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Form 990 Schedule O Basics for the Tax-Exempt
Form 990 is an annual filing requirement for most tax-exempt organizations, even though these organizations may not pay federal taxes. One of the form's schedules, Schedule O, is not only a requirement, but also a great way for a tax-exempt organization to communicate its mission and annual accomplishments.
By Harrison Pereira, CPA
Form 990 is an annual filing requirement for most tax-exempt organizations. Although these organizations may not pay federal taxes, many still must file annually with the IRS. (The few exceptions include certain religious organizations and state institutions.) Form 990 has 16 supplementary schedules that may need to be filed, one of which is Schedule O. Schedule O requires supplemental information, such as narrative explanations for questions within the document and additional disclosures that can be included as the tax-exempt organization sees fit. It is a great method for tax-exempt organizations to tell a story about its mission and annual accomplishments.
Schedule O is the only one of the 16 supplementary schedules that must always be filed by organizations filing a Form 990 or 990-EZ. Not including Schedule O will likely result in an incomplete filing with the IRS. Per the instructions, Schedule O must, at a minimum, be used to provide answers to Form 990 Part VI, lines 11b and 19. Schedule O can also be used to provide explanations for Parts III, V, VI, VII, IX, XI, and XII when necessary. These explanations should refer and relate to a particular line and question on Form 990. Sometimes these Schedule O explanations will appear as continuations from previous sections of Form 990. A common example would be Part III, line 4, which requires information on the organization’s program service activities. This section provides a unique opportunity to appeal to donors through a narrative explaining program service accomplishments for each of the three largest program services throughout the year. This information will often spill over into supplementary Schedule O. A tax-exempt organization filing Form 990 can use as many continuation sheets for Schedule O as needed.
Sometimes Schedule O can give the organization a chance to provide additional information to the public that may not have necessarily been answered or explained through Form 990. Part VI contains questions that pertain to governance and management that may require some additional explanation of circumstances on Schedule O. Providing additional explanations on negative responses on Part VI could be helpful to readers of the document. Also, if the organization is amending a return, Schedule O is used to explain what parts or schedules of Form 990 were amended.
However, organizations should not use Schedule O to supplement responses to questions from other schedules of Form 990 or Form 990-EZ. Schedule O also should never be used to disclose private information, such as Social Security numbers, since Form 990 and all supplemental schedules (except Schedule B) are available for public inspection. The organization also should not disclose on the Schedule O if filing a late return. In these instances, a separate statement must be attached to explain the reasons for not filing on time.
Many donors examine Form 990 in its entirety when doing due diligence when selecting an organization to support. They review Form 990 and Schedule O not only for its financial information, but also its nonfinancial information, such as mission, programs, and key governance information.
Harrison Pereira, CPA, is a senior tax manager at Tait Weller in Philadelphia and is a member of the Pennsylvania CPA Journal Editorial Board. He can be reached at hpereira@taitweller.com.
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