Board members of nonprofit organizations are trusted individuals who are given the great task of fiduciary responsibility of an organization. This responsibility does not only cover financial statements and budgets but also tax forms such as Form 990. Since Form 990 is open to public inspection, it is important for the board to know all aspects and details included within the form.

It is important for a board member to know the ins and outs of Form 990 for many different reasons. One of the most important reasons is to ensure the organization is in compliance with any and all rules and regulations such as compensation. Key employees of a nonprofit organization are special individuals who have serious dedication for the mission. All of their efforts should be compensated with that in mind. However, key employee’s salaries should be sensible. IRS guidelines note key employee’s salaries should be reasonable. If they are not, key employees and board members may be held accountable for excise tax.

Another important detail board members should pay attention to within Form 990 is functional expense allocation. Expenses of a nonprofit organization are broken out into three categories: program, management and general, and fundraising. IRS guidelines note the allocation between these categories should be reasonable. Ideally, a nonprofit organization would allocate a majority of their expenses to the program category as this means most of the expenses incurred by the organization relates to their mission. As stated earlier, Form 990 is open to public inspection. Future donors of the organization can review the organization’s expense allocation to see if the organization is properly using their funds and can use the results to base funding decisions.

While Form 990 shows an organization’s financial situation along with their policies and procedures, it can be an important part of an organization’s future. When board members have the proper knowledge of Form 990, the form can be used to promote the mission of the organization and to ensure no opportunities from the community are passed over.