What Form 990 Part VI asks about governance

There is a page of your Form 990 that most boards have never read. Part VI runs about twenty lines, it asks yes-or-no questions about how your board actually operates, and somebody, usually your accountant, answered all of them on your behalf. Those answers are public. Anyone who wants to can pull your return and read them, and a certain kind of funder does exactly that before a first meeting.

None of the questions are hard. What makes them worth an hour of board time is that a "yes" on this form is a much lower bar than most boards assume, and the gap between the answer and the practice is usually where the interesting conversation lives.

Why the IRS asks about governance at all

The IRS does not regulate nonprofit governance. It cannot tell you how many board members to have, or require you to adopt a whistleblower policy, and answering "no" down the whole page is not a violation of anything.

Part VI exists because the agency's position, stated openly when the redesigned return came out, is that a well-governed organization is more likely to comply with tax law. So the form asks. The answers are disclosed, and disclosure is the enforcement mechanism. You can find the current form, the schedules, and the instructions on the IRS site, and the instructions are more readable than their reputation suggests.

What you cannot do is answer "yes" when it is not true. That is the whole risk profile of this page.

Section A, the board itself

Lines 1a and 1b: voting members, and how many are independent. Independence has a specific definition here, and small boards routinely over-report it. A member is not independent if they were compensated as an officer or employee, if they or a family member had a reportable financial transaction with the organization, or if they are related to someone who did. The board member whose firm did your printing is not independent, even if she charged you cost.

Line 2: family or business relationships among officers, directors, and key employees. Two board members who are business partners is a reportable relationship. So is a board member married to a staff member.

Line 3: management duties delegated to a management company. Relevant for fiscally sponsored or contract-managed organizations.

Lines 4 and 5: significant changes to governing documents, and any diversion of assets. Line 5 is the theft question, phrased politely.

Line 8: contemporaneous documentation of meetings and committee actions. "Contemporaneous" is doing the work in that sentence. Minutes reconstructed from memory four months later, or approved a year after the meeting, are not contemporaneous, and an organization with a stack of unapproved draft minutes is technically answering this one wrong.

Line 11a: was a copy of the Form 990 provided to every voting member of the governing body before it was filed. Read what it asks. Provided. Before filing. Not reviewed, not discussed, not understood. A PDF emailed at 11pm the night before the deadline satisfies the literal question, and thousands of organizations answer "yes" on exactly that basis.

Section B, the policies

Lines 12a, 12b, and 12c: conflict of interest. These are three separate questions, and boards tend to treat them as one. Do you have a written policy. Are officers, directors, and key employees required to disclose annually. Does the organization regularly and consistently monitor and enforce compliance. The third is the one that separates boards that have a policy from boards that use one.

Line 13: whistleblower policy. Line 14: document retention and destruction policy. Both are existence questions.

Lines 15a and 15b: how compensation for the chief executive and other officers was determined. This is the question small boards most often answer optimistically. It asks for three things together: a decision made by people without a conflict of interest, comparability data showing what similar organizations pay for similar work, and contemporaneous substantiation of the deliberation. "The board voted a three percent raise in executive session" is none of those. If you have never pulled compensation figures for organizations your size in your region, the honest answer to 15a is no.

Section C, which follows, is about disclosure: where your return and governing documents can actually be seen.

One question outside Part VI belongs in the same conversation. Part XII, lines 2a and 2b, asks whether an independent accountant compiled, reviewed, or audited your financial statements, and 2c asks whether a board committee takes responsibility for that oversight.

Where a yes stops being true

Four invented but entirely ordinary situations, all of which produce a truthful "yes":

A conflict of interest policy adopted in 2014, in a binder in the office, which no current board member has read. A whistleblower policy that exists and that no staff member could tell you how to use. A document retention policy specifying seven years for financial records, at an organization whose actual email retention is whatever is in the executive director's inbox. A return sent to the board 18 hours before filing, opened by two people.

None of those boards are lying. The form measures existence, and the thing existed. Your board's job is to measure practice, which is a different measurement, and nobody outside your organization is going to make it for you.

What this assessment checks against your filing

This is a free assessment, and one of the things it does is pull your organization's most recent full Form 990 and compare four of your board's own answers to what your organization already told the IRS. The board questions include these, worded exactly as your members will see them:

• "The board reviewed the Form 990 before it was filed." Compared against Part VI, Section A, line 11a.
• "An independent accountant audits or reviews our financial statements each year." Compared against Part XII, lines 2a and 2b.
• "We have a whistleblower policy." Compared against Part VI, Section B, line 13.
• "We have a written document retention and destruction policy." Compared against Part VI, Section B, line 14.

A mismatch is not an accusation. Most of them mean a board member did not know something, which is worth knowing on its own, or that the practice changed after the return was filed. But when nine of 11 board members say the board reviewed the return and the return says it was never provided to them, somebody has been told something that is not so.

There is one deliberate gap. The item asking each member whether they personally completed a conflict of interest disclosure in the past 12 months does not get cross-checked, because the 990's conflict of interest lines ask whether the organization has a policy and requires disclosure, not how many people actually filed one. Comparing a policy flag to a completion rate would produce a number that looks meaningful and isn't. Two caveats worth stating: this only works if you file the full Form 990, since 990-EZ and 990-N filers have no Part VI to read, and the comparison is only as current as your last filing.

Reading your own Part VI before the next meeting

You do not need any of this to check your own answers. Four steps, about an hour total:

1. Pull your most recent return. Your accountant has it, and it is also public through Candid's nonprofit database or the IRS exempt organization search.
2. Read lines 11a through 15b out loud in a meeting. Out loud matters. Silent reading lets people agree with a sentence they have not really parsed.
3. For every "yes" in Section B, ask who would know. Could a new part-time staff member find the whistleblower policy and understand how to use it. If not, the honest state of that policy is "adopted," not "in effect."
4. Ask who answered them. On most small nonprofits, Part VI was completed by the accountant, from last year's answers, without anyone on the board being consulted. That is not misconduct, but it does mean the board has been publishing claims about itself that it has never reviewed.

If your board is going to make a habit of this, once a year at the same point in the calendar works better than an occasional deep dive, for the same reason an annual cadence beats a triennial one for anything a board is trying to notice change in.

The point of Part VI is not the score. There is no score. It is a short list of the things the federal government thinks a functioning board does, written in language plain enough to check, and it is one of the few governance documents about your organization that strangers will read whether or not you do.