Form 990: more than just a tax return.

• Author: Anderson, Christopher B.

No longer the mundane tax return of the past, Form 990, Return of Organization Exempt From Income Tax, has evolved into one of the most important marketing and public relations documents for tax-exempt organizations. Not only are the Forms 990 for Sec. 501(c)(3) organizations posted on the Internet at the Guidestar site (www.guidestar.org), but also, rating services analyze these organizations' operations and report ratings to potential donors.

Form 990 provides the information for the ratings systems and for much of the content of media reports. Exempt entities must recognize this new focus when preparing and filing their annual returns. The following are suggestions and strategies to maximize the effectiveness of presenting information on Form 990.

Statement of Functional Expenses

Part II of Form 990 requires a filer to list its expenses and allocate them to the following three categories: "Program services," "Management and general," and "Fundraising." The overall goal is to allocate as many expenses to Program services as is reasonably possible, to demonstrate that the organization expends substantial resources to further its exempt purposes.

The Management and general category can be a trap, because the media and the uninformed public may view these expenses negatively. Statements such as "38 cents of every dollar given to XYZ Charity goes toward administrative charges, rather than XYZ's programs" are not uncommon.

Frequently, many organizations do not allocate any expenses to the Fundraising category, even when they have raised a substantial amount of donations. The Service has publicly questioned this practice and informed exempt organizations that it expects fundraising expenses to be properly categorized on Form 990.

How should an organization allocate its expenses? The filer should consider using documented methods, such as time studies (for personnel expenses) and square footage (for allocating occupancy expenses by function). This data may be difficult to collect, especially for organizations that are understaffed. However, the potential repercussions of a negative news story or a low score from a rating organization such as Charity Navigator (www.charitynavigator.org) often outweigh the costs of developing reasonable and accurate allocation methods.

Statement of Program Service Accomplishments

For marketing purposes, Part Ill is the most important part of Form 990. This section allows an organization to provide concrete details...