Evaluating A Charity's Financial Health


IRS Form 990

With the tremendous growth in the number of American charities over the past three decades has come a need for standardized financial reporting . Enter Internal Revenue (IRS) Form 990, or 990 for short. A 990 provides a comprehensive financial picture of a nonprofit's program and management.

Greater Access to Public Inspection

Form 990's standard format allows you to compare the same characteristics of different organizations or to evaluate changes in one organization over a period of years. And recently the IRS mandated that Form 990s be more accessible to the general public. For prospective donors, a Form 990 can serve as one source of financial data and offer a sense of how that charity is meeting public accountability standards.

Since 1999 all Internal Revenue Code Section 501(c)(3) organizations have been required to disclose and make copies of their three most recent Form 990s to anyone who requests them. (The regulations also apply to an organization's Form 1023, the form used to apply for tax-exempt status.) To increase public accessibility, more and more nonprofits are posting their forms on their websites.

Who Files and Who Doesn't

Of the nearly two million public and private 501(c)(3) organizations nationwide, roughly two-thirds, or about 1.3 million public and private charities with income exceeding $25,000, file Form 990s to maintain their tax-exempt status. Some charities with less than $100,000 of annual income and less than $250,000 in assets complete the shorter IRS Form 990-EZ. The rest - organizations with gross receipts of less than $25,000 per year and religious groups - are not required to file annual returns. (The $25,000 filing exclusion only applies to public charities. The 98,000 private foundations in the United States must file regardless of their gross receipts.)

Where to Find 990s

As a public document, Form 990 is available through a variety of sources. The first place you can turn to is the charity itself. You may also make requests through your district IRS office, state government regulators, or charity watchdog or advocate groups such as the Better Business Bureau, National Center for Charitable Statistics, and Philanthropy Research, Inc., which produces the GuideStar website. Usually your state attorney general's office or consumer affairs department has Form 990s on file.

Since a single Form 990 provides a static picture, it may be useful to examine data over a period of two or three years. For a more thorough evaluation of an organization's status and financial condition, it may also be helpful to refer to annual reports and audited financial statements, when available. Of course, there's nothing like developing a personal relationship with a charity when considering a grant that is important to you and your family. Most organizations are happy to arrange site visits.

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