Release of Revised Form 990 Signals Changes to Come

By Joanne R. Handyside, Cherry, Bekaert & Holland, L.L.P. (CB&H)
Email: handyside@cbh.com

During the past few years, the not-for-profit industry has not found itself subject to significant public or governmental scrutiny. However, with the enactment of the Sarbanes-Oxley Act of 2002 (SOX) following the collapse of several prominent public companies, and recent front page headlines highlighting abuses by some nonprofit organizations, such as the Smithsonian Institute, it was only a matter of time before the industry began to appear on the regulatory radar.

The U.S. Senate Committee on Finance released this summer a report seeking to “build confidence in nonprofits through greater transparency.” This notion of greater transparency is intended to encourage nonprofit organizations to “be more responsive to the needs of the community and to act in accordance with the principles and goals for which they were established and that they seek contributions from the public.”

A letter from Senate Finance Committee Chairman Max Baucus and ranking member Chuck Grassley written to Secretary of the Treasury Henry Paulson expressed concerns that the current Forms 990 and 990-PF do not adequately capture the type of information the public needs in order to make an informed decision as to what organizations should receive their hard-earned dollars. The letter highlighted the following areas where expanded reporting is critical by charitable organizations:

•   dollars raised vs. dollars for charity
•   executive compensation
•   endowments
•   governance
•   related organizations
•   joint ventures
•   hospitals

The Internal Revenue Service (IRS), well on their way towards addressing the greater transparency among not-for-profits desired by Congress, has now mandated that any Form 990-T filed by a 501(c)(3) organization now be made available both to the general public and to the IRS for inspection under the disclosure laws.

Moreover, the IRS has been in the process of making substantial revisions to the type of information disclosed in nonprofit tax returns, and has worked toward making it easier to identify which organizations might require additional scrutiny. To that end, the IRS released the revised Form 990 for public comment in June.

The IRS considered three key guiding principles in the form’s revision: enhancing organizational transparency; promoting operational compliance; and minimizing the organization’s overall filing burden. To achieve these goals, the revised Form 990 examines many of the best practices discussed in previous issues of NFP News, including organizational governance, whistleblower protections, fund-raising policies, financial statements, tax liabilities, and compensation practices. Several of these best practices were also posted as “Good Governance Practices” by the IRS earlier this year, and can be found online at www.cbh.com.

With a one-page summary and a nine-page form applicable for all filers, the proposed 990 also contains 15 schedules, but most organizations will not have to fill out all of the schedules. While the not-for-profit industry has realized tremendous growth over the last 30 years, Form 990 has not been substantially revised since 1979. According to Senator Baucus, the “new form will help the public and the IRS assess whether tax exempt organizations are staying true to the reasons they were granted exempt status in the first place.”

Joanne is a Partner with CB&H and a member of the Firm’s Not-For-Profit Industry Group.