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IRS Releases Draft Redesigned Form 990

(Sept. 10, 2007) Charles (Chip) Watkins, a former attorney who worked in the Employee Benefits and Exempt Organizations Division of the Internal Revenue Service, discusses one of the biggest changes in charity regulation over the past several decades: the new Form 990 and how it may affect charities.

Watkins is now with Webster, Chamberlain & Bean in Washington, D.C., and represents nonprofit organizations.

This article originally appeared in the Non-Profit Legal & Tax Letter® and is used with permission. The first two pages of the article can be found below, and the entire article is available in PDF format in the Attachments section.

Comments regarding the new draft Form 990 are due to the IRS on Sept. 14. In next week’s eWire, AFP will include the comments it submitted to the agency regarding the new form and the impact it will have on fundraisers and charities..

On June 14, 2007, the Internal Revenue Service released the long-awaited initial draft of the redesigned Form 990. Form 990 and Schedule A have remained largely unchanged in format for many years. Having recognized that a “one size fits all” Form 990 – even for non-§501(c)(3) organizations – does not provide adequate information about whether increasingly complex and sophisticated tax-exempt organizations (“EOs”) continue to qualify for exemption, the IRS has substantially redesigned the form.

Introduction 

The redesigned form includes a “core” Form 990 that must be completed by all filers, and a series of schedules that require detailed information from particular types of organizations, e.g., schools and hospitals; and about particular types of activities that the IRS believes are risk factors that might indicate (1) non-compliance with the requirements for exemption, (2) liability for unrelated business income tax (“UBIT”), or (3) liability for any of the numerous penalties or excise taxes that may be imposed on exempt organizations or their organizations managers or disqualified persons.

The redesigned Form 990 results from the confluence of several factors:

  • Increased Congressional scrutiny of exempt organizations, especially charities, in light of numerous well-publicized scandals, many of which occurred in the Washington, D.C. area;
  • IRS’ recognition of the diversity and complexity of tax-exempt organizations;
  • IRS and state regulator interest in greater understanding and analysis of fundraising, executive compensation, and other transactions with insiders; and
  • The trend toward electronic filing, requiring greater standardization of reporting formats for information that has, until now, been reported in non-standard “statements” attached to Form 990.

IRS Timetable

The IRS has called for comments on the initial draft to be submitted by September 14, 2007.  Comments submitted after that date will not be accepted because the IRS will promptly launch the effort to finalize the draft, which it plans to release in final form in time for the 2009 filing season, reporting about taxable years beginning in 2008.  Thus, in the absence of a change in the IRS plan or an extension of time to file its Form 990, EOs with calendar year taxable years will file the new Form 990 by May 15, 2009.

This article summarizes the information required by the proposed new Form 990 and each of the proposed new schedules.  Chief financial officers and others who are responsible for preparing and filing IRS Form 990 should review the proposed new form in more detail, with a particular view to determining the extent to which financial accounting and reporting systems will need to be modified for 2008 in order to ensure timely access to accurate information necessary to complete each new schedule.

Structure

The redesigned Form 990 includes the “core” Form 990 and a series of schedules that require expanded information from particular kinds of EOs, e.g., hospitals, or about particular kinds of activities, e.g., fundraising or international activities.  Not all organizations will be required to complete all schedules.  However, all §501(c)(3) EOs must complete Schedule A (Public Charity Status), all EOs must complete Schedule D (Supplemental Financial Statements), and most §501(c)(3) EOs must complete Schedule G (Fundraising), Schedule I (grants made in the U.S.), and Schedule M (Non-Cash Contributions).  Many EOs will also be required to complete Schedule J (Compensation Information). 

The IRS also released a glossary that includes definitions for 68 terms used in the forms and instructions.

A copy of the redesigned Form 990, including all of the new schedules, draft instructions, glossary, commentary, and requests for comments, can be downloaded from the IRS website at http://www.irs.gov/charities/article/0,,id=171216,00.html.

(The entire article can be found in the Attachments section below.)

Attachments

IRS Releases Draft Redesigned Form 990 — PDF Format, 239815KB

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