Investment Income Reporting Under U.S. GAAP vs. Form 990
Published on by Lauren Belieu in Not-for-Profit, Tax Services, Assurance
While both U.S. Generally Accepted Accounting Principles (GAAP) and IRS Form 990 (required for most tax-exempt organizations) deal with investment income reporting, there are key differences: GAAP aims for comprehensive financial reporting for various stakeholders, while Form 990 focuses on transparency and compliance with IRS regulations for tax-exempt status.
Essentially, U.S. GAAP provides a broader view of an organization’s financial health, including the current value of its investments, even if they haven’t been realized yet – and that can be vital information for stakeholders evaluating the organization’s resources. Form 990, on the other hand, focuses on reporting taxable income and meeting IRS compliance requirements, and so excluding unrealized gains and losses from the revenue calculation.
Types of investment income reported
Both U.S. GAAP and Form 990 report these categories of investment income:
• Dividend income
• Realized gains/losses
• Rental income
• Other investment income
Investment income that is reported under GAAP but not under Form 990 are:
• Unrealized gains/losses
• Equity method income
Net versus gross reporting
Under U.S. GAAP, investment income is reported net of investment expenses, meaning any fees or costs associated with managing investments are subtracted from the income before it’s reported.
It’s a little different under Form 990, where investment income is reported gross (investment expenses are not subtracted). Instead, investment expenses are listed separately in Form 990 Part IX – Statement of Functional Expenses.
Unrealized gains and losses
U.S. GAAP reporting includes unrealized gains and losses (e.g., changes in market value of investments not yet sold) in the Statement of Activities. Under Form 990, reporting excludes unrealized gains and losses from total revenue, instead treating them as reconciling items in Schedule D, which helps align Form 990 with audited financial statements.
Presentation differences
GAAP focuses on economic substance and provides a comprehensive view of financial performance. Form 990 is designed for tax compliance and public transparency, so it uses a mix of GAAP and tax-basis accounting, which can lead to differences in how investment income is presented.
How this impacts your non-profit
If you have questions about the differences between GAAP reporting and Form 990 and how they can impact non-profits, our team of top non-profit financial professionals is here for you. Contact us today for a free consultation, and let’s get started building a better, brighter future – together.
Related content
You might also be interested in our video series on Form 990 and what it can do to boost your non-profit’s visibility (you might be surprised!) or our Non-Profit Toolkit, packed with resources to help you bolster your organization and further its mission.
With one of the largest non-profit practices in the region, we’ve helped hundreds of non-profits make our communities stronger – and we’ve got some great success stories to share. Explore our Thrive video series, highlighting how non-profits are flourishing and how we’ve helped.
