For most individual and business filers, the identity of the IRS filing preparer has little consequence. Assuming the quality of information is the same, it makes no difference whether your tax return is self-prepared, prepared by a non-accredited preparer, or a CPA, EA or attorney. The most common deviation from that rule is with nonprofit organizations. Nonprofits generally do not file a tax return, since they are exempt from tax. Nonprofit organizations make an annual filing to IRS that is a disclosure of information and attestation by the management of the organization’s adherence to financial management standards set for tax-exempt entities.
When a nonprofit organization is required to provide a financial statement to an outside stakeholder, or even just to the state for public information filing purposes, the usual format is a financial statement. Some nonprofits can prepare these statements on their own, but that is rarely accepted by a requestor when an organization is above a specified size or when the nonprofit is applying for a grant or loan. These financial statements are more commonly compiled, reviewed or audited by a CPA firm whose actions are regulated by state boards of accountancy. The work must meet established industry requirements, and each engagement is later reviewed by another CPA firm in a process called peer review. For our firm, the requests for financial statement work by nonprofit organizations is by far the most frequent area of requests for what the industry refers to as “attestation engagements”. The problem is that this process is expensive. Costs typically range from 2% to above 5% of a small nonprofit’s entire operating budget.
There is often a more affordable alternative. In this age of a shortage of CPAs, we notice that more outside stakeholders will accept a CPA-prepared Form 990* in lieu of financial statements from nonprofit organizations. The Form 990 filing includes financial statements and also includes a large amount of non-financial information and a number of attestations about the nonprofit’s compliance with a wide range of federal regulations. We notice that if the CPA has a working relationship or prior reputation with the business or agency who is requesting the filing, then the process goes more smoothly. We have had cases where a specific agency required financial presentation in a specific format that could be accomplished by rearranging the financial disclosure. The cost of a CPA-prepared Form 990 can be much lower that financial statements, even well below $2,000 per year for nonprofit organizations with good recordkeeping habits.
*The simplest type of Form 990 is called 990N or postcard version. It is available to the smallest nonprofit organizations and does not include financial information, management information, or compliance attestations. These are typically not accepted by outside stakeholders in lieu of financial statements.