By Craig Klose
Contributing Writer
If you’ve never had to file an IRS Form 990 you may not know what it is or who files one. But if you are a grantseeker, the 990 is a tool with which you should become very friendly and familiar.
So What is an IRS 990?
IRS Form 990 is the tax return form used by organizations that are exempt from paying income tax. It provides the public with a nonprofit’s financial and program profile. Organizations that file a Form 990 include private foundations, nonexempt charitable trusts and Section 527 political organizations. Examples of political organizations include political action committees (PACs) and well-known lobbying groups like Citizens United, the American Federation of Teachers and Let America Vote.
People with loads of money — before and after they pass away — have a couple of options as far as the structure of their giving mechanism. They may create a charitable fund (perhaps within a community foundation) or a private foundation (like Bill and Melinda Gates).
Applying to a Private Foundation for Grant Funding. What Will its IRS 990 Tell Me?
A TON of information, actually You can learn almost anything about a potential funder by examining its Form 990. Don’t be overwhelmed by a bunch of numbers. It lays out quite clearly how the organization operates and, most importantly, how it spends its money. As you seek likely funders to support your nonprofit mission, you want to know where they prioritize their giving, with whom and why.
IRS 990 – Part I
The first part gives a very succinct introduction to the organization. The first part asks the organization to define its tax-exempt status and legal structure and to provide a concise statement of its mission, significant activities and governance. You’ll learn how many employees and volunteers a foundation has, what employees are paid, and the number of voting members of the governing body (i.e. Board of Directors or Trustees).
IRS 990 – Part II
This section provides prior and current-year figures for revenues, expenses and assets (or fund balance). It gives the grantseeker an overall picture of the purpose, size and scale of the foundation.
IRS 990 – Part III
This part deals with programs and services. The filing organization describes its programmatic and service accomplishments in its three largest service areas as measured by expenses. In other words, what grants were made in the last year and what were the listed expenses and revenues for each? It details the kinds of services and programs the foundation supports – and, by inference, which kinds of programming they don’t support.
IRS 990 – Part IV, Checklist of Required Schedules
asks very specific questions whose answers will tell you about the foundation’s interests, activities and priorities. For instance, did the organization engage in any direct or indirect political campaign or lobbying activities? This will obviously tell grantseekers something consequential about the organization: are they Democrats or Republicans? Progressives or conservatives? Some grantseekers may need to read no further to see they would prefer to direct their application elsewhere.
Is the foundation a 501(c)(3)? Does it have land, building or equipment holdings? Does the foundation operate school or hospital facilities? Does it maintain a collection of historical materials or art?
Then there are specific questions regarding its financial structure and dealings. Does the foundation maintain any donor-advised funds or accounts? Does it hold assets in donor-restricted endowments, or does it do so through a related organization? Does the foundation hold investments or securities?
Take some time to look at the 990s of foundations in your region that you have heard of. A good place to find these is websites such as GrantStation or GuideStar by Candid. After looking at a couple of 990s, you should be able to “read” them to get all the information you need to make an informed decision about which funders to invite to support your nonprofit mission.
The Next Step in Examining IRS 990s? Compare, Compare, compare!
Assets, Revenues and Expenses
Compare a foundation’s assets reported over the last five years to understand the foundation’s growth and trajectory (this will require looking at the past 2 or 3 years of 990s). This information will help you make informed judgments about the fiscal health of a given foundation compared to others.
A fast-growing foundation may be increasing the number or amount of grants it gives out. Also keep in mind that even tax-exempt foundations must still pay an excise tax of between 1 and 2 percent on investment income (See IRS Code Section 4940). Keep this in mind when you are answering questions for yourself such as:
- What percentage of their income comes from donations
- What percentage comes from grants? (Yes, even grantmakers apply for grants)
- What are they spending to maintain their own functions? (Is this greater than what they are taking in?)
How does all this compare to other foundations you are looking at? Just as foundations examine your organizational finances and documentation to analyze your fiscal health, priorities, structure and operations, grant writers must assess whether a potential grantmaker is a strong fit (and financially robust enough to support initiatives).
Programs and Services
What types of programs and services has the foundation supported in the past? That’s a good indication of what they will support in the future. But keep in mind, a growing foundation is often a changing foundation. That’s where personal contact can come in. Pick up the phone. Send an email. Heck, schedule an in-person chat. Have an in-depth conversation with likely funders about your program ideas.
Funders are often happy for the conversation. Your initiative may be an area they have been thinking about moving into. (Helpful hint: They may be so impressed they open a special request for proposals (RFP) just for you. If nothing else, they may help to guide your grant-writing process to fit everyone’s needs and increase chances for funding.)
Also, are they a regional or a national grantor? Have they given to other nonprofits in your area? If so, reach out and learn about their experience and what made them attractive to the funder.
Information About Directors, Trustees and Key Employees
Make sure you, your board and staff carefully review the list of personnel from the Board members and C-level executives down to key employees (and don’t forget emeritus members, if they are listed). Networking is KEY in foundation grantmaking!
Does your Director know a trustee of the target foundation? Does your program planner have an old friend at the foundation? A friendly contact is a great way for them to learn about your organization and your project. Establishing personal connections can ease the awkwardness that sometimes exists between applicant and grantmaker. It’s a great way to make sure they care about your project and see its importance.
If you can identify no direct connection between personnel from their organization and yours, what then? Find the correct person at the foundation to answer a very specific question about your application, and then start building a relationship with that person.
It’s a Foundation So I Can Apply Anytime, Right?
Wrong. The 990 will tell you whether an organization follows a calendar year or their own fiscal year. Some accept applications on a rolling basis. Many examine new grant proposals monthly or quarterly. Every foundation has a specific cycles for handling grants. Learn how and when the foundation accepts full proposals and letters of intent and plan accordingly to prepare and apply at the right time. This is important. An organization that processes grant applications in June will probably not look at your application made in September.
Major Takeaways About IRS Form 990s
What does all of this information tell you? Well, for starters, do the foundation’s interests align with yours? Are its values compatible with your own? Do they appear to be a thriving institution — and therefore a good collaborator?
A dating metaphor works well here: Would you make good dancing partners? If they look like someone you wouldn’t want to dance with, go ahead and swipe left. So start mining those 990s and identifying the right funding partners for your organization and programs. If you need help from an experienced grant writing team that’ll help you be in it to win serious funding, email kelsey@stcommunicationsstrategies.com.
