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Common Errors on IRS Form 990

As the November 15th deadline for returns approaches it is important that board members and management review their information return to ensure that it is accurate, complete, and putting their best foot forward. The July issue of the Journal of Accountancy reported the following as the most common errors that have been noted by the IRS.

1.  Identifying the president as both an officer and a key employee (Part VII, Section A);
2. Reporting only salaries as compensation expense (Part IX, Line 5);
3. Improperly reporting compensation reported in a prior Form 990 (Schedule J, Part II);
4. Failing to include the annual actuarial increase of defined benefit plans (Part VII and Schedule J);
5. Reporting only unrestricted income;
6. Reporting support payments to a related organization as “other expense”;
7. Misidentifying the proper interested person (Schedule L, Part IV); and
8. Showing details of related transactions with a section 501(c)(3) parent organization (Schedule R, Part V).

Through our review of hundreds of forms we have also noted several key areas that are not consistent. Such as reporting contribution revenue but there are no corresponding fundraising expenses noted on the front of the form. If there is contribution revenue there should generally be some allocation of expenses to fundraising. Other areas that organizations do not take advantage of are the documentation opportunities they have to set their organization apart. The expanded 990 is becoming a valuable tool for grantors and savvy contributors. You mission statement on the front page should state what it is that the organization does. Your program accomplishments should highlight your undertakings this past year. Schedule O should be utilized to explain unusual situations or changes from the prior year. Last but not least make sure that your return is complete. Are all items on Page 1 adequately addressed? The IRS could deem your return incomplete for not checking a box on Page 1 which causes the return to be filed late and penalties will apply. The board and management review of the return is an important step in ensuring your return is accurate, complete, and comprehensive.

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If you have questions about IRS Form 990 review, or would like additional information on any of our non profit services, contact Mike Nolan, CPA, at 831.759.6300, or click here to email Mike. In a brief consultation, he can assess your needs and determine the best way to proceed.