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Passthrough funds & how to report them on 990
I am in my first year as ED of a small nonprofit. We manage some public grants for a few of our member organizations. On our budget, those passthrough revenue and expenses are “below the line.” In the past, the passthrough funds were not included in our 990 at all – enabling us to file the EZ form. With a new finance consultant (who I trust) doing our 990 for 2023, they are including the passthrough in our financial statements.
Do we need to report these passthrough funds on the 990? If so, is there a way to show them similarly to how we do on our budget – they are below the line of our operating budget. And if we do need to report them, what would/could be the messaging to people who look at ’22 and then ’23 to see a huge difference in revenue and expenses?
THANK YOU!
Kristin
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4 Replies
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Kristin,
Your new accountant is correct that any revenue that is received by the nonprofit should be reported on the 990. While there isn’t a way to report them “below the line”, you can communicate how the funds are re-distributed by how you complete Part III: Statement of Program Accomplishments. You can describe this aspect of your work as a program. You’ll see that this includes a line for revenue and grants made for their program. The fact that those amounts offset will help tell your story. You’ll find with the full 990 that you have more opportunity to tell your story on this form.
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Kate,
This is so helpful. I needed the explanation of the “why” to communicate with my board.
I can see in the draft the accountant sent me that they include grants given in Part III, as you said.
Many thanks!
Kristin
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I’d lean towards following your consultant’s treatment, but I’d ask them to confirm the pass-through arrangement against the 990 rules. If it must be reported, you can still explain that these funds are restricted/pass through rather than operating revenue. A short note comparing 2022 and 2023 should prevent the numbers causing unnecessary alarm.
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That is an interesting point, Kristin. Pass-through funds can appear on the Form 990, depending on the circumstances and the organisation’s role in handling them. The agency relationship is particularly important because funds received on behalf of others may not necessarily be treated as the organisation’s own revenue. A clear note explaining the arrangement can also make the figures easier for readers to understand.
