New Form 990 Nears Finalization By R. Michael Sorrells, Cherry, Bekaert & Holland, L.L.P. (CB&H)
Email: msorrells@cbh.com
Last June, the IRS released the first draft of a completely remodeled Form 990. A comment period was open for 90 days, during which the IRS received thousands of comments. A second draft, released on December 19, 2007, incorporated many changes that had been requested. Most likely, only technical corrections will be made in final version of the form.
The new 990 requires significantly more information and disclosures than before. As such, organizations should become familiar with the new requirements as soon as possible in order to begin creating procedures to capture information that current systems do not provide. Draft instructions for the new form are scheduled for release “early” this year per the IRS.
The revised draft 990 along with various related articles are available on the IRS Web site, www.irs.gov, in the nonprofit section. The new form will be required for the 2008 filing year (i.e., calendar year ending December 31, 2008 or fiscal years ending in 2009).
The new 990 consists of an 11-page “core” form that all organizations must complete along with 16 schedules applicable to organizations with activities or attributes that require a specific schedule.
The following is a brief summary of the core form:
Part I: a snapshot of the organization’s mission, its governance body and some key financial numbers with comparison to prior years
Part II: signature block similar to old form
Part III: statement of program services similar to Part III of old form but with questions about new programs and changes to programs/activities
Part IV: a yes/no checklist of 37 questions that determines which of the 16 schedules may be required to be completed
Part V: questions about IRS Filings and other tax compliance. This includes questions about number of W-2s,1099s, and 8282s filed; some specific questions about donor-advised funds and supporting organizations, as well as a variety of other questions from other parts of the old 990 form
Part VI: questions about governance, management and disclosure. Includes fairly specific questions about governing body, policies, conflict of interest, compensation decisions, board review of Form 990 and method of disclosing the Form 990
Part VII: compensation schedules for all current and former officers/directors, as well as the top five non-officer/director/key employees who received $100,000 or more. Must report compensation from both the organization and related organizations. Also includes a schedule of top five independent contractors who received $100,000 or more.
Part VIII: statement of revenue somewhat similar to old Form 990, but more detail required from certain activities such as federated campaigns, related organizations and tax-exempt bond proceeds
Part IX: statement of functional expenses. Same as old 990 but with many more lines of detail for items, such as advertising, lobbying, management fees, etc. Also, cannot have a miscellaneous line greater that 5 percent of total expenses.
Part X: balance sheet similar to the old balance sheet but with more detail, including program-related investments and escrow liabilities
Part XI: questions about accounting methods and independent accountant
The 16 schedules (identified by letters A-R):
A: public charity status (501(c)(3) only). Similar to old schedule A but broken out into two different tests, including the 10 percent facts and circumstances test
B: list of contributors. Almost identical to old schedule B. This remains the only part of 990 that may be redacted for public inspection.
C: political and lobbying activity. Combines information from various parts of old 990 along with some new information required.
D: supplemental financial information. Very specific information required for donor-advised funds, conservation easements and collections or art and museum-type assets. Also included are schedules for various balance sheet items as required.
E: private school questionnaire. Same as old schedule E.
F: activities outside the U.S. Questions about foreign activities as well as listing of activities, employees, offices and expenditures by region. Also, a listing of foreign grants made.
G: fund-raising and gaming. Specific schedules and questions related to fund-raising activities and gaming.
H: hospitals. Brand new questions and schedules for hospitals. Detail required about charity care, community benefits, community building activities, bad debt and collection, management companies and joint ventures and facilities information, Many of these sections are optional for 2008.
I: domestic grants schedule. Separate schedules required for grants to entities and grants to individuals
J: supplemental compensation. Additional information on compensation information for those over $150,000, former officers, etc. and those compensated by other organizations. Many questions concerning benefits such as first-class travel, housing, etc. for listed personnel.
K: tax-exempt bonds. Very detailed information required on issues, proceeds, private business use and arbitrage. Some of this is optional for 2008. This section will likely require assistance of bond counsel to complete.
L: transactions with interested (related) persons. Schedules required for excess benefit transactions, loans to and from, grants of assistance and other business transactions with related persons.
M: non-cash contributions. Detailed listing a various types of non-cash contributions and related questions.
N: liquidation, termination and significant disposition of assets. Detailed schedules required with questions about related parties.
O: supplemental information. This is a blank schedule that can be used to provide more information about anything the organization wishes to further explain. This schedule was added as result of comments on first draft of the 990—there was virtually no place to explain or provide anything additional.
R: related organizations and unrelated partnerships. Listing and financial information about various related organizations and a schedule of partnership involvement if significant (5 percent of total assets or revenue)
For those who familiarized themselves with the first draft, it is apparent that the IRS has clearly made a lot of changes as a result of the comments received from organizations and practitioners. However, many nonprofits will find an increased burden in completing the new form and may not be comfortable with some of the new disclosures they will be required to make.
Audit committees, board members and management should become cognizant of the new requirements well before implementation in order to avoid surprises. In many cases, organizations will want to consult with their outside accountants or counsel in order to correctly formulate responses or possibly adopt policies or other changes so as to present a better public persona in this new era of transparency.
Mike is a Partner with CB&H’s Not-For-Profit Industry Group and Director of the Firm’s Nonprofit Tax Services.
