Each year, most nonprofits (large and small alike) are required to file some version of the 990 with the IRS – and they’re  available on the internet for anyone to download and review.

But a 990 submitted with all of the required schedules can easily run 40 or 50 pages. If you’re a donor, journalist, or simply a member of the public, you may be wondering where to begin.

Below we highlight some of the hidden gems of the IRS 990.

We show you how to read a nonprofit 990 so that you can focus on the areas of the annual return that provide the most useful information on the organization in question.

How to read a nonprofit 990: What are the key sections?

The 990 is the instrument by which a nonprofit demonstrates to the IRS that it deserves continued tax-exempt status.

It’s broken into several parts and schedules and it pays to get familiar with them.

Below are the areas that generally yield the information you’ll be looking for:

  • Summary (Part I)

This section is particularly useful because it gives a snapshot of how much funding an organization receives and spends, as well as its total assets, liabilities and net assets.

It also provides a summary of the organization’s mission.

  • Program Accomplishments (Part III)

In addition to understanding the self-described purpose of an organization, many readers find it useful to know what a nonprofit has accomplished, from a programmatic perspective, over the past year.

This is where Part III comes in handy.

Nonprofits are supposed to include qualitative and quantitative information about their achievements in a “clear, concise, and complete” manner, including details regarding number of “clients served, days of care provided, number of events or sessions held, or publications issued.”

  • Compensation (Part VII)

If you have ever wondered how much a certain nonprofit executive makes, this is the place to look.

Nonprofits are required to report salaries and benefits for their top management official (Executive Director, CEO, etc.), their top financial official (CEO, finance director, controller, etc.), and board members, regardless of how high or low that compensation is.

They are also required to list compensation of key employees who make more than $150,000 per year and “highest compensated employees” who make more than $100,000 annually.

If any individuals listed make more than $150,000 per year, or any former officials were compensated, the organization is required to provide additional details on compensation in Schedule J (including the provision of controversial fringe benefits such as chauffeur services or country club dues).

  • Public Support Test (Schedule A)

This is often one of the most overlooked sections of the 990, especially among those who are not used to reading 990s. However, it’s one of the most important.

The public support test (PST) is used to quantify how diverse a 501c3 organization’s funding is.

Without getting too technical here, the PST divides the organization’s revenue dollars into two buckets:

  • Public support, and
  • Nonpublic support

Generally, amounts received from government agencies and other public charities go into the public support bucket.

Amounts received from other sources (such as individuals, for-profit corporations and private foundations) go into the public support bucket, only to the extent that the amounts do not exceed certain thresholds. Amounts that do exceed stated thresholds go into the nonpublic support bucket.

The relative totals in each bucket will then determine what percentage of the organization’s support is “public support.”

A PST in the 80s or 90s indicates a broad base of public support. A PST below 50, on the other hand, may be indicative that an organization relies upon (and answers to) a small handful of major donors.

If an organization’s PST falls below 33.33 (but remains at 10 percent or above) for two consecutive years, it must submit with its 990 a “10 percent facts and circumstances statement” in order to retain its status as a public charity.

The statement must illustrate the nonprofit’s programs that benefit the general public, its fundraising efforts, and the diversity of its board of directors.

This is needed to satisfy the IRS that the organization exists to benefit the greater good, despite the sources of funding.

  • Fundraising (Schedule G)

If a nonprofit annually spends more than $15,000 on outside professional fundraising services, it must provide information about the “return on investment” on Part I of Schedule G.

This must include the total proceeds resulting from the fundraising activities and how much of that the nonprofit received after paying the service provider(s).

Part II gives a similar presentation with regard to fundraising events, such as an annual gala. One thing to keep in mind, however, is that only direct event expenses (venue, food, etc.) are listed here.

Indirect expenses, such as event advertising, are not captured here. As such, the true “net income” of a fundraising event will often be lower than that presented in Schedule G.

  • Further Information (Schedule O)

Schedule O is the designated place for anything that needs to be reported but doesn’t fit anywhere else.

This is where nonprofits provide required narratives, including the approval process for executive compensation and the enforcement process for addressing conflicts of interest.