When you conduct prospect research to find potential funding partners, the list you compile may be lengthy! Thankfully, you can narrow and strengthen your results by looking at an organization’s Form 990.

However, Form 990s can be very long documents with detailed information, so it may be overwhelming at first glance if you don’t know how to interpret them. But once you learn how to read a Form 990, they can help you improve your chances of finding a potential funding match. Understanding the funders you want to apply to can help you establish a connection and submit a more effective grant application.

This post explains the purpose of a Form 990 and how to review its essential parts for invaluable information and insights. It will help you use Form 990s to determine if an organization is a solid potential funding partner for your nonprofit.

An IRS Form 990 is a federal tax return that most tax-exempt organizations, such as 501(c)(3)’s, are required to file each year. They are available to the public for free and provide transparency about a nonprofit.

Form 990s are made up of 12 Parts with up to 16 subsections called Schedules. A Form 990 lists key information about an organization, including its governing body, purpose, and resources. They reveal how the organization uses its resources to accomplish its mission. And they require disclosure on whether the organization is abiding by best practices.

This is all helpful information that grant writers may not be able to find in the funder’s guidelines or application package.

Private foundations file a slightly variant form called a Form 990PF. We will detail important differences below.

Form 990s can be used to evaluate an organization on its governance, policies, and use of resources.

For grant writers, knowing how to read Form 990s is especially beneficial to uncover more specifics about what a foundation actually funds and how its resources are used to match its mission.

For example, doing a Form 990 search lets you see an organization’s past grant awards. Do they fund similar programs to yours? Have they awarded grants to nonprofits in your state? If the answer is no, then they may not be the best fit for you. If the answer is yes, then it is more likely you may have found a suitable potential funding source.

For donors wanting to research nonprofits to contribute to, Form 990s are important evaluation tools to see the financial health of the organization and its spending priorities.

For instance, it answers questions such as how much of their resources go toward lobbying and fundraising in proportion to their program spending.

You can do a Form 990 search and find helpful breakdown summaries of them on Instrumentl.
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Instrumentl also provides detailed funder insights, combing through years of data to identify trends such as openness to new grantees vs. returning grantees, and giving trends by NTEE codes.
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Here, we will help you learn how to read Form 990s in a way that lets you navigate and understand their important information. We will go in order of each Part found on a Form 990, assuming you are using a helpful tool like Instrumentl.

How to Review the Summary Section on Identity and Tax Status

Part I on a 990

In the top header, you will find the organization’s name, address, phone number, website, and description. On Line 1, they will have selected their tax-exempt status.
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Also in Part I of a Form 990 is the Summary, which reveals the organization’s purpose, size, and overall financial health.

The Summary gives an overview of information found in other Parts of the 990. Line 1 of the Summary communicates the organization’s mission. When doing prospect research, the organization’s mission can help indicate whether it has similar goals to yours.
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Activities and Governance

Each of the following Lines will tell you within parenthesis where you can find out more about that particular Line item. For example, Part I, Line 3 indicates the number of voting members of the governing body. You can find out more details about those members by looking at Part VI, Line 1a.
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To get a sense of the organization’s size, you can look at Lines 3-6, which state the number of individuals on the Board (“governing body”), the number of employees, and the number of volunteers.

Line 7a reveals the organizations’ Unrelated Business Revenue, which is income generated by activities that do not directly carry out the mission.

Revenue and Expenses

The Revenue portion of Part I breaks down the organization’s sources of income. If you are a potential donor, you may want to see whether the nonprofit relies heavily on one funding source or if they have a diversified revenue stream.

In the Expenses segment, a potential grant recipient may be most interested in Line 13, “Grants and similar amounts paid.” In the example below, the San Francisco Foundation distributed over $228 million.

Note that Line 13 also references Part IX, where you can get itemized amounts of the grants distributed. (More on that later!).
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Potential donors may be most interested in comparing Lines 13-16. You can review an organization’s spending on memberships, salaries, and fundraising.

On Line 19, you will see the total revenue of the organization less its expenses. The total revenue can give you a sense of the size and resources of the organization and its ability to fund its operations. You can see whether the organization is spending more than it’s taking in or has the funds to support itself.

You can also see whether the nonprofit’s resources are growing year to year by comparing the prior year to the current year.

Again using the above example, Line 19 shows that they experienced a loss of over $6 million for the previous year, while in the current year, their revenue was over $87 million. This is why it is also good to explore up to three years of 990s to get a better sense of their financial trends.

Net Assets

The Net Assets, or the resources the organization has at the end of the year, may also tell you its capability to continue operations in the future. In the San Francisco example, while the $6 million loss in 2019 might be notable, looking at the net assets puts into perspective that the organization still has enough resources to sustain itself.

On the other hand, if an organization suffered such a loss and had dwindling net assets, it would not begin the following year in as strong of a position to operate.
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By looking at the Balance Sheet in Part X (described below), you can more deeply analyze an organization’s total assets.

Analysis of Changes in Net Assets on a 990PF

If you are looking at a 990PF, you can get an idea of the foundation’s size and resources by looking at Line 6 of Part III. The more assets a foundation has indicates both their funding capacity and increased competition for the funds.

How to Review the Statement of Program Service Accomplishments Section

Part III on a 990

Part III, Statement of Program Service Accomplishments, will help you understand what activities the organization finds important to accomplish its mission. You will find the organization’s mission statement, whether significant changes have been made to their programs, and a description of their services and outcomes.

Line 1 is where you will find a description of the organization’s mission.

Lines 2 and 3 will indicate whether there have been significant organizational changes. If “yes” is indicated, you will want to further investigate the changes in Schedule O.

Lines 4a-4c will describe the three most extensive programs that carry out its mission with the associated expenses and revenue. You can compare the amounts spent on each program to get a sense of what they find most important.

As a potential grant recipient, this may help you determine if your programs would be a good funding match. As a potential donor, this may also help you decide whether their programmatic priorities match yours.
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What Can the Checklist of Required Schedules Teach You?

Part IV on a 990

The Checklist of Required Schedules (Part IV) lists the variables of additional information that the organization must provide. Most of the questions ask about the organization’s various activities that require full transparency and thus accountability.

For example, Line 3 in this section asks whether the organization has contributed to political campaign activities. This is prohibited, so if the answer is yes, they must elaborate on Schedule C and most likely be accountable via the IRS.

Another question asked is whether an organization conducted activities outside of the United States. If so, it must select “Yes,” on Line 14 and fill out Schedule F.
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A potential donor to a nonprofit organization might look at Line 4, asking whether they participated in lobbying, or Line 17, asking whether they spent more than $15,000 on fundraising.

This information may be important to a potential donor because if the answer is “yes,” you can investigate on Schedule G if the amount of funds spent on these activities is proportionate to the organization’s size as a whole.

These Line items should not be diverting too many resources away from carrying out their mission.

What to Understand in the Statements Regarding Other IRS Filings and Tax Compliance Section

Part V on a 990

Part V of a Form 990 is another checklist regarding whether the organization has remained tax compliant. For example, have they filed appropriate IRS forms such as W2s and withholdings? Did they have any overseas transactions?

Governance, Management, and Disclosures

Part VI on a 990

Part VI, Governance, Management, and Disclosures, helps you to determine if the organization is following best practices.

For example, Section A, Line 2 asks: Did any member of the governing body or key employee have a family or business relationship with any other such leadership individual? If yes, the organization must explain.

Part VI also asks about policies that will show how the organization conducts its operations. For example, in Section B, Line 13, you could look at whether the organization has a whistleblower policy and Line 14 for whether they have operating procedures.

Whether a potential donor or grant recipient, seeing that an organization has standards and procedures set in place can build confidence that the organization is trustworthy and ethical.

Officers, Directors, Highest Compensated Employees

Part VII on a 990 / Part VIII on 990PF

When reading a Form 990, Part VII answers the question of who manages the nonprofit. Here, you will find the list of governing body members, key employees, and highest-paid employees. Their compensation for their roles is also listed.

Each officer, director, or trustee (member of the governing body) must be reported in Part VII on a Form 990.

Key employees are also reported. Key employees are defined as being one of the top 20 earning employees, earning more than $150,000 per year. They have significant responsibilities such as running the organization or overseeing a significant portion of the budget.

Part VII also reports the organization’s five highest-compensated employees. They are not members of the governing body or considered key employees, but they are listed because they earn more than $100,000 per year.

You can use this information to identify any connections you may have to the organization or where you can start in contacting and establishing a relationship. Grant writers will often use Part VII to send to their nonprofit’s Board or teammates. Doing so will help you to identify any possible connections, which may open the door to a funding partnership.

From a potential donor’s perspective, the individuals listed here may be of interest to help determine the reputation and professional quality of the organization as a whole.
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Lines 3-5 in Section A indicate whether former individuals from the above categories are still being compensated. If they still receive more than $150,000 per year, they must be itemized on Schedule J.
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Section B of Part VII contains information on independent contractors that received more than $100,000 in the reported year.
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Suppose you are a funder looking to donate to this organization. In that case, you can get a sense of their leadership as well as their fiscal obligations.

If you’re looking at this in Instrumentl, you’ll find key contacts in the Key People section:
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How to Read a Statement of Revenue and Expenses

Part VIII on a 990

The Statement of Revenue provides helpful categorizations of the organization’s overall budget. You can discover, for example, the amount of grant funding that supports the organization, how successful their fundraising is, or how much funding is provided as a result of their provided services.

Functional Expenses

Part IX on a 990

Essentially, Part IX on a 990 answers the question, “How do they spend their money”?

So for example, if you are looking at a foundation, you can see on Line 1 of Part IX the amount contributed toward grants to domestic organizations. So in the example below, you can see that the San Francisco Foundation distributed $227,435,922 in grants to domestic organizations.
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Below, we explain where to find an itemized list of grants the organization distributed.

The specific list of previously funded grants can give you a sense of the types of nonprofits and programs they believe help to accomplish their mission. Comparing what they have funded previously to your proposed program and mission can help you determine whether your proposal is a strong match to the funder.

How to Find a Funder’s Grants Previously Distributed

Schedule I on a 990 / Part XV on a 990PF

On a Form 990, Schedule I will itemize the grants distributed to other organizations, governments, and individuals within the United States.
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For instance, above you can see that they have made grants to Catholic Charities of the Diocese of Oakland for $1,240,000 and to Faces of Giving Inc for $220,000. Sometimes, this list is several pages long. Some will include not only the organization and amount funded but also for what specific program or purpose it was given.

Schedule I is helpful if you want to understand whether the foundation will fund an organization like yours, the geographic areas it focuses on, and the grant award amount ranges.

If you find that the foundation has not funded any organizations in your state, it might not be a strong match for you.

Or, if you were hoping to submit a request for $100,000, but the average grant listed is only $25,000, then you will want to readjust your application accordingly.

For private foundations filing a 990PF, the itemization of grants awarded can be found in Part XV. The 990PF also indicates additional helpful information for the potential grant recipient.
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You will want to examine Line 2 in Part XV. A checkbox will be checked if the foundation only awards grants to preselected organizations. If it is unchecked, that means they have a process for awarding grants to which you can apply.

Below that states the contact information where grant applications should be addressed, where to find application forms, submission deadlines, and restrictions on awards. Especially if a foundation does not have a website, here is where a grant writer can know where, how, and when to submit proposals!

How Instrumentl Makes it Easy to Find Previously Funded Grants

Instrumentl makes this reverse search process really easy. Simply access the Past Grantees section within a Funder’s profile and then you’ll be able to quickly filter by state and purpose to identify a history of giving towards cause areas similar to yours.
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Any clickable grantee will redirect you to a Recipient Profile where you’ll be able to dig into Past Awards Received to identify even more good fit funders on top of the one you potentially just identified.
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If any of this interests you, you can give Instrumentl a try by creating a 14-day account here.

How to Read a Balance Sheet

Part X on a 990

The Balance Sheet allows you to conduct a more in-depth risk assessment, examining questions such as, “Are they healthy?” It is divided into Assets, Liabilities, and Net Assets, and compares each from the beginning of the year to the end of the year.

Restricted vs. Unrestricted Assets

One key measure to analyze within the Assets portion is differentiating between restricted and unrestricted assets. Comparing these two types of assets will convey how many funds are readily available for immediate use.
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For example, as seen in Line 10, assets may include buildings or equipment. Such assets may not be readily available to convert to use for immediate spending if needed.

Lines 27 states the dollar amount of net assets without donor restrictions, and Line 28 states the amount with donor restrictions. Assets with donor restrictions are set aside for specific purposes. They cannot be spent solely at the organization’s discretion.

Taking these into account, you can get a better sense of the amount of funds the organization has readily available.

This is another area where it is helpful to compare three years of an organization’s Form 990. If the organization is regularly running on a deficit and its unrestricted assets are not able to make up for it, then you may see a regular reduction of its net assets. If that is the case, the organization may not be as financially healthy as it appears to be in just a single year.

Instrumentl Clearly Displays Organizations’ Assets Over Time

Instrumentl makes the comparison of assets over the years clear! They compile the data in a graph that you can decipher with a glance. Simply go to the Key Financial Stats section and click on Assets.

Below you can see that the San Francisco Foundation’s assets have grown or remained steady since 2011. Instead of sifting through pages of multiple Form 990s to gather this insight, Instrumentl clearly displays it for you.
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Even though it is easy to find out about charitable organizations’ missions and programs, Form 990s are an invaluable tool to help you understand their inner functioning.

In addition to the 12 Parts on a Form 990, there are up to 16 supplemental Schedules which may further help you investigate the organization. Some examples of the Schedules and their uses are listed below.

• Schedule A - Identifies the reason for their charitable status, categorizes their sources of public support, and reveals the 5-year trend of how their money has come in.
• Schedule B - Identifies the sources of contributions received over $5,000. It itemizes contributions from individuals, corporations, associations, trusts, and more.
• Schedule C - Reveals the organization's political campaign and lobbying activities.
• Schedule D - Gives you a closer examination of the types of assets on the Balance Sheet. They are categorized into sections such as art collections and endowment funds.‍
• Schedule G - Must be completed if the organization spent more than $15,000 on professional fundraising.
• Schedule J - Itemized information about individuals formerly part of the organization that are still being compensated at a rate of more than $150,000 per year.
• Schedule O - If necessary, the organization will provide narrative descriptions of its programs and services in more detail.
  

You can find further details about each of the Schedules on the IRS website here.

While these Schedules can give you additional information concerning the main Parts of a Form 990, they can also mean that you will have dozens to hundreds of extra pages to sift through!

Your time and mental energy are precious. So Instrumentl has created digitized reports on organizations’ Form 990s. These 990 reports on Instrumentl lay out the data found on Form 990s in an organized, readable, format.
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Form 990s contain a trove of information if you know how to decipher them correctly. The skill of reading 990s equips you to determine desirable funding partners.

Now you know how to read Form 990s to learn about their funding priorities, financial health, governing body, and operating procedures. You also know how to compare the data on Form 990s across several years to get a more holistic view of an organization.

With Instrumentl’s digitized Form 990 reports, you can quickly get answers to questions such as, “Who have they funded,” “Who are the key contact people,” and “What is their giving capacity” in one scroll of a page. Instrumentl reduces the time and stress it may take to read and interpret the information on 990s. We can help you determine if an organization truly is a desirable funding partner.