Not sure what to look for in a charity’s Form 990? A few sections can be especially useful.
At BBB Wise Giving Alliance, to prepare a charity report, we ask charities to complete a detailed online form and provide supporting materials, including annual reports, solicitation materials, and their latest financial statements.
We evaluate publicly soliciting charities against the BBB Standards for Charity Accountability and publish our findings free to the public on Give.org to help donors make informed giving decisions. Our expert staff conduct a deep dive into the charity’s governance and oversight, effectiveness assessment and results reporting, fundraising practices, and other areas, and we work with charities toward meeting the BBB Charity Standards.
In our evaluations, the IRS Form 990 is one piece of the puzzle. We also examine a charity’s detailed online submission, fundraising materials, annual reports and other public disclosures, as well as audited financial statements when available. Our goal is to look at a charity holistically rather than judge it by a single measure or document.
However, BBB Wise Giving Alliance does not conduct an in-depth evaluation of every charity. If you want to know more about a charity we do not currently evaluate, asking the charity for a copy of its IRS Form 990 can be a good place to start.
The IRS Form 990 is an annual information return that many tax-exempt organizations file with the IRS. It contains valuable information about a charity’s activities, finances, governance, compensation, and other practices.
You can view a blank IRS Form 990 to become familiar with the form and its sections. To find a specific charity’s Form 990, use the IRS Tax Exempt Organization Search (TEOS), which provides access to Form 990-series filings and other information about tax-exempt organizations.
If you’re wondering how to read a charity’s Form 990, these sections can be a useful place to start, depending on what matters most to you.
Part I of the IRS Form 990 provides a snapshot of the organization, including its mission or purpose, significant activities, governing body, number of employees, number of volunteers, and financial activity. Here, you can quickly verify whether the mission described matches your generosity interests, whether the overall financial figures seem healthy, or get a quick sense of the size of the governing body.
Part III provides charities with an opportunity to give a detailed description of their program activities. Here, you can get a better sense of the charity’s program accomplishments, verify that the programs are clearly connected to its mission, and check that the charity provides clear and meaningful information about its activities and accomplishments. Ambiguous statements or a lack of clarity can be a red flag.
Part VI offers a window into how the organization is governed. It asks about the governing body, policies and practices, and the process used to review the 990. In this section, you may want to verify the size of the governing board or whether the charity has a conflict-of-interest policy. Part VI, Section A, Question 2 asks whether any officer, director, trustee, or key employee has a family or business relationship with another officer, director, trustee, or key employee. If so, you may have follow-up questions for the charity.
In conjunction with Part VI, Schedule L of the IRS Form 990 provides additional information about certain transactions and relationships involving interested persons, including certain loans, grants, business transactions, and excess benefit transactions. Reviewing Schedule L alongside Part VI can provide a fuller picture of potential conflicts and related-party transactions.
Part VII identifies certain officers, directors, trustees, key employees, highly compensated employees, and independent contractors and provides compensation information for those who meet the reporting requirements. This section also covers one of the most popular and controversial topics in the charity sector: CEO compensation. You can find information about common charity salary misperceptions in this post. Here, you can also identify, if applicable, the number of board members who are compensated, which may influence the independence of the governing board.
Parts VIII, IX, X, and XI work together to provide a financial picture. Part VIII reports revenue, including contributions, grants, program-service revenue, and investment income. Part IX breaks expenses into categories, including program services, management and general expenses, and fundraising. Finally, Parts X and XI provide information that helps show the organization’s financial position and changes in net assets.
These sections can help you assess whether the organization appears financially stable, though there are important limitations. For example, in Part IX, the Statement of Functional Expenses, program expenses are generally lumped into one program category, even when charities have important distinctions among their programs. Part IX, however, can be especially helpful because it shows how funds are distributed among common expense categories, such as salaries, information technology, and travel. There are also potential “red flags” to be found in this section, particularly if expenses appear to be allocated in ways that are inconsistent with the organization’s activities or that may overstate program expenses and understate fundraising or administrative expenses.
A Form 990 is a valuable public document, but it does not provide a complete picture and should not be treated as a scorecard. Think of the 990 as an invitation to ask better questions.
If something catches your attention, look for additional information on the charity’s website, annual report, audited financial statements, and other public materials.
You can also ask the charity directly or let us know that you would like to see a report on the charity.
We are always working with charities to publish or update reports for donors. Visit Give.org to check out any charity before giving. Our recently evaluated charities include:
Finally, remember to let us know by going to give.org/charity-inquiry if you are interested in seeing a report on a charity not on the list and we will do our best to produce one.
