Financial transparency should be among the highest priorities of a tax-exempt organization.
Photo of IRS by G. Edward Johnson / Wikimedia / Creative Commons 4.0
Christian ministries should hold themselves to an even higher standard. The Bible says that Christians are commanded to “live as children of the light” (Ephesians 5:8). In other words, Christian ministries should understand financial transparency not merely as a legal issue. It is also a moral and ethical concern. It is a matter of biblical stewardship.
Unfortunately, many Christian ministries are moving toward darkness. In recent years, we have seen many ministries petition the IRS for reclassification as a church (or association of churches, a designation meant for denominations) to avoid disclosure requirements. This trend is especially troubling given the crisis in confidence currently facing the church. Trust in all institutions, including the church and Christian ministries, is at or near an all-time low. If there was ever a time when Christian leaders should be running toward the light rather than away from it, it is now.
This article will state clearly why MinistryWatch believes that filing a Form 990 is vital. We will also look, in what we hope is a fair-minded way, at some common objections we have heard to our position.
History and Rationale of Form 990
It is also worth noting that the requirement to file a Form 990 is not new and is not an example of government overreach. Congress has required most tax-exempt organizations to file an annual information return with the IRS since the Revenue Act of 1943, with the first Form 990 used for the 1941 tax year.
John Colombo of the University of Illinois is one of the leading scholars of nonprofit tax law. He has repeatedly argued that tax exemption is justified because organizations provide a public benefit, and that public accountability is a necessary condition for maintaining that privilege. His work treats disclosure requirements such as Form 990 as part of the mechanism by which the public can verify that organizations are, in fact, serving public purposes.
This position is virtually canonical among nonprofit experts. Bruce Hopkins, perhaps the most widely cited attorney on nonprofit law, has written that charitable organizations receive significant public subsidies through tax exemption and deductible contributions. Because of those subsidies, they owe a corresponding duty of accountability and transparency.
Independent Sector, the leading coalition of nonprofit organizations, has often described charitable organizations as holding public trust. That trust depends on openness and accountability.
Its governance principles emphasize that transparency is not simply regulatory compliance but an obligation that comes with tax-exempt status. Independent Sector wrote: “The nonprofit sector’s ability to serve the public depends on maintaining the public’s trust.” Its recommendations repeatedly connect public disclosure — including Form 990 — with preserving that trust.
The National Council of Nonprofits regularly describes tax exemption as a public benefit accompanied by public responsibilities. Its guidance notes that Form 990 exists so donors, journalists, regulators, and the public can evaluate whether nonprofits are operating consistently with their charitable mission.
The rationale for filing a Form 990 could not be clearer. The good news is that for the overwhelming majority of Christian organizations, that rationale is not in dispute. The MinistryWatch database tracks more than 1,650 ministries, and all but about 200 of them file a Form 990.
So any ministry not filing a Form 990 is an outlier. The vast majority of ministry leaders, accountability organizations, and donors believe that filing is not merely a “best practice,” but a minimal standard practice.
The Practical Benefits of Form 990
In addition to the philosophical, societal, and ethical reasons for filing a Form 990, there are a number of practical reasons for doing so. They include:
- It provides a common standard for transparency. Every nonprofit that files a Form 990 reports financial information in the same format. That consistency allows donors, journalists, and watchdog organizations to compare ministries using the same yardstick rather than relying solely on self-produced annual reports or fundraising materials.
- Form 990 provides information not found in an audit. The most notable information includes salary and other data related to the board and senior executives. A Form 990 also has important information related to vendors and contractors that is not typically found in an audit.
- When an organization files a Form 990, it becomes available widely on the internet. Filing a Form 990 — rather than merely posting a pro forma version on a website — makes that information available to a wide range of organizations. MinistryWatch and most other accountability groups, including ProPublica, GuideStar and Charity Navigator, have software — an API, or application programming interface — that allows us to download large amounts of information quickly. Maintaining large databases simply would not be possible using a manual process.
- It shines light on governance practices. Form 990 asks important questions about an organization’s board, conflict-of-interest policies, document-retention practices, and whistleblower protections. These governance questions often reveal as much about the health of an organization as its financial statements. This governance information is not included in an audit.
- It allows compensation to be evaluated fairly. MinistryWatch has frequently written that executive compensation should not be secret. The Form 990 reports the compensation of key executives, allowing boards, donors, and researchers to determine whether salaries are reasonable compared to organizations of similar size and complexity. Again, this information is not included in an audit.
- It makes trend analysis possible. A single year’s financial statement provides only a snapshot. Years of Form 990 filings allow researchers to identify trends in giving, spending, reserves, staffing, and executive compensation. Long-term trends often tell a more complete story than a single year’s results.
- Failure to file Form 990 is often an early indicator of other issues. Transparency does not eliminate misconduct, but secrecy makes abuse easier to conceal. Public reporting creates an additional layer of accountability that can discourage excessive compensation, conflicts of interest, and questionable financial practices. Several recent ministry scandals, including the scandal at Ravi Zacharias International Ministries, occurred just a few years after the ministries stopped filing Form 990s.
- False information on Form 990 is subject to perjury charges. Ministries naturally present themselves in the best possible light, but Form 990 is submitted to the Internal Revenue Service under penalty of perjury. While not audited by the IRS in most cases, it is nevertheless an official government filing rather than a marketing document.
- It supports better journalism. MinistryWatch and other journalistic outlets rely heavily on Form 990 filings because they provide verifiable facts instead of rumors or speculation. Rumors and speculation are not only bad for journalism, but they are bad for the ministries covered.
- It protects the reputation of the broader Christian community. Financial scandals at one ministry often damage the credibility of many faithful organizations. Greater transparency across the entire nonprofit Christian sector helps distinguish responsible ministries from those that misuse donor funds or resist accountability.
Form 990 has limitations. It does not answer every important question about a ministry. Also, the Government Accountability Office (GAO) has found that Form 990s contain errors. However, those same studies also found that most of these errors were minor — typos and minor math errors. Nevertheless, the GAO has consistently treated Form 990 as an essential transparency mechanism and has recommended improving its accuracy rather than eliminating or minimizing its importance.
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Some Common Objections to Filing a Form 990
Here are a few common objections to filing Form 990.
Filing a Form 990 could endanger missionaries serving in hostile or closed countries.
This is a serious concern. If filing a Form 990 genuinely placed missionaries at greater risk, we would oppose requiring ministries to do it. The safety of Christian workers is more important than any transparency initiative.
But after years of reporting on Christian ministries, we do not believe that filing a Form 990 creates the kind of security risk its critics claim. The Form 990 does not identify overseas missionaries. It does not require organizations even to disclose the countries in which it operates. It does not require the organization to disclose the names of ministry partners to whom it sends money in the form of grants. In other words, Form 990 discloses no information whatsoever that would put workers in jeopardy. This argument may reflect real fear, but it does not reflect reality on the ground.
One of the strongest arguments against the security objection is that many respected Christian ministries with extensive work in restricted countries have filed Forms 990 for decades while continuing to operate globally. These organizations have developed effective security procedures while maintaining a commitment to financial transparency.
For a more robust discussion of this topic, click here.
Churches, associations of churches, and missionary societies don’t have to file.
That is true. Churches and related entities are exempt under federal law.
But many parachurch ministries are not churches by any reasonable ecclesiastical or biblical definition. Because the IRS does not want to be in the business of making these kinds of decisions, it tends to accept an organization’s assessment of itself and approve all or most applications.
But as Christians, we should have a very high view of what a church really is, and a very low view of deception or false witness. Many organizations that have applied in recent years for an exemption from filing a Form 990 are motivated by a desire to avoid disclosure rules rather than by an honest representation of themselves as churches.
It is the position of MinistryWatch that an organization that solicits donations from the public, especially on a national or international scale, should embrace the highest levels of transparency, regardless of whether the law requires only minimal disclosure.
For a more robust discussion of this topic, click here.
Annual reports provide all the transparency donors need.
This statement is simply not true by any reasonable definition.
Annual reports are valuable, but they are produced by the ministry itself and vary widely in content and quality. Form 990 offers something annual reports cannot: a standardized reporting format that allows donors, researchers, journalists and charity evaluators to compare organizations using the same categories and definitions. Form 990 provides salary information, fundraising costs, names and conflicts of interest of board members, and much more. This information is not found in either annual reports or audits.
Why can’t we simply provide you with the information you need?
There are both practical and principled reasons why simply providing MinistryWatch with the needed information is not an acceptable solution. They include:
- The point of requiring a ministry to file Form 990 is not merely or even mostly so that MinistryWatch has the information we need for our ratings. The point is so that all online sources have access to them and, thereby, all donors, no matter which platform they use.
- As stated above, Form 990 is the only document that provides the information a donor needs in a standardized format, submitted to the government under penalty of perjury. Simply providing MinistryWatch with the data would leave in doubt the quality and accuracy of the data.
No rating system is perfect, and all rating systems require judgment and decision making. But if we made a list of things we could change or modify about our rating system, eliminating the Form 990 requirement would likely be dead last on our list.
MAIN PHOTO: Photo of IRS by G. Edward Johnson / Wikimedia / Creative Commons 4.0
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