Start with Parts I, VI, VII, VIII, IX, X, XI, Schedule A, Schedule R, and Schedule O. Together, they show how a nonprofit describes its mission, who governs it, what key people are paid, where money comes from, how it is spent, and what it owns or owes for a particular tax year.
Form 990 is an annual IRS information return, not an audited impact report. It can reveal useful disclosures and financial patterns, but it cannot by itself prove that programs work, that policies are followed in practice, or that a nonprofit is financially “healthy.” Use the filing as a structured starting point, then compare years and corroborate important claims.
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What Form 990 tells you—and what it cannot prove
The IRS requires most tax-exempt organizations and certain other entities to file an annual information return. Parts I through XII cover exempt and other activities, finances, governance, compliance with federal filing requirements, and compensation paid to certain people. The completed return is generally public; the main exception is limited contributor information on Schedule B.
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Think of Form 990 as a disclosure document. It records what the organization reported for one tax year under tax-return categories and accounting rules. It is not the same thing as audited financial statements, an outcomes evaluation, or a regulator’s finding that management is effective. A strong reading therefore asks two questions at once: What does the return disclose? and What evidence would confirm or explain it?
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Before you read: identify the exact filing
Confirm the legal entity and tax year
Write down the nonprofit’s legal name, employer identification number, tax year, and accounting period shown on the first page. A familiar public-facing name can differ from the legal entity that filed the return. If you are comparing organizations, use the same tax year whenever possible; a calendar-year filer and a June-year filer may otherwise be describing different economic periods.
Confirm which return you have
Most larger organizations file Form 990, but some use Form 990-EZ, Form 990-PF, or another return. The schedules and level of detail vary. Do not treat a missing section on a shorter form as evidence that the activity did not occur. IRS resources provide current and prior-year forms and instructions, which help you identify what a particular filing includes.
Record the filing’s accounting context
Note whether the return covers a full year, a short period, or a change in accounting period. Preserve the PDF and record the page, part, schedule, and label for every figure you use. That audit trail prevents accidental comparisons between unlike periods or between a parent organization and one of its related entities.
Read Form 990 in a practical order
The form is long, but a consistent sequence makes it manageable. The table below is a map; read Schedule O alongside the part it explains rather than leaving all narrative notes until the end.
| Order | Part or schedule | What to look for |
|---|---|---|
| 1 | Part I | Mission, revenue, expenses, assets, liabilities, net assets, and employees. |
| 2 | Part III | Programs the organization says it operated, people served, and resources devoted to major programs. |
| 3 | Part VI | Board structure, independence, relationships, policies, and document disclosure. |
| 4 | Part VII and Schedule J | Officers, directors, trustees, key employees, highest-paid employees, contractors, and additional compensation details. |
| 5 | Parts VIII and IX | Revenue sources and functional expenses for programs, management, and fundraising. |
| 6 | Parts X and XI | Assets, liabilities, net assets, reconciliation, and changes during the year. |
| 7 | Schedule A, Schedule R, and triggered schedules | Public-support status, related organizations, partnerships, grants, fundraising, foreign activity, political activity, noncash gifts, or interested-person transactions. |
| 8 | Schedule O | Narrative explanations for unusual answers, compensation decisions, transactions, and governance disclosures. |
1. Start with Part I, Summary
Part I gives you the organization’s stated mission and high-level totals. Record total revenue, total expenses, assets, liabilities, net assets, and the number of employees. Compare each figure with prior returns if available. A single-year surplus or deficit is a clue, not a verdict: timing of grants, a capital project, restricted funds, or an unusual investment result can move totals sharply.
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2. Test the story in Part III
Part III describes the organization’s largest program services, what it says it accomplished, whom it served, and the expenses assigned to those activities. Treat these as management’s disclosures. Compare the descriptions with annual reports, evaluations, government contracts, or other independent evidence. A polished narrative does not establish impact, while a brief narrative may simply reflect the form’s limits.
3. Examine governance in Part VI
Part VI is the main governance and disclosure section. Note the number of voting members, how many are independent, and whether family or business relationships exist among directors, officers, and key employees. Review answers about conflict-of-interest, whistleblower, document-retention, and gift-acceptance policies. Check whether governing documents, the conflict policy, and financial statements were made available as described.
When an answer needs explanation, the organization should use Schedule O. Read the explanation rather than interpreting a “yes” or “no” in isolation. A policy checked “yes” shows that the organization reports having it; it does not prove the policy is enforced.
4. Read Part VII and Schedule J for leadership pay
Part VII lists officers, directors, trustees, key employees, certain highest-compensated employees, and independent contractors. The IRS treats the top management official and top financial official as officers even when their job titles differ. Compensation from related organizations must be considered, so do not stop at the salary shown for one entity.
Schedule J adds detail about base compensation, bonuses, incentive pay, retirement benefits, deferred compensation, nontaxable benefits, and other payments for applicable individuals. Use it to understand the total package and to spot unusual severance, supplemental benefits, or payments from related entities.
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5. Separate revenue in Part VIII
Part VIII distinguishes contributions and grants, program-service revenue, investment income, unrelated-business income, and other sources. Identify the organization’s dominant sources and whether they are recurring. A nonprofit dependent on one government contract, foundation grant, donor, or investment can face more volatility than its total revenue suggests.
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Part IX separates program-service expenses from management and general expenses and fundraising expenses. Compare categories across several years, but remember that organizations allocate shared costs differently. A capital campaign, donated services, in-kind goods, or a mission requiring substantial administration can make simple percentage rankings misleading. Expense labels are signals for questions, not a universal performance score.
7. Check the balance sheet and reconciliation
Part X reports assets, liabilities, and net assets. Part XI reconciles changes in net assets and helps explain why the year ended differently from the beginning. Look for the direction of unrestricted and restricted net assets, debt, receivables, and cash or investments. Then read Schedule O and any financial-statement notes for context. A growing net-asset balance may reflect a restricted grant or capital campaign rather than unrestricted operating strength.
8. Follow the schedules
Schedule A helps explain public-charity status and public support. Schedule R identifies related organizations and unrelated partnerships, which is essential when money, employees, or compensation move between entities. Other schedules may disclose grants, fundraising events, foreign activity, hospitals, political activity, noncash contributions, or transactions involving interested persons. A schedule being absent generally means it was not triggered or required for that return; it is not proof that every category of activity is immaterial.
9. Use Schedule O as the explanation layer
Schedule O often contains the sentence that makes a surprising checkbox understandable. Look there for explanations of compensation decisions, related-party transactions, changes in accounting, governance relationships, and unusual revenue or expense movements. Read it before drawing a conclusion from an isolated number.
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How to evaluate a nonprofit’s leadership
Build the accountability chain
You should be able to identify a governing board, a top management official, and a top financial official, even if the titles vary. Compare their names and roles with the nonprofit’s website, annual report, state corporate record, and earlier Form 990s. Sudden changes can be legitimate, but they warrant an explanation—especially when they coincide with large compensation changes or related-party transactions.
Interpret executive compensation in context
A high salary is not automatically misconduct. Consider the organization’s size, geographic labor market, complexity, specialized duties, and total compensation package. Include payments from related organizations before estimating what an executive receives for serving the nonprofit’s enterprise.
| Compensation question | Where to look | Why it matters |
|---|---|---|
| Who is the top management official? | Part VII and Schedule O | The title may be chief executive, president, or another designation; the IRS classification follows the role. |
| Who is the top financial official? | Part VII and Schedule O | The chief financial role is treated as an officer even if the title differs. |
| What is the total package? | Part VII and Schedule J | Bonuses, deferred compensation, retirement benefits, severance, and nontaxable benefits can materially change total pay. |
| Is related-organization pay included? | Part VII, Schedule J, and Schedule R | Payments through an affiliated entity can make the amount on one organization’s line incomplete. |
| How was pay approved? | Part VI and Schedule O | Look for a documented, independent process using comparability information and board approval. |
The National Council of Nonprofits advises that boards approve and document executive compensation as “reasonable and not excessive.” On the return, look for the process and its explanation, not just the dollar amount. A compensation committee, independent directors, comparable data, minutes, and recusal of conflicted decision-makers provide more context than a salary figure alone.
Check relationships and conflicts
Part VI asks about family and business relationships and conflict-of-interest policies. Schedule R can reveal entities that share directors, employees, property, or contracts. A relationship is not automatically improper; the key questions are whether it was disclosed, reviewed by disinterested decision-makers, priced reasonably, and explained in Schedule O.
How to tell whether a nonprofit is financially healthy
There is no official universal “healthy nonprofit” ratio or pass/fail score. Use at least three lenses and compare multiple years.
Capacity: can it meet obligations?
Start with revenue, assets, liabilities, net assets, and the composition of liquid resources. Examine whether debt and payables are rising, whether receivables or promises to give dominate assets, and whether net assets are restricted. Form 990 does not replace an audit, so obtain audited financial statements when the organization publishes them and reconcile major differences in presentation or timing.
Activity: what funds the mission?
Compare program-service revenue with program-service expenses. A hospital, museum, school, membership association, and grant-funded relief group can have very different revenue models while all operating responsibly. Ask whether the reported programs match the mission and whether large changes are explained in Schedule O or the annual report.
Concentration and volatility: how exposed is it?
Separate recurring sources from one-time grants, capital gifts, asset sales, and investment gains. Dependence on one donor, contract, or investment source increases exposure to renewal, market, or policy changes. Compare at least three years when available and investigate abrupt movements rather than assuming either growth or decline is inherently good or bad.
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|---|---|---|
| Capacity | Assets, liabilities, net assets, employee count, revenue and expense totals. | Are liquid resources and recurring revenue sufficient for obligations, or are balances restricted or tied up in receivables? |
| Activity | Part III program descriptions; Parts VIII and IX program revenue and expenses. | Do the stated activities, spending, and revenue model fit the mission? |
| Concentration | Revenue categories, major grants or contracts, investment and unrelated-business income. | Would losing one funder, contract, or market materially change operations? |
| Volatility | Year-over-year changes in revenue, expenses, debt, and net assets. | Is the change explained by timing, restrictions, capital work, restructuring, or an operating shift? |
Why “program-spending percentage” is not enough
Do not rank nonprofits solely by the percentage labeled program expenses. Allocation methods, capital spending, in-kind support, and mission differences can produce very different ratios without proving that one organization is more effective. Pair the return with outcome evidence, independent reviews, state filings, and direct questions to the organization.
Red flags that deserve follow-up
These are prompts for investigation, not findings of wrongdoing:
- Large year-over-year changes in revenue, expenses, debt, or net assets with no clear explanation in Schedule O or other reports.
- A sharp increase in executive compensation, severance, benefits, or related-organization payments without a documented board process.
- Family or business relationships, interested-person transactions, or shared entities that are disclosed incompletely or explained vaguely.
- Repeated operating deficits, rising liabilities, or assets concentrated in difficult-to-liquidate receivables while recurring revenue is falling.
- Heavy dependence on one donor, grant, contract, or investment result.
- Governance answers indicating limited independence, missing policies, or no access to governing documents and financial statements.
- Program descriptions that change substantially while spending, staffing, or revenue patterns do not support the claimed expansion.
- Differences between the Form 990, audited statements, annual report, and public leadership information that the organization cannot reconcile.
None of these items alone establishes fraud, waste, or ineffectiveness. Ask for the underlying explanation and supporting documentation before reaching a conclusion.
How to compare two nonprofits fairly
Make a side-by-side worksheet before interpreting differences. Use the same tax year and accounting basis, and record the exact part or schedule for each figure.
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|---|---|---|
| Revenue mix | Contributions, grants, program-service revenue, investments, unrelated business, and other income. | Different missions naturally produce different mixes; focus on concentration and recurrence. |
| Operating result | Revenue minus expenses and the change in net assets. | Restricted grants, capital projects, and timing can create a surplus or deficit. |
| Liquidity and liabilities | Liquid assets, receivables, debt, payables, and restricted net assets. | A larger asset base may not mean more spendable cash. |
| Expense pattern | Program, management, and fundraising expenses over several years. | Allocation methods and in-kind support limit simple percentage comparisons. |
| Leadership pay | Total compensation, benefits, severance, and related-organization payments. | Compare scope, geography, and documented approval—not salary alone. |
| Governance | Board size and independence, relationships, policies, and disclosure practices. | A policy checkbox is a report, not proof of implementation. |
| Public support and affiliations | Schedule A status and Schedule R relationships. | Affiliates and partnerships can shift resources outside the filing entity. |
| Explanations | Schedule O narratives and consistency with other reports. | Clear, specific explanations increase confidence; unresolved discrepancies require questions. |
A repeatable Form 990 review checklist
- Save the filing and record the legal name, EIN, tax year, accounting period, and return type.
- Copy Part I totals and compare them with prior filings.
- Summarize Part III programs, beneficiaries, and reported program spending.
- Review Part VI for board independence, relationships, policies, and document access.
- List officers, key employees, highest-paid employees, and contractors from Part VII.
- Use Schedule J to capture bonuses, deferred compensation, benefits, severance, and other payments.
- Trace affiliations and related payments through Schedule R.
- Separate revenue categories in Part VIII and functional expenses in Part IX.
- Review assets, liabilities, net assets, and reconciliation in Parts X and XI.
- Read Schedule A, Schedule O, and every other schedule attached to the return.
- Compare at least three years where available and flag unexplained changes.
- Corroborate material claims with audited statements, annual reports, state records, evaluations, and questions to the organization.
Questions to ask the nonprofit after reading
- What caused the largest change in revenue, expenses, debt, or net assets this year?
- How much of the reported net assets is restricted, and for what purpose?
- What recurring source would replace a major grant or contract if it ended?
- Which related organizations receive payments, and what services or resources do they provide?
- How did independent directors approve executive compensation, and what comparability information was used?
- How are shared costs allocated between programs, management, and fundraising?
- Which outcomes support the program accomplishments described in Part III?
The limits that should shape your conclusion
Form 990 is valuable because it puts mission, money, governance, and selected compensation in one public filing. Its categories are not a standardized scorecard, and a single return cannot establish program impact or prove that a policy is followed. A responsible conclusion states exactly what the filing shows, identifies what remains uncertain, and points to the additional evidence needed to resolve it.
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