountability. It is crucial for due diligence and risk assessment processes as it helps stakeholders evaluate an organization's financial health and compliance with federal regulations.

5 Must Know Facts For Your Next Test

1. Form 990 must be filed annually by most tax-exempt organizations, including charities and nonprofit organizations, ensuring public access to their financial data.
2. The form includes various schedules that detail specific aspects of the organization's finances, governance, and compliance with regulations.
3. Failure to file Form 990 can result in penalties for organizations, including the loss of tax-exempt status after three consecutive years of non-filing.
4. Stakeholders such as donors, grantmakers, and regulatory agencies use Form 990 to assess the financial integrity and accountability of organizations.
5. Organizations can make their Form 990 publicly available on their websites to enhance transparency and foster trust with stakeholders.

Review Questions

• How does Form 990 contribute to transparency and accountability in tax-exempt organizations?
  • Form 990 plays a critical role in promoting transparency and accountability among tax-exempt organizations by requiring them to disclose detailed financial information annually. This includes data on revenue sources, expenditures, and governance practices. By making this information publicly accessible, stakeholders can better assess the organization's financial health and ethical practices, thus holding it accountable for its operations.
• What are the potential consequences of failing to file Form 990 for an organization?
  • Failing to file Form 990 can have serious consequences for an organization. Initially, it may face monetary penalties from the IRS; however, if it does not file for three consecutive years, it risks losing its tax-exempt status entirely. This loss can severely impact the organization's funding opportunities and overall credibility within the nonprofit sector.
• Evaluate how Form 990 serves as a tool for due diligence in philanthropic investments.
  • Form 990 serves as an essential tool for due diligence in philanthropic investments by providing comprehensive insights into an organization's financial practices and compliance. Philanthropists and grantmakers utilize this form to evaluate an organization's stability, operational efficiency, and alignment with their own values before committing funds. The thorough analysis of Form 990 data allows them to identify potential risks and ensure their contributions are going to reputable entities that effectively manage their resources.

Related terms

Tax-Exempt Organization: An organization that is exempt from federal income tax under the Internal Revenue Code, typically because it operates for charitable, religious, educational, or scientific purposes.

IRS (Internal Revenue Service): The U.S. government agency responsible for tax collection and tax law enforcement, which requires Form 990 from applicable organizations.

Due Diligence: The process of conducting a comprehensive appraisal of an organization to understand its financial status and potential risks before entering into a business relationship.