IRS Form 990 is more than just another compliance hurdle—it’s a strategic document that can shape an association’s financial transparency, reputation, and funding opportunities. Yet, despite its importance, many finance leaders view the 990 as an annual chore rather than a valuable financial and governance tool.
For emerging finance leaders and seasoned CFOs new to the association space, understanding Form 990 is key—not just for meeting IRS requirements, but for leveraging it as a tool for financial oversight, stakeholder engagement, and long-term sustainability.
What Is Form 990, and Why Does It Matter?
Form 990 is the annual tax return that tax-exempt organizations must file with the IRS. While associations do not pay federal income tax, they are required to disclose their financial activities, governance structures, and compensation details through this public document.
Unlike corporate tax returns, which are largely confidential, Form 990 is publicly available for anyone to review. Watchdog groups, donors, members, regulators, and even competitors often scrutinize it. That makes accuracy and narrative control essential.
Key Purposes of Form 990
- Regulatory Compliance – Ensures the association maintains its tax-exempt status by demonstrating adherence to nonprofit tax laws.
- Public Transparency – Provides a detailed financial snapshot for members, funders, and other stakeholders.
- Governance & Accountability – Highlights board composition, executive compensation, and internal policies.
- Strategic Positioning – Can serve as a public relations asset when used effectively, showcasing financial health and operational efficiency.
Breaking Down Form 990
The core IRS Form 990 is 12 pages long, but the total filing can expand significantly based on an association’s financial activities and governance structure. While all filers complete key sections of the form, certain parts apply only if the organization meets specific criteria, such as reporting unrelated business income or lobbying expenditures.
Key sections applicable to most filers include:
- Part I: Summary – A high-level financial overview, including total revenue, expenses, and net assets. This section sets the tone for the entire return and should align with the association’s financial reports.
- Part III: Program Accomplishments – Describes key initiatives and how funds were used to further the organization’s mission. A critical section for demonstrating impact to stakeholders.
- Part V: Tax Compliance – Required if the association engages in unrelated business income (UBI), foreign accounts, or certain tax filings.
- Part VI: Governance, Management, and Disclosure – Details board structure, conflict-of-interest policies, and governance practices. Associations should ensure these disclosures align with best practices to reinforce credibility.
- Part VII: Executive Compensation – Required if the organization has officers, key employees, or highly compensated individuals above IRS thresholds. Benchmarking against industry standards is crucial to avoid IRS scrutiny or member concerns.
- Part VIII & IX: Revenue and Expenses – Provides a detailed breakdown of revenue sources and spending categories. Proper categorization is key for financial transparency and operational assessment.
- Schedule O: Narrative Disclosures – Allows organizations to provide additional context on financial and governance matters. A well-crafted Schedule O can mitigate potential red flags and reinforce positive messaging.
Additional schedules are required depending on specific criteria—such as Schedule A for public charities, including an association’s separately incorporated 501(c)(3) education foundation, Schedule B for organizations receiving substantial donor contributions, or Schedule J for those providing certain types of executive compensation, such as deferred benefits or bonuses. These schedules can add dozens of pages, making it essential for CFOs to understand which apply to their organization and its affiliated entities.
Associations that engage in political or lobbying activities may need to include Schedule C (Political Campaign and Lobbying Activities) with their Form 990. This schedule is required if the association has spent funds on direct or indirect political campaign activities, issue-based advocacy, or lobbying efforts. While 501(c)(3) organizations face strict limitations on lobbying and cannot engage in political campaigns, 501(c)(6) associations are permitted to lobby but must report their expenditures accordingly. Affiliated PACs operate under separate tax rules and file separate FEC reports, but if the association provides financial support, shared resources, or coordination, it must be disclosed on Schedule C. CFOs should ensure compliance with IRS reporting requirements to maintain transparency and avoid regulatory scrutiny.
Beyond Compliance
While the primary goal is IRS compliance, savvy CFOs recognize Form 990 as a tool for strategic growth.
Benchmark Against Peer Associations
Form 990 offers a valuable opportunity to benchmark your organization's financial health against peers. Reviewing publicly available filings can help assess key financial metrics such as revenue, expenses, and executive compensation, ensuring they align with industry standards and donor expectations. For example, analyzing compensation disclosures across similar organizations can help CFOs determine whether executive pay is competitive yet reasonable, reinforcing both financial responsibility and stakeholder trust.
Beyond compensation, Form 990 can also be a tool for evaluating operational efficiency and financial sustainability. By tracking trends in expense ratios, programmatic spending, and revenue diversification over time, organizations can identify opportunities for improvement. Associations that systematically compare their financials with similar entities can uncover inefficiencies, adjust spending strategies, and enhance their long-term financial position.
For a deeper dive into benchmarking methods, including how DuPont analysis can be applied to nonprofit financial evaluations, refer to Benchmarking Association Financial Performance Using DuPont Analysis on the SoundPost blog.
Strengthen Stakeholder Confidence
A well-prepared Form 990 not only satisfies compliance requirements but also reinforces transparency with members, donors, and other stakeholders. It should align with an organization’s annual reports, strategic plans, and public messaging, ensuring consistency across all financial disclosures. Nonprofits and associations that openly share financial reports and impact data demonstrate accountability, giving stakeholders confidence in how funds are used.
Additionally, Form 990 serves as an excellent platform for demonstrating financial stewardship and program impact. Many organizations make their filings easily accessible on their websites, using them to highlight financial stability, governance practices, and how funds are allocated to mission-driven initiatives. Taking a similar approach can help build credibility with members, sponsors, and potential funders.
Mitigate Risk
Proactively reviewing Form 990 before submission is essential for identifying and addressing potential red flags. Large deficits, excessive reserves, or inconsistencies in financial reporting can trigger IRS scrutiny or erode stakeholder confidence. Associations should carefully assess their financial position, ensuring that unrestricted net assets, program spending, and revenue sources are well-documented and strategically justified.
To mitigate risks, CFOs should also conduct an internal review with legal counsel or auditors before filing. This ensures that all disclosures—especially those related to governance, lobbying activities, and executive compensation—are accurate and compliant with IRS regulations. A thorough review can prevent costly errors, reduce the risk of audits, and maintain the organization's tax-exempt status.
For additional guidance, refer to What to look for when reviewing the IRS Form 990 before filing from the National Council of Nonprofits.
Bolster Fundraising and Grant Applications
Many grant makers, corporate sponsors, and institutional donors review an organization’s Form 990 as part of their due diligence process. A well-prepared filing should clearly communicate financial sustainability, mission alignment, and program effectiveness, as funders often compare multiple years of 990 data to assess an organization’s stability.
To maximize funding opportunities, organizations should use Form 990 to highlight key accomplishments and impact metrics. A well-crafted Schedule O can provide context for financial decisions, explain year-over-year changes, and reinforce the organization's long-term sustainability. Associations that effectively position their financials within their Form 990 can strengthen their case for grants, major gifts, and other funding sources.
Closing Notes
For association CFOs, Form 990 should not be a once-a-year afterthought. It is a powerful tool that reflects financial health, governance practices, and overall transparency. By approaching it strategically, associations can not only maintain compliance but also strengthen their financial positioning and reputation.
Tags:
Association Finance
February 11, 2025 10:00:00 AM EST
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