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The New Form 990
By Norah Jones
Quarles & Brady, LLP, Tax Exempt Organizations Group
 

Most public charities and many other tax-exempt organizations annually file a Form 990 with the Internal Revenue Service ("IRS").  The Form 990 not only provides the IRS with financial information, it also serves as one the primary ways for the public to learn about tax-exempt organizations.  The Form 990 has become an increasingly important document as the scrutiny of charities by the IRS, state regulators, and the public has increased in recent years.

 

The IRS issued the current Form 990 in 1979, and it has experienced relatively few changes since that time.  On December 20, 2007, the IRS released the final version of a revised Form 990 (available at www.irs.gov/charities).  Some of the more important changes are discussed below, but all Form 990 filers are encouraged to consult with their counsel regarding the manner in which the new requirements will apply specifically to their organizations.

 

Part I:  Summary Page

The new Form 990 consists of an eleven-page "core" that must be completed by each filer, and sixteen different schedules designed to gather specific information in particular areas.  Each organization must complete only the schedules relevant to it.  Part I of the core form is a summary page, which provides a quick overview of the reporting organization's operations and finances.  The financial information required to be listed in Part I includes both the current year's and the prior year's information, therefore providing the reader with some historical perspective on the reporting organization.  

 

Part III:  Mission and Achievements

One of the comments the IRS received on the draft revisions to the Form 990 was that charities wanted the opportunity to "tell their story."  The summary page in Part I is one place where this can begin. In addition, a narrative description of the reporting organization's mission and achievements is now required in Part III of the core form. Finally, a new Schedule O allows reporting organizations the opportunity to add additional information explaining further the answers to any of the other questions on the new Form 990. 

 

Part VI:  Corporate Governance

One of the more widely-debated portions of the new Form 990 is Part VI, which concerns corporate governance. The new Form 990 asks in Part VI about the reporting organization's internal governance matters such as conflict of interest policies, whistleblower procedures, and the composition of the reporting organization's board of directors.  Critics of these questions suggest that the IRS does not have authority under the tax laws to regulate corporate governance, but the IRS responds that loose governance procedures may lead to or allow for violations of the tax code.  Organizations completing the new Form 990 are therefore strongly encouraged to consult with their counsel regarding how to answer these new questions and whether any changes in corporate governance are in order. 

 

Part VII:  Compensation Information

Another area highlighted on the new Form 990 is Part VII, which focuses on compensation.  As with the prior Form 990, charities are required to report the compensation of current and former officers, directors, trustees, key employees, and highest compensated employees.  The threshold for identifying an employee as a "highest compensated" employee was increased from $50,000 to $100,000, and a number of other changes have been made.

 

Effective Dates

The new Form 990 is generally in effect for tax years beginning in 2008 (i.e., tax years for which a Form 990 will be filed in 2009). 

 

In order to alleviate the administrative burden on smaller organizations, however, certain organizations may choose instead to file the Form 990-EZ for the next two years.  For 2008 returns filed in 2009, organizations with gross annual receipts between $25,000 and $1.0 million and with total assets below $2.5 million may file the Form 990-EZ.   For 2009 returns filed in 2010, organizations with gross receipts between $25,000 and $500,000 and with assets below $1.25 million may file the Form 990-EZ.  After 2010, the Form 990-EZ should be available for organizations with between $50,000 and $200,000 in gross receipts and with assets below $500,000.  Organizations below $50,000 in gross receipts (or below $25,000 prior to 2010) will generally be required to file the new "e-postcard" filing; larger organizations that do not qualify for the Form 990-EZ will need to file the full Form 990.

Senate Looking at Endowments as Tuition Rises

The Senate Finance Committee, increasingly concerned about the rising cost of higher education, demanded detailed information on Thursday from the nation's 136 wealthiest colleges and universities on how they raised tuition over the last decade, gave out financial aid and managed and spent their endowments.

 

The committee also asked about endowment-related bonuses paid to college presidents and endowment managers.  The move came as a record 76 colleges and universities achieved endowments of $1 billion or more in the last fiscal year, according to a report released this week. Harvard's endowment, the largest, grew 20 percent, to $34.6 billion, while Yale's, the second largest, grew 25 percent, to $22.5 billion.

Read the full New York Times article.
IRS Tax-Exempt Guidelines for Fiscal Year 2008

The IRS's Exempt Organization Division released the FY 2008 Implementing Guidelines-the division's work plan from October 1, 2007 to September 30, 2008. Some projects outlined in the plan may affect members' work.  The IRS' Exempt Organizations Division's 2008 Implementing Guidelines reveals the group's 2008 work plan and provides an overview of its accomplishments in 2007. As part of its 2008 agenda, the IRS plans to implement new projects, such as a review of 500 supporting organizations and a voluntary compliance program that would allow organizations to file missing returns without being penalized. In addition, the IRS will conduct several educational and outreach projects about the redesigned Form 990 and the new e-postcard filing requirement. Finally, the IRS intends to provide nonprofits with more guidance on how to comply with the new requirements in the Pension Protection Act. 

 

Community Foundation Compliance Check: According to the Implementing Guidelines, the IRS sent the compliance check questionnaire to 3,700 "purported" community foundations. Later this year, the IRS will evaluate the responses and select approximately 100 community foundations (from the 3,700) to audit. An IRS representative to the Council said that while he expects audits to begin late in the second quarter of 2008, due to delays this project has experienced, the timeframe should not be considered final.

 

Supporting Organizations: The IRS plans to review 500 supporting organizations (those in their third to fifth year of existence) to determine whether they continue to meet the supporting organization status-requirements. The IRS will also conduct compliance checks of 300 supporting organizations that were expected to file Form 990 but did not.  Note: All supporting organizations must now file Form 990.

 

Charitable Remainder and Lead Trusts: The IRS will continue a 2007 project to identify charitable remainder trusts that failed to distribute their assets in their final year.  The IRS will also examine the trusts' first year to see whether they were correctly set up and whether the donor's deduction was properly calculated. While recognizing that many factors affect the computation, the Implementing Guidelines note that the deduction is generally 10 to 20 percent of the donation. Finally, the IRS is examining lead trusts that filed Form 990 or 990-PF but failed to file Form 1041, even though the trust had taxable income.

 

Executive Compensation: The IRS will continue two fiscal 2007 projects: one focused on organizations that made loans to officers, directors, and trustees and the other directed at executive compensation practices at hospitals. The IRS will also begin to examine compensation practices at 90 small-to-mid-sized 501(c)(3) organizations and review compensation practices at colleges and universities.

 

PPA Guidance: According to the Implementing Guidelines, the IRS will also provide guidance on issues related to donor-advised funds and supporting organizations.

IRS Provides Guidance on Type III Supporting Organizations

The IRS has issued guidance on providing transitional relief and filing procedures for charitable trusts that were type III supporting organization but, as a result of the 2006 Pension Protection Act, became private foundations on August 17, 2007. The relief, which covers the 2007 tax year, allows affected trusts to file Form 990 and excuses them from paying excise taxes on their 2007 net investment income. The trusts will be required to file Form 990-PF and pay the excise tax for tax years beginning on or after January 1, 2008.

 

For more information on transitional relief for type III supporting organizations, visit the Tax Information for Charities & Other Non-Profits page of the IRS website.

These articles provide information of a general nature, and none of the information is intended as legal advice relative to specific matters. You should consult with an attorney about your particular circumstances before acting on any of this information.

 

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Rosemary Lillich                                                              Samantha Dennis
Director of Programming and Special Initiatives                Director of Communications and Member Relations
Donors Forum of Wisconsin                                              Donors Forum of Wisconsin