Monday, March 10, 2014

How your 990 postcard could be hurting you

Nonprofits whose fiscal year ends December 31 have to file their 990 by May 15. If that fits you, consider NOT using the e-postcard information report, or 990N.

Most small-revenue nonprofits file their mandatory 990 report on the e-postcard. It's simple, doesn't require any extra costs to prepare and fulfills the IRS annual reporting requirement. It also tells every prospective grantor that your revenue is under $50K.

Almost every grant application asks for a copy of your most current 990. In part, that is because it proves you are current with IRS requirements and indicates that you are a legitimate nonprofit, but it also provides fact-finding information to grantors.
The 990 provides a way to cross-check your financial statements with your gross revenue as reported on the 990. Unfortunately, the e-card doesn't provide that information. There is a misconception that only the over-50K organizations can use the 990EZ, but in reality any organization can file that form if they elect and are qualified under the revenue restrictions to do so. The 990 EZ is a five-page form, which the IRS designates as a short form.

Some grantor websites state their minimum income requirements specifically, i.e. they say that they do not consider grants for nonprofits with revenues under "X". Most are more subtle. At the very least they want to support organizations with enough existing revenue to be effective operating at their current level. The long-format 990 or 990EZ tells them that you have a minimum income sufficient to keep the lights on, helping to assure them that their money will be used for your programs, not your rent or utilities.

While a lot of really small or very new nonprofits really don't have enough income or are operating in a deficit condition, many nonprofits that have enough revenue to support the organization's administrative costs still use the short form postcard simply because it's fast, cheap, and easy.
Those organizations might consider the longer 990EZ. This form provides the detail that grantors are looking for and can be used even for the under-50K filers. In some cases, grantors may even accept it in lieu of audited financial statements. The long form not only gives them total revenue, but allows them to see how the revenue is being used.

For instance, one family foundation only supports small nonprofits, i.e.organizations with revenues between 10K and 250K, and they do not require audited financials for NPO's under $25K in revenue, although they do require an accountant's  review letter.While that is a fairly rare scenario, this grantor still requires a long-form 990, even if it is the 990EZ.  Again, they are looking for clues as to how their money might be used. If your report indicates that most of the money is being used for CEO or ED salaries, they might feel that they would be supporting that person, rather than the mission.

Filing a 990EZ does require that you have some sort of formal financial record-keeping system, but then, you should have that in place anyway. If it means gaining increased access to grantor funds, the cost will be an investment in your future, rather than a liability.  As always, if you have specific questions regarding whether or how to file this form, check with your accountant. 

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