How to Read a Nonprofit's Form 990

IRS Form 990 is the annual information return that nearly every tax-exempt organization in the United States must file. It is the single most comprehensive and reliable source of nonprofit financial data available to the public. Unlike annual reports (which are voluntary and marketing-oriented) or charity ratings (which apply proprietary methodologies), Form 990 contains standardized, self-reported financial data filed under penalty of perjury. The form runs 12 pages plus numerous schedules, and it can seem overwhelming at first glance. But you do not need to read every line. For most donor evaluation purposes, five key sections contain the data that matters most: the summary page, the compensation schedule, the revenue statement, the functional expense breakdown, and the balance sheet. This guide walks you through each section, explains what to look for, and shows you how NonprofitTruth translates this raw data into the Efficiency Score and the financial breakdowns you see on every nonprofit profile page. Once you learn to read a 990, you will never look at a charity the same way again.

Part I of Form 990 provides a one-page summary of the organization's finances and activities. This is where experienced analysts start, because it gives you the big picture in under a minute. Line 12 shows total revenue — how much money came in from all sources, including contributions, grants, program service fees, and investment income. Line 18 shows total expenses — how much the organization spent. Line 19 shows revenue minus expenses, which tells you whether the organization ran a surplus or deficit for the year. Line 20 shows total assets, and line 21 shows total liabilities. The difference (line 22, net assets) is the organization's accumulated financial position. At the top, line 1 briefly describes the organization's mission, and lines 3-5 list the number of voting board members, employees, and volunteers. A quick scan of Part I tells you the scale of the organization, whether it is growing or shrinking, and whether it is building reserves or depleting them. If total revenue has been declining for multiple years while expenses remain flat, that is a warning sign. NonprofitTruth pulls revenue, expenses, and assets from this section to calculate the core financial metrics displayed on every nonprofit profile.

Part VII is the section that makes headlines. It lists every officer, director, trustee, key employee, and the five highest-compensated employees and independent contractors earning more than $100,000. For each individual, the form breaks compensation into three columns: reportable compensation from the organization, reportable compensation from related organizations, and estimated amount of other compensation (retirement, health benefits, deferred compensation). To find CEO compensation, look for the individual listed with the title "CEO," "President," "Executive Director," or similar. Add all three compensation columns for the full picture. Compare this total to the organization's revenue (from Part I, line 12) to calculate the compensation-to-revenue ratio. For context, the average CEO-to-revenue ratio for nonprofits with over $100 million in revenue is approximately 0.3%. If you see a CEO earning $2 million at an organization with $50 million in revenue (a 4% ratio), that warrants further investigation. Organizations with total compensation exceeding $150,000 for any individual must also file Schedule J, which provides additional details on compensation practices, first-class travel, and other perks. NonprofitTruth extracts CEO compensation from Part VII and displays it prominently on every nonprofit profile page.

Part IX is arguably the most important section for donors because it answers the fundamental question: what percentage of spending goes to the mission versus overhead? This section requires the organization to categorize every dollar of expenses into three columns: program services, management and general, and fundraising. Line 25 shows the totals for each column. Divide program service expenses (column B, line 25) by total expenses (column A, line 25) to calculate the program expense ratio. This is the metric that every charity evaluator — including NonprofitTruth — uses as its primary measure of efficiency. Examine the individual line items to understand what the organization actually spends money on. Lines 5-10 cover compensation and benefits (often the largest single category). Line 11 covers fees for services like legal, accounting, and lobbying. Lines 13-17 cover office expenses, information technology, and occupancy. Lines 23-24 cover specific program expenses. Pay special attention to how the organization allocates joint costs (line 26): some organizations aggressively classify fundraising-related expenses as "program" to inflate their program ratio. If fundraising expenses seem unusually low relative to the amount of solicitation the organization does, joint cost allocation may be the reason.

Part X presents the organization's balance sheet at the beginning and end of the reporting year. Total assets (line 16) include cash, investments, receivables, property, and other holdings. Total liabilities (line 26) include accounts payable, grants payable, mortgages, and other obligations. Net assets (line 33) — assets minus liabilities — represent the organization's cumulative financial position and are broken into two categories: without donor restrictions and with donor restrictions. The balance sheet reveals financial stability. Calculate the operating reserve ratio by dividing net assets without donor restrictions by total annual expenses and multiplying by 12 to express the result in months. Three to six months of unrestricted reserves is the generally recommended range. An organization with fewer than two months of reserves may struggle to meet payroll during a fundraising downturn. An organization with more than 24 months of reserves may be accumulating resources rather than deploying them for charitable impact. Also examine the asset composition: heavy reliance on receivables or pledges (rather than cash and investments) can indicate collection risk. NonprofitTruth uses the net assets and expenses figures from Parts I and X to calculate the reserve ratio that contributes 15% to the Efficiency Score.

Part VI asks yes-or-no questions about the organization's governance practices, and it is the fastest way to spot potential accountability problems. Key questions to check: Does the organization have an independent board? (Line 1b) Are there any family or business relationships among officers and directors? (Lines 2-3) Does the organization have a written conflict of interest policy, and do officers and directors annually disclose conflicts? (Lines 12a-c) Does the organization have a written whistleblower policy? (Line 13) Does the organization have a written document retention and destruction policy? (Line 14) Is the Form 990 provided to the board before filing? (Line 11a) A well-governed nonprofit should answer "yes" to all of these questions. A "no" answer does not automatically indicate wrongdoing, but it suggests weaker accountability structures that increase risk. Also check line 6: did the organization have any significant changes to its governing documents? And line 8a: did the organization have any officers or key employees who are related to each other? Family-controlled boards are a common factor in nonprofit scandals. While NonprofitTruth focuses primarily on financial data, governance practices are the organizational infrastructure that makes financial accountability possible.