How to Read a Form 990

Mission or most significant activity — a brief description of why the organization exists.

Number of voting members of the governing body, and the number who are independent — a quick governance quality indicator.

Total number of employees and volunteers — indicates organizational scale.

Total gross unrelated business revenue — shows whether the organization has significant non-exempt income.

Total revenue, total expenses, and revenue less expenses — the basic financial picture in three numbers.

Total net assets or fund balances — the organization's overall financial position at year-end.

Does the organization have a written conflict of interest policy? (Line 12a) — Best practice requires one.

Does the organization regularly and consistently monitor and enforce compliance with the conflict of interest policy? (Line 12b)

Does the organization have a written whistleblower policy? (Line 13)

Does the organization have a written document retention and destruction policy? (Line 14)

Did the process for determining compensation include a review and approval by independent persons, comparability data, and contemporaneous substantiation? (Line 15) — This is the safe harbor question, directly relevant to <a href="/nonprofits/resources/irs-comparability-data-requirements">IRS comparability requirements</a>. [6]

Did the organization invest in, contribute assets to, or participate in a joint venture or similar arrangement with a taxable entity? (Line 16)

Total compensation relative to organization size — are executives paid in line with peer organizations of similar budget and mission?

Compensation from related organizations — executives may receive additional pay from affiliated entities, which inflates their true total compensation.

Estimated other compensation — this column captures benefits, deferred comp, and non-cash compensation that can significantly increase total pay beyond what the base salary suggests.

Former officers still receiving compensation — this can indicate severance arrangements or legacy pay agreements worth investigating.

Independent contractors earning over $100,000 — large contractor payments can sometimes indicate related-party arrangements or outsourced functions that merit scrutiny.

Contributions, gifts, and grants (Line 1) — Includes donations from individuals, foundations, corporations, and government grants. Federated campaigns, membership dues, and fundraising events are reported separately.

Program service revenue (Line 2) — Fees earned from the organization's exempt activities (e.g., tuition at a school, patient fees at a hospital, ticket sales at a museum). This is earned income, not donations.

Investment income (Lines 3–5) — Includes interest, dividends, rents, and royalties from the organization's investments.

Gross amount from sale of assets (Line 7) — Capital gains or losses from selling investments, property, or other assets.

Other revenue (Lines 8–11) — Includes revenue from special events (net of direct expenses), gaming, and other miscellaneous sources.

Grants and other assistance (Lines 1–3) — Funds distributed to other organizations, governments, or individuals.

Compensation and benefits (Lines 5–10) — Salaries, employee benefits, payroll taxes, and compensation of officers/key employees. This is typically the largest expense category.

Professional fundraising services (Line 11e) — Fees paid to outside fundraising firms — high amounts here may indicate the organization is spending heavily to raise money.

Other expenses (Lines 11a–24) — Includes occupancy, travel, conferences, depreciation, insurance, and all other operating costs.

Total functional expenses (Line 25) — Split into program, management, and fundraising columns. The program services percentage is the widely cited "program expense ratio."

Cash and cash equivalents (Line 1) — Liquid resources available for operations.

Investments — publicly traded securities (Line 11) and other investments (Line 12) — Shows the size of the organization's investment portfolio.

Land, buildings, and equipment (Line 10) — Fixed assets, reported net of depreciation.

Total assets (Line 16) and total liabilities (Line 26) — The overall financial scale of the organization.

Net assets (Line 33) — Total assets minus total liabilities. Split into unrestricted, temporarily restricted, and permanently restricted categories (though ASC 958 reclassified these as "without donor restrictions" and "with donor restrictions"). [11]

Declining net assets over multiple years — the organization is spending more than it takes in and drawing down reserves.

Program expense ratio below 65% — suggests a high proportion of spending goes to administration and fundraising rather than mission. Context matters, but consistently low ratios warrant questions.

Large professional fundraising fees (Part IX, Line 11e) — if the organization pays an outside firm a significant share of fundraising revenue, net donations to the mission may be low.

Significant unrelated business income (Part I, Line 12) — large amounts may indicate the organization has drifted from its exempt purpose.

Unexplained large swings in revenue or expenses year over year — could indicate one-time events, accounting changes, or potential irregularities.

No conflict of interest policy (Part VI, Line 12a) — a basic governance best practice missing.

No comparability process for compensation (Part VI, Line 15) — means the safe harbor presumption of reasonableness is not in place.

Very few independent board members (Part I, Line 3) — raises questions about oversight and independence.

Loans to or from officers, directors, or key employees (Schedule L) — related-party lending is a significant area of IRS scrutiny.

No independent audit (Part XII, Line 2a) — organizations above $500,000–$750,000 in revenue are generally expected to have independent audits, and some states require them.

Executive compensation well above peer benchmarks — compare using Part VII and Schedule J data against similar organizations by size, sector, and geography. See our guide on <a href="/nonprofits/resources/is-my-nonprofit-ceo-overpaid">evaluating nonprofit CEO pay</a> for a step-by-step process.

First-class or charter travel, tax indemnification, or discretionary spending accounts flagged in Schedule J, Part I.

Compensation from related organizations (Part VII, Column E) that significantly inflates an executive's total pay beyond what the primary organization's 990 shows.

Former officers receiving substantial compensation — may indicate golden parachute arrangements.

Late filing penalty — $20 per day for each day the return is late, up to the lesser of $10,000 or 5% of the organization's gross receipts. For organizations with gross receipts exceeding $1,067,000, the penalty increases to $105 per day, up to a maximum of $53,000 (amounts adjusted for inflation). [4]

Failure to file for three consecutive years — The organization's tax-exempt status is automatically revoked under IRC Section 6033(j). This provision, enacted by the Pension Protection Act of 2006, is strictly enforced. Revoked organizations must reapply for exemption. [4] [15]

Public disclosure penalties — Failure to make returns available for public inspection as required under IRC Section 6104(d) can result in a penalty of $20 per day, with no maximum. [2]