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IRS Makes Fundraising Changes to New Proposed Form 990

(Oct. 8, 2007) The Internal Revenue Service (IRS) has made several significant changes to its new proposed Form 990, including several requested specifically by AFP.

The new proposed form consists of a 10-page core form, which all organizations that currently file a Form 990 must complete, and 15 separate schedules, which some nonprofits must complete depending upon circumstances, revenue, etc. For example, organizations must complete Schedule G about fundraising if they receive more than $10,000 in annual revenue from special events or third-party fundraisers.

Most importantly to fundraisers, the IRS has eliminated a question on the core form that required organizations to calculate their fundraising expenses as a percentage of their total contributions. Other questions requiring percentages related to compensation and net assets have been removed as well.

“One of the key concerns we voiced in our comments was that relying on percentages was simplistic and misleading,” said Paulette V. Maehara, CFRE, CAE, president and CEO of AFP. “The Supreme Court has said that fundraising costs and percentages are not worthwhile indicators of effectiveness, yet the IRS was essentially approving the use of percentages by including them on the first page [summary page] of the new form. Fortunately, I think the IRS heard us and we’re very pleased that it has removed those questions”

In addition, other lines requiring information related to fundraising revenue (computed in Schedule G) and revenue generated from “gaming” also were removed from the core form. While AFP supports this change, it is still concerned about the way the IRS treats gaming within the new form.

AFP previously had recommended in separate written comments, which were submitted with other fundraising groups, that the IRS delete the information in Schedule G concerning gaming and move it to a separate schedule. In addition, there should be a specific trigger to require charities to complete a schedule about gaming so that nonprofits involved only incidentally with gaming (such as a raffle or annual “game night”) would not have to fill out the schedule.

Other Changes

Some of the other changes the IRS is making to the new form include:

  • Replace a column that had asked for categories of expenses and revenues as a percentage of overall expenses and revenues with a new column listing the organization’s previous year’s expense and revenue numbers. The change will provide viewers with a two-year financial history of an organization.
  • Add new questions about board governance and benefits provided to charity leaders, such as deferred compensation and retirement plans.
  • Move information about program accomplishments by the organization to page one of the core form.

In addition, the IRS is considering allowing organizations extra time to complete some of the new schedules relating to hospitals, bonds and overseas activities.

“It’s good to see the IRS listening to the comments of nonprofits and making appropriate changes,” Maehara added. “The agency has taken some good first steps, but it’s critical that it take its time and get the new form right. AFP believes there are still a number of concerns with the document, and we want to see the agency address those.”

While numerous charities have asked the IRS to move back its date of implementation for the new form, the agency so far remains adamant that the new form will be in use in 2009.

For a copy of AFP’s comments to the IRS regarding the new proposed Form 990, click here.

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