Form 990, Part VI Governance

Posted on Wednesday, March 13, 2024

Nonprofit organizations, with a few exceptions, are required to file Form 990 with the IRS annually.  Unlike a for-profit income tax return that reports net income and taxes, Form 990 asks for much more than just an organization’s financial information.

The IRS believes that a well-governed organization is more likely to be compliant.  So, when Form 990 was redesigned for 2008, a governance section was added to the form.  The IRS considers this section the crown jewel of Form 990.  This section asks about composition and independence of the governing body, about governance policies and procedures, and how and whether governance and financial information is made available to the public. 

It’s important to make sure that your organization properly completes this section, as well as every question of Form 990, as the IRS considers a form that has not been completed properly an incomplete and therefore not filed form. In addition, anyone has access to your organization’s Form 990, so you want to make sure it accurately represents your organization.

Tips for Completing Part VI, Governance

1. All organizations are required to complete Part VI.
2. The policies listed in Section B of Part VI are not required by the Internal Revenue Code; however, the IRS is asking whether your organization has them in place so it would be good to make sure that you do.  It’s best practice for all nonprofits to have these policies in place.
3. Your organization must have the policy in place as of the end of the tax year to answer yes to the policy questions.  If your organization is in the process of implementing the policy or plans to implement the policy in the near future, answer the question no as required, but add a note on Schedule O explaining your plans.
4. Although it is not required to provide a copy of your organization’s Form 990 to your board prior to filing, it is good practice, which is why the IRS asks if this is done.  The IRS believes that there is a correlation between board review of Form 990 and the accuracy and effectiveness of the form in conveying the organization’s mission, activities, accomplishments, finances, compensation and business relationships and transactions.  It shows that the board is proactive and engaged.  To answer yes, an exact copy of the return filed with the IRS, including all donors’ names on Schedule B, must be provided all members of the board of directors before the Form is filed with the IRS.
5. It is important to make a reasonable effort to obtain necessary information about related parties between board members, officers, and key employees.  Organizations are required to report family or business relationships between these individuals as the IRS believes that an independent board of directors better serves the best interest of the organization.

Contributed by: Carrie Minnich, MAcct, CPA | Partner | DWD CPAs & Advisors

Posted in Mission Minded Nonprofits

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