Redesigned Reporting Form for Tax-Exempt Organizations: The IRS Releases Draft Form 990

On June 14, 2007, the Internal Revenue Service (IRS) released for public comment a redesigned draft Form 990, Return of Organization Exempt from Income Tax, the annual return required to be filed by tax-exempt organizations. The IRS plans to have the form ready for 2008 returns filed in 2009. The draft is a significant redesign of the form, which has been changed only on a piecemeal basis since 1979 and has not kept pace with changes in the tax-exempt sector and the law.

The form’s redesign is based on three guiding principles: (1) enhancing transparency to give the IRS and the public a realistic picture of the organization, (2) promoting tax compliance by accurately reflecting the organization’s operations, and (3) minimizing the organization’s filing burden by asking questions in a way that makes it relatively easy to fill out the form.

The current form consists of a nine-page core form, two schedules, and 36 possible attachments. The new draft consists of a 10-page core form to be filed by all Form 990 filers, and a series of 15 schedules to be filed only by those organizations that conduct certain activities.

The IRS maintains that most organizations will not experience a material change in their filing burden, although those with complicated compensation arrangements, related entity structures, and activities that raise compliance concerns, may see an increase in the effort required to complete the form. The IRS estimates that more than 25 percent of filing organizations will need to file only three of the 15 schedules, and that eight of the schedules will be completed by less than 10 percent of all filing organizations.

Some of the highlights of the draft form are:

• Summary page. All organizations must complete a summary page that provides the organization’s identifying information and a snapshot of the organization’s key financial, compensation, governance, and operational information.
• Executive compensation. Organizations must provide additional information for certain highly compensated individuals or those with complicated compensation arrangements, including details on loans, deferred compensation, fringe benefits, and retirement. A new question asks whether the organization has paid for first class travel, club dues or use of a personal residence. The form has been re-formatted to display compensation information prominently on page 2.
• Governance. Information on board composition and certain other governance and financial statement practices must be provided.
• Hospitals. Organizations that operate a hospital or medical care facility must furnish information on aggregate community benefit, including information in charity care and subsidized health services, as well as information on billings, collections, and joint ventures. Hospitals must also list the facilities and services the facilities provide, as well as policies and activities involving communities served.
• Tax-exempt bonds. For borrowers with bond issues of more than $100,000, reporting on the use and investment of proceeds and relationships with outside advisers is required.
• Non-cash charitable contributions. Organizations that receive more than $5,000 of non-cash contributions must report the types of contributions and valuation methods of donees for financial reporting purposes.
• Other. New reporting areas include accounting of political activity and inter-corporate fund transfers, information on related entities and foreign activities, and uncertain tax positions under Financial Accounting Standards Board Interpretation No. 48.

The IRS has emphasized that the document is in draft form, and the agency is actively soliciting comments. Comments must be submitted by Sept. 14, 2007.

Click here for more information on the Form 990 redesign.