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 nine pages, two 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 transparcy in reporting.  For an in-depth overview of the Form 990, view the article, Form 990 Core Overview.

Because of the significant changes with the new Form 990, the IRS also announced a graduated transition period for smaller organizations. For the 2008 tax year, organizations with gross receipts less than $1.0 million and total assets less than $2.5 million will be allowed to file the Form 990-EZ. For the 2009 tax year, organizations with gross receipts less than $500,000 and total assets less than $1.25 million will be allowed to file the Form 990-EZ. The filing thresholds will be set permanently at $200,000 gross receipts and $500,000 total assets beginning with the 2010 tax year. Organizations with donor advised funds and organizations with controlled entities are not allowed to file Form 990-EZ, and must file Form 990. Also, starting with the 2010 tax year, the IRS will increase the filing threshold for organizations required to file Form 990-N (the e-postcard) from $25,000 to $50,000.

For copies of the new Form 990 and more detailed information, visit the IRS website.

New Form 990 Includes More Probing Questions Related to Organizations’ Governance — How will your organization respond?

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 non-compliance and abuse.

These are some of the more probing questions in this new section:

Governing Body and Management:

• How many of the voting members of the governing body are independent?
• Did the organization delegate control over management duties to a management company or other person?
• Did the organization become aware during the year of a material diversion of the organization’s assets?
• Does the organization have members, stockholders, or other persons who may elect one or more members of the governing body?
• Are any decisions of the governing body subject to approval by members, stockholders or other persons?
• Did the organization contemporaneously document meetings held or written actions undertaken by the governing body or each committee with authority to act on behalf of the governing body?
• Does the organization have written policies and procedures governing the activities of its chapters, affiliates, and branches to ensure their operations are consistent with those of the organization?
• Was a copy of the Form 990 provided to the organization’s governing body before it was filed? All organizations must describe the process, if any, to review the Form 990.

Policies:

• Are officers, directors or trustees, and key employees required to disclose annually interests that could give rise to conflicts?
• Does the organization regularly and consistently monitor and enforce compliance with the conflict of interest policy? If yes, describe how this is done.
• Does the organization have a written whistleblower policy?
• Does the organization have a written document retention and destruction policy?
• Did the process for determining executive compensation include a review and approval by independent persons, comparability data, and contemporneous substantiation of the deliberation and decision? Describe the process.
• For organizations that participate in a joint venture with a taxable entity, has the organization adopted a written policy or procedure requiring the organization to evaluate its participation in joint venture arrangements, and taken steps to safeguard the organization’s exempt status with respect to such arrangements?

Disclosure:

• Indicate how the organization makes its Form 1023/1024, Form 990, and Form 990-T (501(c)(3)s only) available for public inspection: own website, another website, or upon request.
• Does the organization make its governing documents, conflict of interest policy, and financial statements available to the public? If so, how.