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IRS Issues Revised Instructions on New Form 990

(Sept. 15, 2008) The IRS has released revised instructions and supplementary materials for completing the redesigned IRS Form 990.

The new Form 990 will be used starting with tax year 2008 (that is, for forms filed in 2009).

AFP submitted comments on multiple occasions to the IRS during the revision of the form in 2007 and several key changes were made to the form as a result of these comments and the feedback of others in the nonprofit sector.

A key change was the elimination of references and disclosures related to fundraising percentages and ratios on the core form and in Schedule G (relating to fundraising and gaming). In its recommendations to the IRS, AFP had noted that such ratios were overly simplistic and not accurate indicators of an organization’s intrinsic worth and effectiveness.

In addition, the redesigned form incorporates a two-year summary of financial information comparing the current and prior years, giving donors and others a more accurate perspective of an organization’s financial situation. The IRS also reorganized the core from, including a description of an organization’s program service accomplishments on page 2 immediately after the summary.

“We’re very pleased that the IRS listened to the concerns of the fundraising profession with regard to the issues, especially fundraising ratios,” said Paulette V. Maehara, CFRE, CAE, president and CEO of AFP. “These changes will provide the public with a more balanced view of a charity, allowing for the disclosure of both important long-term financial information and program achievements while eliminating ratios and other information that may mislead donors.”

Additional Changes

The release of the revised Form 990 instructions was accompanied by background documents that explain other changes made to the draft instructions in response to public comments.  These changes included the following:

  • A revised definition of key employee for purposes of reporting executive compensation, transactions with interested persons, and other items.  In general, the three prong definition will require reporting as a key employee only those persons, other than officers, directors, and trustees, who (a) had reportable compensation exceeding $150,000 for the year (the “$150,000 test”); (b) had or shared organization-wide control or influence similar to that of an officer, director, or trustee, or managed or had authority or control over at least 10 percent of the organization’s activities (the “responsibility test”); and (c) were within that group of the organization’s top 20 highest paid persons for the year who satisfied both the $150,000 test and the responsibility test.
  • A revised standard for determining independence of a voting member of the organization’s governing body, which replaces the previously proposed “material financial benefit” test by looking to whether the member or a family member was involved in a transaction or relationship that was reportable on the current year’s Schedule L, Transactions with Interested Persons.

Form 990 filing information for the 2008 tax year can be found on the IRS website. Other supplementary filing information can be found here.

AFP continues to work with the IRS to ensure that the administrative burdens placed on charities in completing the Form 990, especially with regards to fundraising issues, are minimal and provide legitimate and useful information to the giving public.

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