All tax-exempt organizations must report annually to the IRS on their financial and other activities — including
their governance activities. They do this by filing a Form 990, Return of Organization Exempt from Income Tax.
Many organizations provide a CPA or legal counsel with the pertinent information and then rely on him or her to complete the form. Regardless of who completes the form, however, all organizations should ensure that the chief executive and either the board chair or the chair of the audit (or finance/audit committee) committee examines it closely prior to filing. As fiduciaries, all board members also should be familiar with it. In Part VI, Section A of the form, the IRS asks whether the board receives a copy and what its review process is. To help your board review the completed form, BoardSource provides the following checklist pertaining to governance. If your board members flag any of the items on the checklist, address them before filing the form with the IRS. When reviewing the form, keep the following in mind:
- Is it accurate? Form 990 serves as introduction to your organization and is reviewed by the IRS, your constituents, donors, and the media. You do not want to share inaccurate information.
- Are you meeting legal requirements? The IRS recognizes your tax-exempt status. Form 990 allows the IRS to verify that your organization meets the expectations and deserves its special status.
- “No” answers may raise red or yellow flags in the eyes of the IRS. They may lead to a heightened audit profile.
- Are there justified reasons for your “no” answers? Have you explained the reasons sufficiently in Schedule O?
- Have you done your due diligence in justifying various interdependencies and relationships among your insiders or individuals or entities with which your organization does business?
- Are those who are compensated for services truly earning their compensation? Familiarize yourself with the
- IRS’s intermediate sanctions and safe harbor clauses and follow them to protect yourself and your organization.