IRS Releases Final Draft of 2008 Form 990
February 2008

Recently the IRS released the final draft of the new Form 990, effective for tax years beginning on or after January 1, 2008. The new form is the first major revision in almost 30 years. The IRS developed this new form under three guiding principles: to enhance transparency, to promote tax compliance, and to minimize the reporting burden on filing organizations. However, for larger organizations, many believe the new form to be much more complex and burdensome than the previous Form 990. The final draft contains significant revisions from the first draft released by the IRS in June 2007.

The previous Form 990 included 9 pages, 2 schedules, and 36 potential attachments. The redesigned Form 990 includes an 11-page core form and 16 schedules. Many of the new schedules highlight areas of focus by the IRS and are intended to increase transparency in reporting. The additional schedules are:

• Schedule A - Public Charity Status and Public Support
• Schedule B - Schedule of Contributors (no change)
• Schedule C - Political Campaign and Lobbying Activities
• Schedule D - Supplemental Financial Statements
• Schedule F - State of Activities Outside the United States
• Schedule G - Supplemental Information Regarding Fundraising or Gaming Activities
• Schedule H - Hospitals
• Schedule I - Grants and Other Assistance to Organizations, Governments and Individuals in the U.S.
• Schedule J - Compensation Information
• Schedule K - Supplemental Information on Tax Exempt Bonds
• Schedule L - Transactions with Interested Persons
• Schedule M - Non-Cash Contributions
• Schedule N - Liquidation, Termination, Dissolution or Significant Disposition of Assets
• Schedule O - Supplemental Information to Form 990
• Schedule R - Related Organizations and Unrelated Partnerships

Form 990 Core Overview

The Form 990 core form includes significant changes, as well as an expansion of information previously reported.

Part VI - Governance, Management, and Disclosure, is one area with expanded reporting. The IRS believes that the existence of an independent governing body and well-defined governance and management policies and practices are good indicators that the organization is likely to be operating in compliance with the federal tax law. Although many of these questions and policies are not required to obtain or maintain tax exempt status, answers to these questions provide the IRS insight into potential areas of risk related to noncompliance and abuse. This part of the core form includes questions relating to the organization's governing body and management, the organization's policies regarding conflicts of interest and determination of compensation, and disclosure of documents available for public inspection.

Another area that has seen significant changes is Part VII - Compensation of Officers, Directors, Trustees, Key Employees, Highest Compensated Employees, and Independent Contractors. This section consolidates the reporting of compensation for these groups of persons related to the organization. The previous version of the Form 990 included the reporting of compensation of the five highest compensated employees and independent contractors on Schedule A, which was only required to be completed by IRC Section 501(c)(3) organizations. With the new Form 990, all tax exempt organizations will be required to report this information. The threshold for reporting compensation of the highest compensated employees and independent contractors was raised to $100,000. The compensation reporting is also based on calendar year amounts reported on Form W-2 or Form 1099 for these persons, regardless of the fiscal year of the organization. The reporting of compensation in the form of nontaxable fringe benefits and accrual of retirement plan benefits may be estimated.

In order to replace the various attachments required under the previous Form 990, the IRS developed a set of new schedules to enhance reporting of additional information. These are some of the highlights of the changes encompassed in some of these schedules:

Schedule H — Hospitals
Another area of concern for the IRS and Congress relates to increased transparency of hospital reporting of community benefit. This new schedule requires reporting of charity care policies, community benefit, bad debt expense and Medicare shortfalls, disclosure of management companies and joint ventures, listing of facilities, and billing practices. Because many hospitals expressed concern regarding the short timeline, only the listing of facilities is required for 2008 in order to allow hospitals adequate time to implement systems to track and report this information for 2009.

Schedule J — Compensation Information
Another area of focus for the IRS in recent years has been in the area of executive compensation. This schedule expands the reporting with questions related to executive perquisites and details of compensation packages. This schedule is required for reportable executive compensation greater than $150,000, or greater than $250,000 in total including nontaxable fringe benefits and expense accounts. This schedule is also required for compensation paid to a former officer or highly compensated employee greater than $100,000 or compensation paid to a former director or trustee greater than $10,000. Reporting of expenses paid under an accountable plan is not required as previously proposed in the first draft.

Schedule K — Supplemental Information on Tax Exempt Bonds
Organizations with tax exempt bonds issued after December 31, 2002 with outstanding balances of more than $100,000 as of the last day of the tax year are required to complete this schedule to answer questions related to post-issuance bond compliance. Due to the increased burden related to this reporting, only a listing of the bonds in Part I is required to be completed for 2008.

For copies of the new Form 990 and more detailed information, the IRS website link is http://www.irs.gov/charities/article/0,,id=176613,00.html.