Form 990 (Schedule J) - Irs.Gov: Fill & Download for Free

One way to tell if a nonprofit organization is in trouble is to look over its financial statements. In the USA, a nonprofit organization’s financial information and other information is usually required to be available to the public, by way of the Form 990 or Form 990-EZ that the organization files with the Internal Revenue Service each year.The IRS has started posting the most recent forms on its web site. Just search for the organization there. https://apps.irs.gov/app/eos/Form 990 can be a bit overwhelming if you have never looked at one before. Here are some of the things I look at when looking at an organization’s Form 990.Part I, Line 12 shows the total annual revenue. Line 18 shows the total expenses. Line 19 shows revenue minus expenses. If this is a negative number, that means the organization is expending more than it is taking in. That is not a good thing. If it is a small negative, it is probably no big deal. If it is a large negative number, it can be concerning. Why was the organization unable to raise sufficient revenue to cover its expenses? How has the organization changed since then in order to cover its expenses?Part I, Line 20 shows the organization’s total assets at year-end. Line 21 shows its total liabilities at year-end. Line 22 shows the assets minus liabilities. If this is a negative number, that means the organization owes more than it has. It also means the organization has probably not been able to raise sufficient revenue to cover its expenses for a long while. An organization with a negative number here may not survive much longer.Part VII, Section A shows the compensation of the organization’s officers, directors, trustees, key employees, and highest compensated employees. If these amounts seem high based on the work performed by each person, it may be concerning that the organization is spending its resources this way. Divide the total of these salaries by the organization’s total revenue (Part I, Line 12), and then multiply by 100. That is the percentage of the organization’s revenue that goes to paying these people. Would a donor find it reasonable that this percentage of their donation goes to compensating these people?Part VII categorizes the organization’s revenue. Concerns or questions about the organization’s revenue may be addressed here. It is often considered good if an organization’s revenue comes from several different sources, rather than one source.Part IX categorizes the organization’s expenses. Concerns or questions about the organization’s revenue may be addressed here. A lot of people look at the totals on the bottom of the page. Divide line 25 column C by line 25 column A, and then multiple by 100, to see what percentage of overall expenses go toward management and general expenses. Divide line 25 column D by line 25 column A, and then multiple by 100, to see what percentage of overall expenses go toward fundraising expenses. Also look at lines 5 through 9, which show compensation to employees. Is that a reasonable amount based on the size of the organization? Lines 11a through 11g are fees for services, sometimes called outsourcing. It is reasonable for an organization this size to spend this much on outsourcing? Line 20 is interest expense, often paid on debt. An organization paying interest on debt may be seen as borrowing from future revenue to pay for current expenses.Part X categorizes the organization’s assets and liabilities. Cash on hand is in lines 1 and 2. If the organization has a lot of cash on hand compared to its annual expenses, it probably has the money to pay its expenses (assuming that cash is not restricted in purpose by the donors, lines 21, 28, and 29). Line 17 shows what the organization owes its vendors and other entities. Line 18 shows what the organization owes its grantees. Line 19 shows what cash has been received without delivering goods or services yet. Line 22 shows the organization has made loans to its own employees. That is usually very concerning. Line 23, 24, and 25 show other types of debt of the organization.Schedule G (if required) details information about fundraising events. If the organization raises less from an event than the cost of the event, one might wonder why a fundraising event has just the opposite effect.Schedule J (if required) shows more information about compensation to certain people. Some people would rather organization’s not pay for first-class travel, travel for employees’ companions, pay for employees’ housing, and so forth (Part I, Line 1).Schedule L (if required) shows whether the organization had certain transactions with “interested persons,” often the organization’s executives. Not usually considered a good use of the organization’s resources.The above is an oversimplification of a Form 990. The full instructions explain much more in detail, including important exceptions and exclusions, and they are 103 pages long. And there is more tax code and regulations behind the instructions. https://www.irs.gov/pub/irs-pdf/i990.pdfOverall, if you think an organization is in financial trouble, you might be right.