IRS Releases Final Version of Form 990 (Return of Organization Exempt from Income Tax)

On December 20, 2007, the IRS released the long-awaited final version of the Form 990 (Return of Organization Exempt from Income Tax) for 2008. These revisions mark the first significant changes to take place with respect to the Form 990 in nearly three decades. The revisions are the product of many months of commentary on earlier draft versions from exempt organizations, accounting professionals, private individuals and others. It reflects, among other things, the changing and increasingly complex nature of exempt organizations, as well as a new focus by the IRS on areas like corporate governance and employee compensation.

The revised Form 990 consists of an 11-page “core form” in addition to 16 schedules (14 more than the previous version of the form contained). This core form contains information that must be filed by all exempt organizations filing the Form 990, in addition to any specific schedule they may also be required to file. Aside from organizational and aesthetic changes, the revised core form contains three new, noteworthy sections. Although the revised Form 990 will not need to be filed until 2009 (for tax years beginning in 2008) exempt organizations should carefully review these changes now, to ensure that their accounting and recordkeeping practices adequately capture new information required by the form.

Part I – Summary
Part I of the revised Form 990 now begins with a section entitled “Summary,” which provides an overview of an organization’s activities and governance, revenue, expenses, and net assets. The Summary contains condensed data pertaining to the current and previous tax year, summarizing information located elsewhere in Form 990. In response to public criticism asserting that the Summary section was burdensome and inaccurately reflected an organization’s activities, the IRS removed several items from the Summary section of the discussion draft.

Part VII – Compensation
The revised core form reflects an increased interest in compensation for employees and directors by including a separate section for disclosure of employee compensation. Part VII of the core form, “Compensation of Officers, Directors, Trustees, Key Employees, Highest Compensated Employees, and Independent Contractors,” requires the disclosure of the identity and compensation of all current officers, directors, trustees and key employees, regardless of their compensation. Additionally, the five most highly compensated employees earning more than $100,000 annually must be disclosed. If certain thresholds are met, the organization must complete Schedule J, “Compensation.”

Part VII also requires disclosure of compensation for certain former employees. The organization must list all former officers, key employees, or highest compensated employees who received more than $100,000 in compensation. Additionally, the organization must list all former directors or trustees who received more than $10,000 in compensation.

Part VI – Governance, Management, and Disclosure
Part VI of the revised Form 990, “Governance, Management, and Disclosure,” requires information on the internal governance of the organization, including the role the governing body plays in the organization, any interaction between the organization and its officers and directors, and certain written policies regarding its officers and directors.

Transition to Form 990 – Form 990-EZ and the E-Postcard
In an attempt to ease the burden on exempt organizations that may be caused by the transition to the revised Form 990, the IRS has temporarily broadened the range of organizations that may file Form 990-EZ. Form 990-EZ, “Short Form Return of Organization Exempt from Income Tax,” is a four-page, simplified version of the more comprehensive Form 990. An exempt organization may file the Form 990-EZ so long as both its gross receipts and assets are in accordance with the following limits:

May file 990-EZ for:	If gross receipts are:	If assets are:
2008 tax year (filed in 2009)	> $25,000 and < $1 million	< $2.5 million
2009 tax year (filed in 2010)	> $25,000 and < $500,000	< $1.25 million
2010 and later tax years	> $50,000 and < $200,000	< $500,000

Small nonprofits will be required to file an electronic postcard (Form 990-N) beginning in 2008. The “E-Postcard” is required for organizations with annual receipts under $25,000 for tax years 2008 and 2009, and $50,000 for 2010 and subsequent years. The Form 990-N is a short form, requiring the disclosure of minimal information about an exempt organization.

Schedules
The schedules accompanying the revised Form 990 include some questions and attachments from the previous Form, which have been rearranged. Schedule A, required for organizations exempt under Section 501(c)(3) now includes detailed questions about the reason a 501(c)(3) organization qualifies as a public charity. Schedule B continues to relate to the organization’s contributors. In addition to these two schedules, the revised Form 990 now includes several new schedules, including the following:

• Political Campaign and Lobbying Activities (Schedule C)
• Supplemental Financial Statements Previously Disclosed Through Attachments (Schedule D)
• Private Schools (Schedule E)
• Activities Outside of the U.S. (Schedule F)
• Fundraising Activities (Schedule G)
• Hospitals (Schedule H)
• Grants and Other Assistance (Schedule I)
• Supplemental Compensation Information (Schedule J)
• Tax-Exempt Bonds (Schedule K)
• Loans and Transactions with Interested Persons (Schedule L)
• Noncash Contributions (Schedule M)
• Information on Liquidation, Termination or Dissolution (Schedule N)
• Supplemental Information for Responses (Schedule 0)
• Related Organizations (Schedule R)

A checklist of these schedules has been included in the core form.

Schedule H, “Hospitals,” was a particular target of criticism from health care organizations. Schedule H requires information about charity care, community benefit, bad debt, Medicare, collection practices and joint ventures. In response to this criticism, the IRS has agreed to phase in Schedule H’s requirements. Health care organizations will only be required to complete certain identifying information on their Form 990 for 2008, though in subsequent years, the schedule must be completed in its entirety. Schedule K, “Tax-Exempt Bonds,” will have a similar phase-in period during 2008.

Conclusion
The revised Form 990 will be required for any tax year beginning in 2008. The IRS has announced that it will release the instructions accompanying the revised Form 990 early in 2008. Although portions of the revised Form 990 are straightforward, the instructions will provide additional information and definitions that are essential to accurately completing the form. Exempt organizations are advised to carefully examine the instructions after the IRS has released them.