IRS Releases Final Draft of New Form 990
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 transparency in reporting.
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, the IRS website link is: http://www.irs.gov/charities/article/0,,id=176613,00.html.
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.
These are some of the more probing questions in this new section:
Governing Body and Management
Policies
Disclosure
Part I — Summary
This part provides an overview of the organization with reporting of the mission and activities, number of board members, employees and volunteers, and summary financial information.
Part III — Statement of Program Service Accomplishments
This part is similar to the old version, but the IRS intends to add standardized reporting codes to classify the activities. These codes have not been released and will not be required for 2008.
Part IV — Checklist of Required Schedules
This section contains 37 questions designed to trigger potential reporting on the 16 schedules.
Part V — Statements Regarding Other IRS Filings and Tax Compliance
This section is designed to both educate organizations as to additional filing requirements, as well as allow the IRS to efficiently assess the risk of noncompliance and other exposure areas.
Part VI — Governance, Management, and Disclosure
The philosophy of the IRS is that good governance equals good tax compliance. 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.
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.
Part VIII — Revenue Statement
This part contains detailed revenue reporting and categorizes the income as exempt function income, unrelated business income, or unrelated income exempt by statute. The exemption codes utilized in the previous Form 990 have been eliminated.
Part IX — Statement of Functional Expenses
This section is very similar to the previous Form 990; several lines have been revised to reflect the most frequently incurred expenses and provide more prominent reporting of professional fees and travel expenses for governmental officials. The reporting for payments to affiliates has also been moved to this section.
Part X — Balance Sheet
This part is also very similar to the previous Form 990. Supplemental information is reported using Schedule D. Detailed reporting of fixed assets is not required.
Part XI — Financial Statements and Reporting
Questions in this section include reporting of the organization’s accounting method, financial statement preparation and reporting, independent audit and audit committee, and Single Audit OMB Circular A-133 audit requirements.
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 A — Public Charity Status and Public Support
This schedule is completed only by IRC Section 501(c)(3) organizations and focuses exclusively on the nonprivate foundation status and public support calculation. Among the important changes, the public support test look back period is now five years (instead of four) and is based on the same method of accounting as the Form 990 (instead of the cash method previously required). There is also increased reporting for IRC Section 509(a)(3) Supporting Organizations related to changes resulting from the Pension Protection Act of 2006.
Schedule C — Political Campaign and Lobbying Activities
This new schedule consolidates and enhances the reporting of these activities.
Schedule D — Supplemental Financial Statements
This schedule includes reporting of various topics, including donor advised funds, conservation easements, collections of art and historical treasures, trust or custodial arrangements, endowment funds. The schedule also includes more detailed reporting of items reported on the balance sheet, as well as the reconciliation of net assets, revenue, and expenses. Included with the reporting of other liabilities is a question requiring reporting of the exact text of the footnote of the organization’s financial statements related to the organization’s liability for uncertain tax positions. The revised Form 990 does not require asset-by-asset reporting of investments that were proposed in the draft released in June.
Schedule F — Statement of Activities Outside the United States
Organizations with greater than $10,000 of revenue or expenses related to foreign activities will be required to complete Schedule F. This schedule requires reporting of general information related to the foreign activities and a listing of grants to foreign organizations and individuals. Due to security concerns for individuals in foreign locations, reporting activities by geographical region is acceptable and the IRS will not require reporting by country as proposed in the initial draft.
Schedule G — Supplemental Information Regarding Fundraising or Gaming Activities
Organizations with greater than $15,000 of professional fundraising fees or more than $15,000 revenue from fundraising or gaming events will be required to complete this schedule. Because this is an area of IRS concern, this schedule requires more detailed reporting of fundraising methods, arrangements with professional fundraisers, revenue and expenses related to fundraising and gaming events, and compliance with state gaming laws.
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 I — Grants and Other Assistance to Organizations, Governments, and Individuals in the U.S.
This schedule is used to report the recipients of grants from the organization. The threshold for reporting grants is $5,000.
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, 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 and 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.
Schedule L — Transactions with Interested Persons
This schedule provides for more prominent reporting of transactions between the organization and “insiders,” including officers, directors, and substantial contributors, including family or business relationships. Transactions include known excess benefit transactions, loans, grants, and other business transactions with interested persons.
Schedule M — Non-cash Contributions
This schedule requires a more detailed breakdown of various types of non-cash contributions, including types of contributions that are known areas of abuse: art, cars and other vehicles, conservation contributions, and taxidermy. There are also questions related to the organization’s policies and filing requirements with respect to such contributions.
Schedule N — Liquidation, Termination, Dissolution, or Significant Disposition of Assets
This schedule is required for organizations that liquidate or dissolve, and also for organizations that transfer more than 25 percent of their assets to another entity. The IRS is particularly interested in significant transfers of assets to for-profit entities or individuals.
Schedule O — Supplemental Information to Form 990
This schedule is used to provide supporting information related to various questions throughout the return, as well as to allow organizations additional space to provide information they deem relevant to the return filing.
Schedule R — Related Organizations and Unrelated Partnerships
This schedule consolidates the reporting of various types of related entities, including disregarded entities, related tax exempt organizations, controlled partnerships, trusts or corporations, and unrelated partnerships in which the organization conducted more than 5 percent of its activities (based on assets or revenue). The schedule also requires reporting of transactions between the organization and the controlled entities.d
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 transparency in reporting.
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, the IRS website link is: http://www.irs.gov/charities/article/0,,id=176613,00.html.
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 noncompliance 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 contemporaneous 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?
Form 990 Core Overview
Part I — Summary
This part provides an overview of the organization with reporting of the mission and activities, number of board members, employees and volunteers, and summary financial information.
Part III — Statement of Program Service Accomplishments
This part is similar to the old version, but the IRS intends to add standardized reporting codes to classify the activities. These codes have not been released and will not be required for 2008.
Part IV — Checklist of Required Schedules
This section contains 37 questions designed to trigger potential reporting on the 16 schedules.
Part V — Statements Regarding Other IRS Filings and Tax Compliance
This section is designed to both educate organizations as to additional filing requirements, as well as allow the IRS to efficiently assess the risk of noncompliance and other exposure areas.
Part VI — Governance, Management, and Disclosure
The philosophy of the IRS is that good governance equals good tax compliance. 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.
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.
Part VIII — Revenue Statement
This part contains detailed revenue reporting and categorizes the income as exempt function income, unrelated business income, or unrelated income exempt by statute. The exemption codes utilized in the previous Form 990 have been eliminated.
Part IX — Statement of Functional Expenses
This section is very similar to the previous Form 990; several lines have been revised to reflect the most frequently incurred expenses and provide more prominent reporting of professional fees and travel expenses for governmental officials. The reporting for payments to affiliates has also been moved to this section.
Part X — Balance Sheet
This part is also very similar to the previous Form 990. Supplemental information is reported using Schedule D. Detailed reporting of fixed assets is not required.
Part XI — Financial Statements and Reporting
Questions in this section include reporting of the organization’s accounting method, financial statement preparation and reporting, independent audit and audit committee, and Single Audit OMB Circular A-133 audit requirements.
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 A — Public Charity Status and Public Support
This schedule is completed only by IRC Section 501(c)(3) organizations and focuses exclusively on the nonprivate foundation status and public support calculation. Among the important changes, the public support test look back period is now five years (instead of four) and is based on the same method of accounting as the Form 990 (instead of the cash method previously required). There is also increased reporting for IRC Section 509(a)(3) Supporting Organizations related to changes resulting from the Pension Protection Act of 2006.
Schedule C — Political Campaign and Lobbying Activities
This new schedule consolidates and enhances the reporting of these activities.
Schedule D — Supplemental Financial Statements
This schedule includes reporting of various topics, including donor advised funds, conservation easements, collections of art and historical treasures, trust or custodial arrangements, endowment funds. The schedule also includes more detailed reporting of items reported on the balance sheet, as well as the reconciliation of net assets, revenue, and expenses. Included with the reporting of other liabilities is a question requiring reporting of the exact text of the footnote of the organization’s financial statements related to the organization’s liability for uncertain tax positions. The revised Form 990 does not require asset-by-asset reporting of investments that were proposed in the draft released in June.
Schedule F — Statement of Activities Outside the United States
Organizations with greater than $10,000 of revenue or expenses related to foreign activities will be required to complete Schedule F. This schedule requires reporting of general information related to the foreign activities and a listing of grants to foreign organizations and individuals. Due to security concerns for individuals in foreign locations, reporting activities by geographical region is acceptable and the IRS will not require reporting by country as proposed in the initial draft.
Schedule G — Supplemental Information Regarding Fundraising or Gaming Activities
Organizations with greater than $15,000 of professional fundraising fees or more than $15,000 revenue from fundraising or gaming events will be required to complete this schedule. Because this is an area of IRS concern, this schedule requires more detailed reporting of fundraising methods, arrangements with professional fundraisers, revenue and expenses related to fundraising and gaming events, and compliance with state gaming laws.
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 I — Grants and Other Assistance to Organizations, Governments, and Individuals in the U.S.
This schedule is used to report the recipients of grants from the organization. The threshold for reporting grants is $5,000.
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, 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 and 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.
Schedule L — Transactions with Interested Persons
This schedule provides for more prominent reporting of transactions between the organization and “insiders,” including officers, directors, and substantial contributors, including family or business relationships. Transactions include known excess benefit transactions, loans, grants, and other business transactions with interested persons.
Schedule M — Non-cash Contributions
This schedule requires a more detailed breakdown of various types of non-cash contributions, including types of contributions that are known areas of abuse: art, cars and other vehicles, conservation contributions, and taxidermy. There are also questions related to the organization’s policies and filing requirements with respect to such contributions.
Schedule N — Liquidation, Termination, Dissolution, or Significant Disposition of Assets
This schedule is required for organizations that liquidate or dissolve, and also for organizations that transfer more than 25 percent of their assets to another entity. The IRS is particularly interested in significant transfers of assets to for-profit entities or individuals.
Schedule O — Supplemental Information to Form 990
This schedule is used to provide supporting information related to various questions throughout the return, as well as to allow organizations additional space to provide information they deem relevant to the return filing.
Schedule R — Related Organizations and Unrelated Partnerships
This schedule consolidates the reporting of various types of related entities, including disregarded entities, related tax exempt organizations, controlled partnerships, trusts or corporations, and unrelated partnerships in which the organization conducted more than 5 percent of its activities (based on assets or revenue). The schedule also requires reporting of transactions between the organization and the controlled entities.d
