Form 990 Preparation: Where AI Helps and Where It Absolutely Cannot

AI can help organize financial data from accounting systems into formats that align with Form 990 categories. This includes extracting transactions that might relate to specific schedules, organizing compensation data for later professional review, and identifying potential related party transactions that require disclosure analysis. The emphasis is on organization rather than final classification—a professional still needs to review categorizations and make final determinations.

Modern AI tools can parse complex accounting reports and suggest preliminary mappings between general ledger accounts and Form 990 line items. They can flag unusual patterns or amounts that might warrant additional attention during professional review. This preparatory work can save significant time in the initial stages of Form 990 preparation, though every suggestion requires verification by qualified staff or consultants.

• Extracting and organizing financial data from accounting systems
• Suggesting preliminary account-to-line-item mappings for review
• Flagging potential issues for professional attention

The IRS Form 990 instructions span hundreds of pages, and the broader regulatory framework includes revenue procedures, private letter rulings, and other technical guidance. AI tools can help quickly locate relevant sections of instructions, find examples of specific types of disclosures, and identify potentially applicable IRS guidance for specific situations.

This research assistance can significantly reduce the time professionals spend searching through documentation. However, interpreting the guidance and applying it to specific circumstances requires professional judgment. AI might find the relevant section about reporting joint venture arrangements, but determining whether a specific relationship qualifies as a joint venture requiring disclosure demands expertise in nonprofit tax law.

• Searching Form 990 instructions for relevant sections
• Identifying potentially relevant IRS guidance documents
• Locating examples from published resources

AI excels at identifying inconsistencies and mechanical errors that can slip through during manual preparation. This includes checking that totals match across different sections, verifying that amounts reconcile to financial statements, identifying missing responses to required questions, and flagging formatting issues that could cause electronic filing problems.

These consistency checks act as a quality control layer before professional review, catching simple errors that might otherwise consume time during the review process. AI can quickly verify that Schedule A calculations tie to the front page, that Schedule O references in the main form correspond to actual Schedule O text, and that all required attachments are referenced. This allows professionals to focus their attention on substantive issues rather than mechanical verification.

• Verifying mathematical accuracy and cross-references
• Checking for complete responses to required questions
• Identifying formatting issues for electronic filing

Form 990 requires numerous narrative descriptions of program activities, governance policies, and organizational mission. AI can help generate initial drafts of these narratives based on program documentation, website content, grant reports, and previous years' descriptions. These drafts provide a starting point that professionals can refine to ensure accuracy, compliance, and appropriate messaging.

The key word is "draft"—AI-generated narratives always require professional review and often substantial revision. Tax professionals need to ensure descriptions accurately reflect activities, meet specific disclosure requirements, avoid creating unintended legal implications, and present the organization appropriately. AI can help overcome the blank page problem and suggest language, but the final narratives must be professionally crafted and reviewed.

• Generating draft program service descriptions from source materials
• Suggesting language for governance policy descriptions
• Adapting previous years' descriptions to current year's activities

Create explicit guidelines for where AI tools can be used in your Form 990 preparation process. This might include using AI for initial data organization, draft narrative generation, and consistency checking, while explicitly reserving all classification decisions, judgment calls, and final review for qualified professionals. Document these boundaries clearly and ensure all staff understand them.

Having clear boundaries prevents the gradual expansion of AI use into areas where it's not appropriate. It also helps staff understand when to escalate questions to professionals rather than relying on AI-generated suggestions. These guidelines should be part of your overall Form 990 preparation procedures and reviewed regularly as both AI capabilities and regulatory requirements evolve.

Treat all AI outputs as preliminary drafts requiring professional verification. Even tasks where AI assistance is appropriate—like data organization or narrative drafting—must be reviewed by qualified professionals who can assess accuracy, identify issues, and make necessary corrections. Never treat AI suggestions as final without professional review, regardless of how confident the AI seems or how reasonable the output appears.

Build professional review checkpoints into your workflow at multiple stages. Rather than using AI throughout the process and only bringing in professionals at the end, structure the work so professionals review AI-assisted outputs at key stages, providing feedback that can improve the quality of subsequent AI assistance. This iterative approach helps catch problems early and ensures the final product reflects professional standards throughout.

Even as AI tools handle more preparatory tasks, maintain strong relationships with qualified CPAs or tax attorneys who specialize in nonprofit tax compliance. These professionals should be involved early in the process, particularly for organizations with complex activities, significant changes from prior years, or unusual transactions. Their expertise becomes more valuable, not less, as AI handles routine tasks and allows them to focus on the judgmental and strategic aspects where they add the most value.

Consider how AI might actually allow you to work more effectively with tax professionals. If AI tools can handle initial data organization and draft preparation, you might be able to engage professionals earlier in the process for strategic guidance rather than basic data compilation. This could lead to better outcomes and potentially even lower overall costs if professional time is focused on high-value activities rather than mechanical tasks.

Don't let AI assistance become a barrier to building internal expertise. Staff involved in Form 990 preparation should understand the underlying requirements and compliance issues, not just how to use AI tools to generate outputs. Use AI assistance to make the preparation process more efficient, but ensure staff are learning about Form 990 requirements and developing their own judgment rather than becoming dependent on AI suggestions they don't fully understand.

Consider using AI tools as educational resources alongside their practical applications. When AI suggests a particular classification or disclosure approach, use that as an opportunity to understand the underlying regulatory requirements rather than simply accepting the suggestion. This builds organizational capacity and ensures you maintain the expertise needed to work effectively with professional advisors and assess the quality of AI-assisted outputs.