On December 20, 2007, after extensive public comment, the Service released its final draft of Form 990, Return of Organization Exempt from Income Tax, for the 2008 tax year. Although preparers will not use the revised form until 2009, organizations and their tax advisers should be aware that significant changes in reporting rules for the new return may require current changes in procedures and an organization’s accounting system to capture the necessary information.
Form 990 has expanded to 11 pages and will now have 16 possible schedules. The form is completely reorganized, presents comparative summary information on page one, and now captures information in many areas that have been of key concern to the IRS, Congress, and the public in recent years. Seeking to identify well-run organizations by their answers, Form 990 now requests information on governance, tax compliance, and certain tax filings. The Statement of Program Service Accomplishments now requires a breakdown of revenue in addition to grants and expenses by program. The reporting of compensation of officers and other key employees is now reported based on Form 1099 and W-2 data on a calendar-year basis regardless of the organization’s fiscal year, which can create confusion with the reporting of fiscal-year information in the functional expense summary. Also, non-501(c)(3) organizations are now required to report compensation of non-key employees and independent contractors.
Although Schedule B, Schedule of Contributors, is unchanged, most information from Schedule A has been split up among the many new schedules; the schedule now retains only reporting of the reasons for public charity status and public support. A new Schedule J, Compensation Information, provides a number of new questions about the nature of compensation packages. Schedule G, Supplemental Information Regarding Fundraising or Gaming Activities, captures information on fundraising and gaming that will likely be a key focus of state charity regulators. Schedule M, Non-Cash Contributions, requires significant additional information on the volume and type of noncash donations.
Details on grants paid are now split into two new schedules: Schedule F, Statement of Activities Outside the United States, for foreign activities including grants, and Schedule I, Grants and Other Assistance to Organizations, Governments, and Individuals in the United States, for U.S. grants and other assistance. All organizations with significant foreign activities will want to review the Schedule F information carefully to ensure that they obtain the necessary data during the year. In addition, a new Schedule D, Supplemental Financial Statements, that provides structured formats for supplemental balance sheet information asks for the complete FIN 48 footnote from the financial statements.
Most organizations will appreciate the new Schedule O, Supplemental Information to Form 990, which provides ample opportunity to include additional disclosures about the organization’s activities and expand on certain questions that need clarification on the form. Organizations with relevant activities will want to address the following new schedules: C, Political Campaign and Lobbying Activities; H, Hospitals; K, Supplemental Information on Tax Exempt Bonds; L, Transactions with Interested Persons; and R, Related Organizations and Unrelated Partnerships.
The IRS should soon have available the instructions for the new form and schedules. It will be important for organizations and their advisers to analyze the changes and prepare to avoid surprises, both in gathering the information for the return and in deciding how the organization’s information is presented and viewed by the outside world.
Lorin D. Luchs, Partner, Washington National Tax Office BDO Seidman, LLP, Bethesda, MD.
Unless otherwise indicated, contributors are members of or associated with BDO Seidman, LLP.
If you would like additional information about these items, contact Mr. Luchs at (301) 634-0250 or firstname.lastname@example.org.