Your 990 can leave donors with questions. Schedule O is your opportunity to answer them. How you can build transparency and trust between you and the public.
Filling out the 990 can feel a bit like a courtroom drama, where you are the witness and the lawyer is telling you to answer a complex question with just a “yes” or a “no.” Sometimes a simple answer to a complex question without context can create the wrong impression.
Schedule O is where you add context. Many nonprofits underutilize Schedule O by adding information only on the lines where the Form 990 explicitly asks them to. However, strategic organizations see Schedule O as much more than another form to fill out. Because Schedule O allows you to add narrative context to almost any part of the 990, they see it as an opportunity to tell a story that changes the way funders will see their organization. And a cryptic Schedule O is a missed opportunity.
In this blog post, we’ll look at a few real-world examples of nonprofits’ Schedule O’s to illustrate just where and how Schedule O can be leveraged.
And a quick note – this post covers Schedule O, but if you want more general information, check out our whole blog series about the Form 990 here.
How Schedule O is Formatted
Like all 990 schedules, Schedule O has its own set of instructions detailing how it should be prepared. However, if you simply follow the instructions, you will miss out on Schedule O’s superpower: you get to choose where and how you provide narrative context.
Schedule O is formatted as a table with two main columns: “Return Reference” and “Explanation.” You can add as many rows to Schedule O as you need. In the “Return Reference” column, put “FORM 990”, the “part”, the “section” (where applicable), and the “line” you are referring to. For example: “FORM 990, PART VI, SECTION B, LINE 11B”. This makes it easy for you, the IRS, your funders, and the general public to cross reference your Form 990 and Schedule O.
Tip: Make sure your entries on Schedule O are in the same order as they appear on your Form 990.
Meet the Nonprofits
We use three real nonprofits – T E S S A, National Environmental Health, and ICC Americas – to illustrate different ways the schedule O can be leveraged to enhance public communication. Their 990’s are publicly available for anyone to look at. Instead of us describing these orgs let’s rely on another part of the 990, Part I Line 1, to allow these orgs to describe themselves.
T E S S A
T E S S A provides confidential programs that empower victims of domestic violence, dating violence, intimate partner stalking, sexual assault and/or human trafficking in El Paso, Teller, and Douglas counties. They pursue three primary objectives toward their mission: to provide immediate safety for adults and their children in crisis; To empower survivors through supportive services such as advocacy, counseling, and children’s programs; To create a safer community for all families through prevention education and awareness outreach.
National Environmental Health
National Environmental Health’s mission is to build, sustain, and empower an effective environmental health workforce.
ICC Americas
The organization is the governing body for international cricket in the Americas region, which covers North America, South America, Central America and the Caribbean. As such, the mission of the organization is to develop the sport of cricket throughout the Americas region.
Already, you can see that the different organizations have various styles in filling out their Form 990. Providing extra details that give insight into your work is a choice. After reading these three descriptions, we have a much better picture of T E S S A than the other two organizations.
What to Include in Schedule O
This will differ for every nonprofit. However, there are a few common lines on the 990 that frequently require explanation. These are listed below.
Program Descriptions
If your organization requires additional space to share the details of your programs, this can be done in Schedule O. For example, Part III, Line 1 of T E S S A’s 990 reads:
“TO PROVIDE CONFIDENTIAL PROGRAMS THAT EMPOWER VICTIMS OF DOMESTIC VIOLENCE, DATING VIOLENCE, INTIMATE PARTNER STALKING, SEXUAL ASSAULT AND/OR HUMAN TRAFFICKING IN EL PASO, TELLER, AND DOUGLAS COUNTIES (CONTINUED ON SCH O)”
On Schedule O, they add:
“(CONTINUED) WE PURSUE THREE PRIMARY OBJECTIVES TOWARD OUR MISSION: TO PROVIDE IMMEDIATE SAFETY FOR ADULTS AND THEIR CHILDREN IN CRISIS. TO EMPOWER SURVIVORS THROUGH SUPPORTIVE SERVICES SUCH AS OUR ADVOCACY, COUNSELING AND CHILDREN’S PROGRAMS. TO CREATE A SAFER COMMUNITY FOR ALL FAMILIES THROUGH PREVENTION EDUCATION AND AWARENESS OUTREACH.”
Membership Structure
If your organization has members with voting rights, Schedule O is the perfect place to describe your membership tiers and who gets a vote on what issue.
Take a look at National Environmental Health’s explanation of Part VI, Section A, Lines 6-7b:
Line 6: “THE ORGANIZATION HAS THE FOLLOWING CLASSES OF MEMBERSHIP: PROFESSIONAL, RETIRED PROFESSIONAL, EMERGING PROFESSIONAL/STUDENT, LIFE, INTERNATIONAL”
Line 7a: “THERE ARE 2 CLASSES OF MEMBERSHIP WITH VOTING PRIVILEGES DESIGNATED AS PROFESSIONAL AND LIFE AND 3 CLASSES OF NONVOTING MEMBERSHIP DESIGNATED AS RETIRED PROFESSIONAL, EMERGING PROFESSIONAL/STUDENT, AND INTERNATIONAL.”
Line 7b: “WHEN THE BOARD NEEDS TO CHANGE THE WORDING OR ADD CONTENT TO THE ARTICLES OF INCORPORATION AND BYLAWS, ANY SUCH CHANGE MUST BE APPROVED BY THE NEHA VOTING MEMBERS, PROFESSIONAL, AND LIFE.”
Now, the audience has an understanding of the power that certain classes of members have at this organization, including their role as a check on Board authority.
ICC Americas also has an interesting explanation on Part VI, Section A, Line 6:
“THE CORPORATION HAS ONE MEMBER, INTERNATIONAL CRICKET COUNCIL.”
This use of Schedule O actually creates more questions than answers, especially as a following section includes this line:
“THE DIRECTORS OF THE ORGANIZATION MAY RECEIVE COMPENSATION FROM INTERNATIONAL CRICKET COUNCIL, A RELATED PARTY, RELATED TO SERVICES PROVIDED TO THE INTERNATIONAL CRICKET COUNCIL. THE AMOUNT AND NATURE OF ANY COMPENSATION IS NOT MADE AVAILABLE TO THE ORGANIZATION.”
This raises red flags, and could be remedied by further explanation of the relationship between ICC Americas and International Cricket Council, why it is considered a membership relationship, and why ICC America’s officers might be doing business dealings with International Cricket Council. At its worst, the audience may assume this is a conflict of interest.
Conflicts of Interest
Speaking of which, Schedule O is an opportunity to explain the safeguards your nonprofit has in place to prevent conflicts of interest. Part VI Section B Lines 12a – 12c of the Form 990 ask about your organization’s conflict of interest policy, and if you say you have one, it asks to go into more detail in Schedule O. Here’s the information our example organizations include in Schedule O:
T E S S A: “AT EACH BOARD MEETING, IF THERE IS A DISCUSSION OF SELECTING OR ENGAGING A VENDOR OR SERVICE PROVIDER, ALL IN ATTENDANCE ARE ASKED TO RECUSE THEMSELVES FROM THIS DISCUSSION IF THERE COULD BE A PERCEIVED CONFLICT. ANNUALLY, THE ORGANIZATION REVIEWS AND DISCUSSES THE CONFLICT OF INTEREST POLICY AND REQUESTS THAT EACH BOARD MEMBER LIST AND ACKNOWLEDGE ANY KNOWN CONFLICTS. POTENTIAL NEW BOARD MEMBERS RECEIVE ALL POLICIES BEFORE JOINING THE BOARD.”
National Environmental Health: “OFFICERS AND DIRECTORS SIGN A CONFLICT OF INTEREST DISCLOSURE STATEMENT ACKNOWLEDGING A CONTINUING OBLIGATION TO REPORT TO THE PRESIDENT, PROMPTLY AND IN WRITING, ON ANY CHANGE IN THE NATURE OR SETTING OF PROFESSIONAL ACTIVITIES OR ANY POSSIBLE CONFLICT OF INTEREST (I.E. CONFLICT BETWEEN THE INTERESTS OF NEHA AND THE INTEREST OF THE RELATED PARTY) WHICH COMES TO THEIR ATTENTION IN THE FUTURE.”
Executive Compensation
Another good use of Schedule O is to explain how you arrived at the executive compensation numbers you may have reported in Schedule J Part III. Schedule O is where you reference the board’s compensation review process and the reasoning behind it. You want to show that the process is thorough, rigorous, logical, impartial, and backed by data. Let’s take a look at T E S S A, National Environmental Health, and ICC Americas put for “PART VI, SECTION B, LINE 15 A & B”:*
T E S S A: “TESSA USES DATA FROM CANPO (COLORADO ASSOCIATION OF NON-PROFIT ORGANIZATIONS) SURVEYS FOR COMPARABILITY OF JOB RESPONSIBILITIES AND COMPENSATION. TESSA STRIVES TO BE IN THE 25TH PERCENTILE OF OUR PEERS (SIZE & SERVICES) FOR ANNUAL SALARY RATES FOR ALL POSITIONS. THE BOARD OF DIRECTORS REVIEWS THE COMPENSATION FOR THE EXECUTIVE DIRECTOR. THE ORGANIZATION HAS NO OTHER PAID OFFICERS OR EMPLOYEES MEETING THE IRS DEFINITION OF A KEY EMPLOYEE.”
National Environmental Health: “BASED ON A THOROUGH REVIEW OF THE EXECUTIVE DIRECTOR’S PERFORMANCE DURING THE YEAR, THE PRESIDENT AND THE PRESIDENT-ELECT MAKE A RECOMMENDATION TO THE BOARD OF DIRECTORS OF THE COMPENSATION THAT THE EXECUTIVE DIRECTOR SHOULD RECEIVE. THE BOARD OF DIRECTORS THEN APPROVES OR MODIFIES THE RECOMMENDED COMPENSATION AMOUNT. THE ORGANIZATION MAINTAINS COMPARABILITY DATA OF COMPENSATION THAT IS PAID TO THE EXECUTIVE DIRECTOR OR CEO OF OTHER SIMILAR ORGANIZATIONS. THIS COMPARABILITY DATA FACTORS IN THE SIZE OF THE ORGANIZATION, THE NATURE OF THE BUSINESS, AND THE LENGTH OF TIME THE INDIVIDUAL HAS BEEN IN THE POSITION. THE PRESIDENT AND PRESIDENT-ELECT USE THIS COMPARABILITY DATA WHEN MAKING THEIR RECOMMENDATION OF THE EXECUTIVE DIRECTOR’S SALARY. THE ORGANIZATION MAINTAINS THE APPROPRIATE DOCUMENTATION OF THIS PROCESS, INCLUDING THE EXECUTIVE DIRECTOR’S ANNUAL REVIEW AND RECOMMENDED SALARY, AND THE COMPARABILITY DATA.”
ICC Americas: “A REVIEW OF COMPARABLE SALARY DATA WILL BE MADE BY THE BOARD OF DIRECTORS BEFORE COMPENSATION FOR KEY EMPLOYEES IS APPROVED.”
You can see here how the different responses highlight different approaches to setting the executive directors’ salaries. T E S S A describes a high standard of compensation and shows they value offering a competitive wage so much that they make it an organizational practice across positions. To the right funder this might be a positive: the organization values staff quality and retention. National Environmental Health focuses more on the process itself, and the importance of the role of the board’s president and president-elect. ICC’s answer is terse, and doesn’t give us much information. It feels more like checking a box.
*Note: In writing this article, we actually discovered an error in T E S S A’s filing. They mistakenly wrote “Section VI, Section C, Lines 15a-15c,” when it should have been “Section VI, Section B, Lines 15a-15c.” Remember to triple check your work!
Resources and More
A great way to get comfortable with the Form 990 Schedule is looking at examples from other organizations. ProPublica Nonprofit Explorer is a free database of nonprofits, associations, and foundations’ filings. When you compare various filings, you’ll start to see that even a tax document can have style–it can show your organization’s values and impact–or it can fall flat. Here are the filings we found on ProPublica for this article:
National Environmental Health Form 990
National Environmental Health Schedule O
And, if you’re looking for a professional to help prepare your 990, Beancount is here to help. Schedule a free consultation with us today.
This article is for general informational purposes only and does not constitute professional accounting, tax, or legal advice. Tax laws, regulations, and accounting standards change frequently, and the application of rules can vary based on your organization’s specific facts and circumstances. Before acting on anything you read here, consult a qualified professional who can advise you based on your situation.
