How to Read a Form 990: Key Parts, Schedules, and Red Flags

Learning how to read a Form 990 is the fastest way to judge whether a nonprofit deserves your donation, your grant, or your trust. The form is a tax-exempt organization’s annual information return, and federal law requires it to be open to the public, so anyone can pull one up and start digging.¹ The sections below walk through the parts of the form that actually change how you should think about an organization, and the schedules where the most revealing information tends to hide.

Find the Filing and Check Which Version It Is

The IRS Tax Exempt Organization Search tool lets you look up any organization by name or Employer Identification Number and pull its filed returns.² ProPublica’s Nonprofit Explorer and Candid offer a more readable interface and let you line up multiple years, but the IRS tool is the authoritative source.

Before you read a single number, note which version of the form you’re holding. The version tells you how much information you’re going to get.

Form 990-N (the e-Postcard) is filed by the smallest organizations, those with gross receipts normally at or below $50,000. It contains almost nothing useful: name, address, EIN, and confirmation that receipts fall under the threshold. If that’s all you can find, you’ll need to request financial records from the nonprofit directly.³
Form 990-EZ is a shorter version available to organizations with gross receipts under $200,000 and total assets under $500,000. It covers the basics but skips much of the detailed breakdown.⁴
The full Form 990 is filed by organizations with gross receipts of $200,000 or more, or total assets of $500,000 or more. This is where the real analytical value lives.⁴
Form 990-PF is filed by private foundations regardless of size. If you’re looking at a family or corporate foundation rather than a public charity, that’s the form you’ll encounter.⁵

One boundary worth knowing before you dig for donors: Schedule B donor names and addresses are redacted from the public copy for most organizations. The IRS receives the full list for 501(c)(3) charities and section 527 political organizations, but you won’t see it. Other exempt organizations no longer have to report donor names to the IRS at all.

Part III: What the Nonprofit Actually Does

Part III states the mission and describes the three largest program services ranked by total expenses. Read for specifics. A well-run nonprofit uses this space for concrete numbers: how many people were served, how many meals were distributed, how many students graduated. Vague language about helping the community without measurable results is a soft red flag. It doesn’t prove anything is wrong, but strong organizations almost always have data to show for their spending.

Part III also asks whether the organization started new programs or made significant changes to existing ones during the year, with details on Schedule O.⁴ A charity founded to build schools that has gradually shifted into lobbying should be disclosing that here. Compare the narrative against the financial data in Parts VIII and IX to see whether the money matches the story.

Part VI: Governance and Internal Controls

Part VI is where professionally governed nonprofits separate themselves from those that operate as personal projects. Most of what it asks about is not legally required, which is why voluntary adoption matters.

Board independence. The form reports total voting board members and how many are independent, meaning uncompensated by the organization and without business dealings with it. A board dominated by insiders creates obvious conflict-of-interest risks.⁶
Conflict of interest policy. The form asks whether one exists in writing and whether board members must disclose potential conflicts annually. Its absence isn’t illegal but suggests weak internal controls.
Whistleblower and document retention policies. Both indicate whether the organization has formal mechanisms for reporting problems and preserving records.
Board review of Form 990 before filing. If the executive director files the 990 without board review, oversight is probably thin.⁶

Part VII and Schedule J: Executive Compensation

Part VII, Section A lists every officer, director, and trustee whether paid or not. It also lists key employees with reportable compensation above $150,000 and the organization’s five highest-compensated employees earning at least $100,000 who don’t already appear elsewhere.⁷ Independent contractors paid more than $100,000 must also be disclosed.

Compensation is broken into three columns. Reportable compensation covers amounts on the person’s W-2 or 1099-NEC. Other compensation captures non-taxable benefits like retirement contributions and health insurance. The third column, estimated other compensation from the organization and related organizations, is where deferred compensation and similar items appear.⁴ Check the average hours per week column to put pay in context. A board chair logging two hours a week for six-figure compensation raises different questions than a full-time executive director earning the same amount.

Schedule J provides more granular detail for individuals whose total compensation across all three columns exceeds $150,000. This is where first-class travel, housing allowances, club memberships, discretionary spending accounts, and severance arrangements show up.⁸ These benefits can push total compensation well past the base figure in Part VII. Add all three columns and factor in the Schedule J perks before deciding whether pay is reasonable.

Parts VIII and IX: Where the Money Comes From and Where It Goes

Part VIII, the Statement of Revenue, sorts income into four channels: contributions and grants, program service revenue, investment income, and other revenue.⁴ The split between contributions and program service revenue is one of the most telling numbers on the whole form. An organization that earns most of its money from fees and contracts operates very differently from one that depends on donations. Neither model is inherently better. Each carries different risks: a donation-dependent nonprofit is vulnerable to donor fatigue; a fee-driven one may be drifting toward commercial activity.

Part IX, the Statement of Functional Expenses, is where most analytical work happens. Every expense is allocated across three columns: program services, management and general, and fundraising.⁴ Program services cover the actual mission work. Management and general covers overhead like office costs, legal fees, and executive salaries not tied directly to programs. Fundraising covers everything from gala expenses to direct mail.

The standard efficiency calculation is simple. Divide program expenses by total expenses. An organization spending $750,000 on programs out of $1,000,000 in total expenses has a 75 percent program ratio. Charity watchdogs frequently use 65 percent as a floor, and organizations rated as highly efficient typically exceed 75 percent.⁹ The ratio alone doesn’t tell the full story. A startup nonprofit investing heavily in fundraising infrastructure may look low early on and still be well managed. A mature organization with an unusually low ratio deserves a closer look at where that overhead money is going.

Part X: The Balance Sheet

Part X shows total assets, total liabilities, and net assets at both the beginning and end of the tax year. Read the net assets figure against annual expenses. An organization with $2,000,000 in annual expenses and $200,000 in net assets is operating on about five weeks of reserves, which is not much cushion if a major donor pulls out or a grant cycle shifts. An organization sitting on net assets that dwarf its annual spending may be hoarding resources rather than deploying them. Neither extreme is ideal, and the balance sheet is where you spot them.

Schedules Worth Checking

The core form runs through Parts I through XII, but the schedules attached to it often carry the most revealing information. Schedules are triggered by specific conditions, so the presence or absence of one is itself a data point.

Schedule A: The Public Support Test

Public charities have to show they draw broad public support rather than depending on a handful of donors or insiders. Schedule A calculates this over a five-year period. Under the most common test, an organization needs at least one-third of its total support from the general public to maintain public charity status.¹⁰ Organizations that fall below one-third but above 10 percent may still qualify under a facts-and-circumstances test. Failing the test entirely can result in reclassification as a private foundation, which brings stricter operating rules and less favorable tax treatment for donors.

Schedule L: Transactions With Interested Persons

Schedule L discloses business transactions between the organization and its insiders: officers, directors, key employees, founders, substantial contributors, and their family members. Transactions exceeding $100,000 in total annual payments must be reported, as must individual transactions exceeding the greater of $10,000 or 1 percent of the organization’s total revenue.¹¹ This is where self-dealing surfaces: a board member’s company collecting management fees, a founder’s relative on the payroll. The presence of Schedule L isn’t automatically a problem. Many insider transactions are legitimate and priced at fair market value. But the details deserve careful reading.

Schedule R: Related Organizations

When a nonprofit has subsidiaries, parents, or affiliates, Schedule R maps those relationships and discloses transactions between them. Money can flow between related organizations in ways that obscure how it’s ultimately used. An organization that looks lean on its own 990 may be routing expenses through a related entity, and Schedule R is where you find out.

Schedule F: Foreign Activities

Organizations with more than $10,000 in aggregate foreign activity expenses or revenues, or foreign investments valued at $100,000 or more, must file Schedule F.¹² Individual foreign grants exceeding $5,000 must be itemized. For internationally focused charities, this schedule provides the best available picture of how money moves across borders and which countries receive the most support.

Read Several Years Together

One year gives you a snapshot. Three to five years give you a story. Track the program expense ratio, executive compensation growth against program growth, and changes in net assets. An organization where executive pay doubles while program spending stays flat is telling you about its priorities, even if any single year’s numbers look acceptable on their own. Year-over-year changes in the Part III narrative, especially reported changes to programs or mission, help you see whether the organization is evolving in ways that match its stated purpose or drifting away from it.

One filing pattern is worth flagging on its own: gaps. An organization that fails to file for three consecutive years automatically loses its tax-exempt status by operation of law, and reinstatement means starting the application process over. If the filing history is broken, find out why before you rely on anything else in the file.

1
Office of the Law Revision Counsel. 26 USC 6104 – Publicity of Information Required From Certain Exempt Organizations and Certain Trusts
2
Internal Revenue Service. Tax Exempt Organization Search
3
Internal Revenue Service. Annual Electronic Filing Requirement for Small Exempt Organizations – Form 990-N (e-Postcard)
4
Internal Revenue Service. Instructions for Form 990
5
Internal Revenue Service. Instructions for Form 990-PF
6
Internal Revenue Service. Exempt Organizations Annual Reporting Requirements – Governance (Form 990, Part VI)
7
Internal Revenue Service. Form 990 Part VII and Schedule J – Reporting Executive Compensation – Individuals Included
8
Internal Revenue Service. Instructions for Schedule J (Form 990)
9
CharityWatch. Our Charity Rating Process
10
Internal Revenue Service. Exempt Organizations Annual Reporting Requirements – Form 990, Schedules A and B: Public Charity Support Test
11
Internal Revenue Service. Instructions for Schedule L (Form 990)
12
Internal Revenue Service. Exempt Organizations Annual Reporting Requirements – Foreign Activities (Form 990, Schedule F): Activities Reported