Form 990 is divided into ten parts (not including additional schedules), which highlight sources and amounts of revenue, expenses, and the names and titles of key personnel. Use this article to help serve as your guide to Form 990.

Part I: Revenue, Expenses, and Changes in Net Assets or Fund Balances

Revenue (lines 1-12)

Line 1. Contributions, gifts, grants, and similar amounts received are broken into several categories. Direct public support may include cash gifts, bequests from individuals, and foundation and corporate grants. Indirect public support includes amounts received through federated fundraising campaigns, such as those run by the United Way. Government contributions (grants) are funds provided by the government but are distinct from government contracts or fees for services, which are included on line 2.

Line 2. Program service revenue represents fees paid to an organization for services related to its nonprofit purpose. Examples of such fees include tuition received by schools, admissions paid to an art museum, payments for medical services at a hospital, and government contracts.

While most organizations receive the bulk of their revenues from contributions and program service revenue, the proportion varies depending on the specific nonprofit sector. For example, a theater company will probably have a large amount of program revenue and very little government support. By contrast, a homeless shelter may have large government contracts and considerable private contributions, but no revenue.

Expenses (lines 13-17)

Line 13. Program services is the amount a charity spends to perform its tax-exempt activities.

Line 14. Management and general includes the day-to-day expenses for the overall operations of the charity, but excludes the direct costs of conducting its program or fundraising activities. It may include accounting and legal costs, insurance, office management, and the costs of producing an annual report.

Line 15. Fundraising indicates the amount spent to raise the revenues reported on lines 1a, 1b, and 1c.

Net Assets (lines 18-21)

Line 18. Excess (or deficit) for the year shows how much an organization took in compared to what it spent.

An excess may serve as a financial cushion and is generally considered a sign of strength since fundraising revenue is not easily predictable. To more fully understand excesses and deficits, it may be helpful to look at more than one year to see if there is a trend in an organization's year-end cash positions.

Line 21. Net assets or fund balances at end of year indicates the amount a charity has on hand, usually in cash and investments. The amount may be larger for, say, organizations that perform disaster relief or other intermittent services that require sufficient reserves to cover such activities when they occur.

Part II: Statement of Functional Expenses (lines 22-44)

Potential donors can use this section — which highlights such overhead costs as salaries, occupancy (rent), telephone, and travel — to help understand how a charity is allocating its resources. For example, most nonprofits are labor intensive, so there often is a lot of money dedicated to compensation and benefits.

Many organizations tend to incorporate a high percentage of their expenses into other expenses (line 43), and detail those expenses on an attachment, even though most expenses will fit into one of the categories provided. By reviewing the attachments, you can discover, for example, if the organization is heavily dependent on contract employees rather than paying people through salaries.

Part III: Statement of Program Service Accomplishments

This section offers a snapshot of the major activities (and associated program expenses) performed during the previous year. For a more complete listing of program accomplishments, it may be useful to turn to an organization's annual report or its website.

Part IV: Balance Sheets

Part IV is divided into three subcategories: assets, liabilities, and net assets or fund balances. The lists of assets and liabilities paint a picture of the financial strength or weakness of an organization. Common sense dictates that a nonprofit cannot survive long if its assets are not greater than its liabilities.

Line 50. Receivables from officers, directors, trustees, and key employees reports outstanding loans to charity officials. Check any attachments to ensure that loans are appropriate. For example, the charity should not be listing the mortgage on a trustee's new house, although there are circumstances where this may be appropriate.

Net Assets or Fund Balances

Line 67. Unrestricted assets are resources currently available to an organization to fulfill its tax-exempt purpose. While typically a large portion may be in cash, these may not necessarily be liquid assets.

Line 68. Temporarily restricted assets are resources currently available for use, but only as indicated by the donor. For example, if a donor makes a grant to help fund a particular program, the organization is expected to spend the money as specified.

Line 69. Permanently restricted assets always carry limitations. For instance, a donor might allow the charity to spend income interest from a contribution but not the principal.

Line 73. Total net assets or fund balances indicate the total amount of financial resources available to an organization at that point in time.

Parts IV-A and IV-B: Reconciliation Statements

These sections reconcile any differences between the revenue and expenses shown on the audited financial statements and the revenue and expenses shown on the Form 990.

Part V-A: Current Officers, Directors, Trustees, and Key Employees

Here you'll find a list of board members, some of the charity's executive staff, and key employees who exert a significant influence on an organization's activities. The list may include titles, salaries, or compensation.

Schedule A lists compensation for the five highest-paid employees (other than officers and board members) and the five highest-paid independent contractors for professional services, such as legal and accounting, paid in excess of $50,000.

Part V-B: Former Officers, Directors, Trustees, and Key Employees that Received Compensation or Other Benefits

This section describes any former officers, directors, trustees or key employees who received compensation or other benefits during the year, enabling the IRS to determine the extent to which such persons are still being paid.

Part VI: Other Information

This section focuses on the operations of an organization during the course of a year. With the exception of lines 83a and 83b, which ask if the organization has complied with certain inspection and disclosure requirements, any items marked "yes" — particularly lines 76, 77, 79, 80, 88, and 89 — may indicate an attached statement, which you'll want to review.

Of particular interest, line 78a asks about income from for-profit ventures that the charity operates on the side; line 80 asks for the names of related organizations; and line 90b gives the number of the organization's paid employees as of March 12 of the filing year.

Part IX: Information Regarding Taxable Subsidiaries and Disregarded Entities

This section indicates any for-profit businesses legally owned by a charitable organization. To help even out the unpredictable income stream generated by conventional fundraising activities, more organizations are using nonprofit taxable subsidiaries. For many charities, developing tangential sources of revenue is an efficient way to fund their primary missions.

Although not common, nonprofit ownership of a taxable enterprise might make good business sense. Look for a connection between both enterprises such as an art museum that generates revenue through bookshop and food service sales.