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New Form 990 Might Include Fundraising Cost Reporting

(Aug. 28, 2006) An Internal Revenue Service (IRS) advisory committee has recommended seven guidelines for restructuring and revising the Form 990, including potential changes to fundraising cost reporting.

The Form 990 is the primary information return that most nonprofits in the United States are required to complete annually. However, the form has grown increasingly complicated since it was introduced in 1942, growing in size from two pages to 15 pages. In addition, while the form was first created by the IRS for its own tax administration needs, a variety of audiences now use the form (e.g., state governments) for a multitude of needs.

The Advisory Committee on Tax Exempt and Government Entities recommends that the Form 990 be completely redesigned. While it would prefer to see the new form introduced in a year, the committee understands that such a timeline is financially logistically unfeasible. Therefore, it recommends a phased-in approach to allow both tax filers and regulators the opportunity to get used to the new form.

The form’s primary purpose, according to the advisory committee, should continue to be assessing whether or not a nonprofit is complying with federal tax requirements. However, it was also recommended that certain information requested by state governments should be included, so long as such requests do not unduly burden tax filers. Such data might include a breakdown of fundraising costs, which many states request for their oversight processes. However, the report did not specify what sort of data requested by states should be included in the new form.

Committee Recommendations

The advisory committee recommended seven guidelines for the IRS to follow in revising the form:

  1. Form 990 should be designed primarily to assess whether the filer is complying with federal tax requirements.
  2. IRS should continue to accommodate the needs of the states as long as they do not adversely affect the IRS’s primary mission or unduly burden filers.
  3. Form 990 and its instructions should be as understandable to a person unschooled in the law of tax-exempt organizations as possible without compromising its primary purpose.
  4. Form 990 should consist of a core form with schedules organized by topic and type of organization.
  5. Questions on Form 990 should be formulated to obtain evidence or facts which will reveal whether the filer has complied with federal tax law.
  6. Statutory limits on mandatory electronic filing should be removed and mandatory electronic filing should be phased in.
  7. Form 990 should be redesigned in its entirety and implemented as quickly as possible.

The Tax Exempt and Government Entities Division of the IRS will now review the recommendations. The agency is not required to act upon any of the proposals.

The complete report from the advisory committee is available on the IRS website.

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