How to Evaluate a Charity Using Form 990 Data

What Is Form 990?

Every year, the IRS requires most tax-exempt organizations to file an annual information return called Form 990. Unlike tax returns, which are confidential, Form 990 is a public document. Any donor, journalist, or researcher can request it directly from the organization or access it through the IRS's online tools.

The form was designed to give the public a clear window into how nonprofits operate. It covers the organization's mission, activities, revenue sources, expenses, assets, executive pay, governance policies, and relationships with related entities. A fully completed Form 990 can run 40–60 pages or more for large organizations.

There are several variants. The full Form 990 is required for organizations with gross receipts of $200,000 or more or total assets of $500,000 or more. Smaller organizations file Form 990-EZ. Very small organizations (gross receipts under $50,000) file a simple online Form 990-N, called the e-Postcard, which discloses only basic identifying information. Private foundations file Form 990-PF, which includes additional information on investment income and charitable distributions. Churches are generally not required to file at all.

PlainCharity displays summary financial data drawn from 990 filings for over 1.87 million organizations. You can search by name, location, or NTEE category to find organizations and review their financial profiles.

Key Financial Metrics to Review

When evaluating a charity's Form 990, focus on a handful of core financial figures. These appear on Part I of the full 990 and are summarized in the financial statements attached to the return.

Total revenue is the organization's income from all sources — donations, grants, program service fees, investment income, and other sources. Reviewing revenue over multiple years tells you whether the organization is growing, stable, or shrinking. A sudden spike in revenue warrants investigation: is it a one-time grant or a sustainable trend?

Total expenses breaks down into three buckets: program service expenses (direct mission work), management and general expenses (administration), and fundraising expenses. The ratio between these three categories is one of the most important signals in the entire 990.

Net assets (fund balance) is the organization's cumulative surplus — total assets minus total liabilities. A healthy nonprofit typically holds reserves equal to 3–6 months of operating expenses. Very high net assets relative to annual spending may indicate the organization is hoarding funds rather than deploying them toward its mission. Very low or negative net assets signals financial distress.

Executive compensation is disclosed on Schedule J for organizations that pay any employee more than $100,000. This section lists the five highest-paid employees. Compensation should be benchmarked against peer organizations of similar size and scope. High executive pay at a small charity with modest revenues is a legitimate concern; high pay at a large, complex organization may be entirely appropriate.

Program Expense Ratio: What It Tells You

The program expense ratio is the percentage of total expenses that went directly toward the organization's programs and services (as opposed to administration and fundraising). It is calculated as:

Program expense ratio = Program service expenses ÷ Total expenses × 100

Charity watchdogs like Charity Navigator and the BBB Wise Giving Alliance generally recommend ratios of 65% or higher, with 75%+ considered strong. The reasoning is straightforward: donors want their money to fund the mission, not overhead.

However, the ratio must be interpreted in context. A hospital spending 60% on programs is very different from a direct-aid charity spending 60% on programs. Medical institutions, universities, and research organizations have legitimate infrastructure costs that naturally reduce this ratio. A disaster relief organization with a 95% program ratio may simply have deferred critical investments in staff and systems, creating long-term fragility.

The program expense ratio is a starting point, not a verdict. Use it to ask questions, not to make final judgments. Read Part III of the 990, which describes the organization's actual programs and accomplishments, to understand what the spending produced.

Red Flags to Watch For

While most nonprofits file accurate, complete 990s, certain patterns should prompt deeper investigation before donating:

Missing or incomplete filings. An organization that fails to file its 990 on time, or files incomplete returns, raises compliance concerns. The IRS automatically revokes the tax-exempt status of organizations that fail to file for three consecutive years. PlainCharity notes filing status where available; verify current status through the IRS Tax Exempt Organization Search.

Very high fundraising expenses relative to donations raised. If an organization spends more than 30–35 cents to raise each dollar, that is worth examining. Some fundraising models (telemarketing, direct mail) are inherently expensive; others have no justification for high costs.

Related-party transactions without adequate disclosure. Schedule L discloses loans, grants, or business transactions between the organization and its officers, directors, or key employees. These are not automatically improper, but they require careful scrutiny. An executive receiving a loan from the nonprofit they run is a red flag.

Dramatic year-over-year financial swings. A sudden doubling of revenue accompanied by a collapse in program expenses, or a sharp increase in executive compensation during a financially difficult year, warrants investigation.

Very low net assets with high liabilities. An organization spending down reserves faster than it is generating revenue may be heading toward insolvency. Donations to a financially distressed organization may be used to cover debt rather than fund programs.

Governance problems. Part VI of the 990 covers governance policies. Organizations without a written conflict-of-interest policy, without regular board review of the executive's compensation, or with the same person serving as both executive director and board chair have governance structures that create opportunities for abuse.

Beyond the Numbers: Reading the Program Descriptions

Part III of Form 990 requires organizations to describe their three largest program accomplishments. This is the section where an organization explains what it actually did with its money. Read these descriptions carefully. Strong organizations describe specific, measurable outcomes: meals served, students tutored, housing units built. Weak descriptions are vague and self-congratulatory without data.

Comparing Part III across multiple years tells you whether the organization is making progress on its stated mission or simply spinning its wheels. An organization that describes identical accomplishments year after year without improvement may not be a good steward of charitable funds.

Frequently Asked Questions

What is IRS Form 990?

Form 990 is an annual information return that most tax-exempt organizations must file with the IRS. It discloses a nonprofit's mission, programs, governance, finances, and executive compensation. It is publicly available and is one of the most important tools donors and researchers have to evaluate a charity.

What is a good program expense ratio for a charity?

Charity watchdogs typically recommend that at least 65–75% of a nonprofit's expenses go toward program activities. However, ratios vary significantly by sector. Overhead-intensive organizations like hospitals and universities naturally have different ratios than direct-service nonprofits. Context matters more than any fixed benchmark.

Who must file Form 990?

Most tax-exempt organizations with gross receipts of $200,000 or more, or total assets of $500,000 or more, must file the full Form 990. Smaller organizations file Form 990-EZ or Form 990-N (e-Postcard). Private foundations file Form 990-PF regardless of size. Churches are generally exempt from filing.

Where can I find a charity's Form 990?

Form 990 filings are publicly available through the IRS Tax Exempt Organization Search tool, ProPublica's Nonprofit Explorer, and Candid (formerly GuideStar). PlainCharity displays key financial data from 990 filings for over 1.87 million organizations in our database.