IRS Revises Form 990
August 2008 ~ Issue 08-3

For the first time in almost 30 years, the IRS has revised Form 990, Return of Organization Exempt from Income Tax, for tax-exempt organizations.  The new Form 990 will be used in 2009 for the 2008 tax year, though the IRS has yet to finalize the instructions for completing the Form 990 and related schedules.

Why Did the IRS Redesign Form 990?

Form 990 was redesigned to enhance transparency, promote tax compliance and to minimize the burden on the filing organization.  According to the IRS, Form 990 had “…failed to keep pace with changes in the law and with the increasing size, diversity, and complexity of the exempt organization sector.”1

Overview of Changes

Completely overhauled Form 990 has an 11-page core that must be completed by all tax-exempt organizations. This core section is followed by 16 schedules designed to require reporting of information only from those organizations that conduct certain activities.  Major changes to the Form include:
  • A front page summary of key financial and operating information.
  • A governance section for information on the composition of the organization’s board or governing body, governance policies and practices, and the means by which the organization made governance and financial information publicly available. 
  • Revisions for reporting compensation and related organizations. 
  • New schedules to report foreign activities, non-cash contributions, hospitals and tax-exempt bonds and to collect information not required by the current Form.
  • New schedules to replace “unstructured attachments.”

New Questions May Present Red Flags for an Organization

In response to reports of abuses by tax-exempt organizations, the IRS added questions about governance, management and disclosure.  Although the revised Form 990 requests information about policies not required by the Internal Revenue Code (IRC), answering “no” to these questions may draw attention to an organization.  The Form’s new Part VI is subdivided into three sections, Governing Body and Management, Policies, and Disclosure, which include queries on the following items:
  • Whether the organization contemporaneously documents meetings and written actions undertaken during the year.  The IRS defines contemporaneous as “the later of (1) the next meeting of the governing body and committee …, or (2) 60 days after the date of the meeting or written action.”2
  • Whether the organization has local chapters, branches, or affiliates and if written policies and procedures exist for governing them.
  • Organization’s process for the governing body’s review of Form 990 prior to filing.
  • Existence, monitoring and enforcement of the organization’s conflict of interest policy.
  • Existence of a written whistleblower policy.
  • Existence of a written document retention and destruction policy.
  • Organization’s process for determining compensation of officers, directors/trustees and key employees, including the process for review and approval.
  • Organization’s method for making documents subject to public inspection available (i.e. tax exemption application-Form 1023/1024, Form 990, and 990-T-if applicable).
  • Whether and how the organization makes its governing documents, conflict of interest policy and financial statements available to the public.

We recommend that you become familiar with the new information reported in Part VI:  Governance, Management and Disclosure well in advance of the filing deadline and evaluate the policies and processes currently in place within your organization.  You should consider designing/implementing those noted on the Form to avoid potential scrutiny from the IRS or the public.  By conducting a “check-up” of your organization, you may find opportunities to strengthen your controls for effective monitoring and oversight of your organization.

Phase-in Period for “Small” Organizations

Organizations that normally would be required to file the revised Form 990 have been provided the option to file the shorter Form 990-EZ if they meet the gross receipts and total assets requirements listed below. 

Tax Year

If Gross Receipts are:

and Total Assets are:

2008

> $25,000 and < $1,000,000

< $2,500,000

2009

> $25,000 and < $500,000

< $1,250,000

2010 and later

> $50,000 and < $200,000

< $500,000

 Form 990-N (e-postcard)

The smallest exempt organizations are subject to filing Form 990-N.  Organizations with less than $25,000 in gross receipts may file the 990-N electronically through the IRS website.  Beginning with the 2010 tax year, the IRS intends to increase the gross receipts threshold for the 990-N from $25,000 to $50,000.

For More Information:

Visit the IRS website at http://www.irs.gov/charities/article/0,,id=176613,00.html Please contact Michelle McCann if you have any questions about the new Form 990.

Michelle L. McCann, CPA, is a partner in Lindquist LLP’s San Ramon office. She is primarily responsible for overseeing quality control for preparation of exempt organization and employee benefit plan returns, including Forms LM-2, 5500, 990 and 199. Michelle also provides QuickBooks training and support for the Firm’s clients. Michelle can be contacted at mmccann@lindquistcpa.com or (925) 277-9100.

 

1 Internal Revenue Service, “Draft Revised Form 990 FAQ:  Purpose of Form 990 Redesign,” 8 February 2008, http://www.irs.gov/charities/article/0,,id=176670,00.html>  (30 July 2008).
2 Internal Revenue Service, “2008 Form 990 Core (Parts VI) Instructions – Draft,” 7 April 2008, <http://www.irs.gov/pub/irs-tege/990_instructions_partvi_040708.pdf > (30 July 2008).

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