Form 990

Subscribe to Form 990

To protect the organization, demonstrate openness and support the greater good, your not-for-profit needs to embrace accountability. Doing so will also help you fulfill your fiduciary responsibilities to donors, constituents and the public.

Fairness and Clarity
Accountability starts by complying with all applicable laws and rules. As you carry out your organization’s initiatives, do so fairly and in the best interests of your constituents and community. Your status as a not-your-profit means you’re obligated to use your resources to support your mission and benefit the community you serve. Evaluate programs accordingly, both in respect to the activities and their outcomes.

There can be no accountability without good governance, and that’s ultimately your board’s responsibility. Your board needs to understand the importance of its role and focus on the big picture — not the process-oriented details best handled at the staff or committee level.

For example, management will likely prepare internal financial statements and review performance against approved budgets on a quarterly basis. But it will present these statements to the board (or its audit or finance committee) for review and approval. Your board is also responsible for establishing and regularly assessing financial performance measurements.

Communicating with your Public
Communication is a big part of accountability. Your annual report, for example, is designed to summarize the year’s activities and detail your not-for-profit’s financial position. But the report’s list of board members, management staff and other key employees can be just as important. Stakeholders want to be able to assign responsibility for results to actual names.

Your not-for-profit’s Form 990 also provides the public with an overview of your organization’s programs, finances, governance, compliance and compensation methods. Notably, charity watchdog groups use 990 information to rate not-for-profits.

Big Impact
Whether your organization is accountable — and able to communicate its accountability — can affect everything from donations to grants, hiring to volunteering and good word-of-mouth.

Whether you’re planning to raise funds for your not-for-profit with a simple bingo game or raffle, or with a more elaborate casino night, you need to understand and follow the federal rules that govern these kinds of activities. Gaming activities can open the door to unexpected taxes and trigger requirements for specific IRS filings.

Filings and special taxes

If you regularly conduct a gaming activity, you may be required to report it to the IRS. For example, nonprofits that gross more than $1,000 in unrelated business income from regular gaming fundraisers may need to file Form 990-T, “Exempt Organization Business Income Tax Return.”

Your group also may be subject to a wagering excise or occupational tax, depending on:

  • The type of wagering you engage in,
  • How it’s structured, and
  • How your organization benefits from the proceeds.

Generally, this tax applies to lotteries or wagering pools that involve a sporting event or a contest that’s conducted for profit.

Winnings and withholding

Depending on the type of game and the amount won by an individual, you might be required to report winnings to the IRS. This applies if your fundraiser includes a single instant/pull-tab prize of $600 or more (if more than 300 times the amount of the wager), a single bingo or slot machine prize of $1,200 or more, or a single Keno prize of $1,500. You’ll need to obtain the winner’s name and Social Security number.

Regular income tax or backup withholding is necessary for some games with winnings over a certain threshold. No withholding is required for bingo prizes up to $1,200. But withholding is necessary when raffle and some other types of winnings are $600 or more. Your organization is required to pay these amounts, regardless of whether you get the withholding from the winner.

Tip of the iceberg

These are just some of the federal rules surrounding gaming. In addition, many states and municipalities impose their own regulations on gaming activities, including requiring licenses or permits. To ensure your fundraiser complies with complex IRS rules, contact us.

Jen: This is the PKF Texas Entrepreneur’s Playbook. I’m Jen Lemanski, this week’s guest host, and I’m here with Annjeanette Yglesias, one of our Tax Managers on our not-for-profit team. Annjeanette, welcome to the Playbook.

Annjeanette: Thanks, Jenn; it’s nice to be here.

Jen: So, as a tax advisor, you often work with non-profits on filling out their 990 Form. What is the 990 Form?

Annjeanette: Form 990 is the income tax form that a tax-exempt organization complete and file with the IRS annually.

Jen: You know, on the 990 Form, there are a lot of things that you probably give advice on the non-profits that they make sure that they pay attention to. What are some of those things that you ask them to look at?

Annjeanette: Well, there’s a lot of information contained on the 990, both financial information, but also general information about corporate governance, and things like that. But there are three things that typically I tell organizations to watch out for, and that would be their statement of functional expenses; their reporting of the officers, directors, and trustees; and also, their fundraising events.

Jen: Ok, and are there any things that they need to know, kind of, about those specific three things?

Annjeanette: Well, the functional expenses is really important. The IRS requires that all expenses be categorized by either management in general, program service, or fundraising expenses.

Jen: That sounds great. Now, I know you’ve written an article called the “Common Pitfalls,” is that something that we can find on our website, correct?

Annjeanette: That’s correct.

Jen: Perfect. Well, thank you so much for being here, and I appreciate it. We’ll have you back to talk about some more things for non-profits.

Annjeanette: Thanks, Jen.

Jen: To learn more about how we can help not-for-profits, visit pkftexas.com/notforprofit. This has been another Thought Leader Production, brought to you by PKF Texas, The Entrepreneur’s Playbook.