How to Read a Form 990: Guide for Board Members

Your nonprofit’s Form 990 is sitting in a folder somewhere, waiting for your signature. But when you flip through those pages, do you actually know what you’re approving? Most board members admit they feel uncertain when this document arrives. The form is publicly available 24 hours a day to anyone who wants to see it, and it tells your organization’s complete financial story to donors, grantors and watchdog groups.

Why Board Members Need to Understand Form 990

The IRS requires most tax-exempt organizations to file an annual information return. For the majority of nonprofits, that means filing some version of Form 990. With nearly 1.5 million active 501(c)(3) organizations operating in the United States, this form serves as a critical transparency mechanism for the entire sector.

Unlike audited financial statements that you might share selectively, Form 990 is always accessible to the public. Anyone can look it up on sites like GuideStar or ProPublica’s Nonprofit Explorer. Potential donors often review this document before writing a check. Grantors examine it when evaluating funding applications. Journalists use it when researching compensation and spending practices.

The stakes for accuracy are significant. Board members, officers and key employees sign Form 990 under penalty of perjury, attesting that the information is true, correct and complete. If your organization fails to file for three consecutive years, the IRS will automatically revoke your tax-exempt status. Once revoked, your organization cannot receive tax-deductible contributions until you apply for reinstatement, pay the required fees and complete a potentially lengthy review process.

The Key Sections Every Board Member Should Review

When you receive the Form 990, focus your attention on the sections that reveal the most about your organization’s health.

Part I: Summary

Start with Part I, the Summary section. This provides a snapshot of your mission, governance and financial position in a single page.

Part III: Statement of Program Service Accomplishments

Part III covers your Statement of Program Service Accomplishments. This is where your organization tells its story. You can describe your largest programs, share statistics about the people you’ve served and explain the impact of your work. Many organizations underutilize this section. When a potential donor pulls your 990, they should find a compelling narrative that reinforces why your mission matters.

Part VI: Governance Disclosures

Part VI asks detailed questions about your organization’s governance, management and disclosure practices. These yes/no questions might seem administrative, but they paint a picture of organizational health.

The IRS asks whether your organization has a written conflict of interest policy, whether board members are required to disclose potential conflicts and whether the board reviews the Form 990 before filing.

The form also asks about the process used to determine executive compensation. Organizations that follow a documented compensation review process create a presumption of reasonableness that can protect against IRS scrutiny.

Part VII: Compensation

Part VII addresses compensation for officers, directors and key employees. The IRS and the public pay close attention here. Excessive compensation can raise red flags with donors and regulators, while compensation that seems unusually low might indicate governance issues. Review this section to ensure the figures accurately reflect what your leadership actually received during the reporting period.

Part VIII: Statement of Revenue

Part VIII, the Statement of Revenue, shows where your money comes from. Understanding your financial health requires knowing whether you’re overly dependent on a single funding source or whether you’ve diversified your revenue streams effectively.

Part IX: Statement of Functional Expenses

Part IX deserves special attention. This section breaks down your organization’s spending into program services, management and general, and fundraising.

Grantors and donors scrutinize the ratio between these categories. An organization that spends 85% of its budget on programs sends a different message than one spending only 50%. While there’s no universal correct ratio, you should understand what your numbers communicate to the outside world. Newer or smaller organizations naturally have different expense profiles than established ones.

Pay attention to how expenses are allocated. Some costs, like executive salaries or office space, might legitimately support programs, administration and fundraising simultaneously. Your allocation methodology should be defensible and consistent year over year.

Schedule B: Substantial Contributors

Schedule B lists your substantial contributors. While donor names and addresses are redacted from the publicly available version, the contribution amounts remain visible. A handful of very large donations might indicate a strong major gifts program, but could also suggest concerning donor concentration.

Sites like GuideStar compile 990 data and make it searchable. Sophisticated donors use these tools to compare nonprofits before giving. Your Form 990 is a permanent public record that shapes perceptions of your organization for years.

Common Mistakes and How to Avoid Them

The most frequent 990 errors involve inconsistency between the Form 990 and audited financial statements. Your revenue, expenses and net assets should reconcile. Unexplained differences create confusion and can undermine confidence in your financial reporting.

Another common mistake is leaving narrative sections blank. Part III gives you space to describe your programs and impact. Use it.

Finally, don’t wait until the last minute. Many organizations treat the 990 as an afterthought, rushing to complete it close to the deadline. This increases error rates and denies board members adequate time for meaningful review. When your audit is complete, provide your CPA with the information needed to begin 990 preparation promptly.

Strengthen Your Board’s Financial Oversight

Your Form 990 is a window into your organization’s financial health, governance practices and programmatic impact. Understanding how to read it helps you fulfill your fiduciary duty.

At James Moore, we help nonprofit organizations prepare accurate Form 990s. If you have questions about your nonprofit’s annual filing, contact a James Moore professional today.

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