The IRS has released a redesigned Form 990, Return of Organization Exempt from Income Tax, for use with 2008 tax returns. The Service sought public comments on the form in 2007 and on the form instructions in the spring of 2008. The final revised Form 990 has been rearranged from the draft form and contains several changes.
According to the IRS, the old Form 990 was no longer compatible with changes in the law and did not reflect the growing size, diversity, and complexity of exempt organizations. This is the form’s first redesign since 1979.
The new Form 990 contains tools designed to promote more uniform reporting, and it uses questions and answers to offer assistance and clarification. Some of the new features include a glossary of terms, a sequencing list, a compensation table, and many illustrative examples.
The new Form 990 is effective for 2008 tax years. However, organizations with gross receipts less than $1 million and total assets less than $2.5 million can choose to use either the new 990 or Form 990-EZ, Short Form Return of Organization Exempt from Income Tax, for the 2008 tax year. Beginning with the 2010 tax year, the 990-EZ thresholds will be permanently set at less than $200,000 gross receipts and less than $500,000 of assets.
Organizations using the new return must complete all portions of the core form (Parts I–XI). Part IV, a checklist of Form 990 schedules, allows an organization to determine which schedules, if any, are required.
Although much of the information requested on the new Form 990 is not required by federal law, the Service’s position is that “good governance and accountability practices provide safeguards to help ensure that the organization’s assets will be used consistently with its exempt purposes” (IRS, “Form 990 Redesign for Tax Year 2008 (Filed in 2009): Governance Schedule”).
The Core Form
Part I of the form presents the organization’s key data. It includes questions on the organization’s mission, its most significant activities, the number of voting members and independent voting members of the governing body, the number of employees and volunteers, and unrelated business income and tax.
Part V is a statement on other IRS filings and tax compliance. It covers:
- Information returns and withholding;
- Foreign accounts;
- Prohibited tax shelter transactions;
- Contributions received;
- Initiation fees and income from members;
- Personal benefit contracts;
- Taxable distributions; and
- Goods or services provided in exchange for contributions.
Part VI covers the organization’s governance, management, and disclosure. Questions address the organization’s policies, including the existence of a written whistleblower policy, and the availability of key documents to the public.
Part VII contains a set of detailed questions on the relationship of the officers, compensation for key employees and members of the governing board, other compensation, and business relationships with the organization. The instructions offer a detailed definition of a key employee based on compensation and authority. The return also requests additional information on the top five independent contractors that received more than $100,000 of compensation from the organization.
Part VIII is the revenue statement, which includes columns for total revenue, related or exempt function revenue, unrelated business revenue, and revenue excluded from tax under Secs. 512, 513, or 514. Income is divided into categories of contributions (and other similar amounts), program service revenue, and miscellaneous other revenue.
Part IX is the functional expense statement. Expenses are categorized as program service, management, and fundraising.
Part X is the balance sheet. The revised balance sheet no longer includes a column for fair market value. Lines have been added for amounts payable to current and former officers, directors, and key employees, as well as unsecured notes and loans payable.
Part III is a statement of program service accomplishments. The statement on general activities, which was Part VII of the draft form, has been removed.
Form 990 has many supplemental schedules, most of which apply only to specialized entities. Some of the more commonly used schedules are:
- Schedule A: Supplemental information for 501(c)(3) organizations, including reason for public charity status, support schedule, and computation of investment income percentage.
- Schedule B: Schedule of contributors of more than $5,000.
- Schedule D: Supplemental financial statements, including investment detail and reconciliation of audited financial statements with expenses shown on the Form 990.
- Schedule G: Supplemental information regarding fundraising or gaming activities.
- Schedule I: Supplemental information on grants and other assistance to organizations, governments, and individuals in the United States.
- Schedule J: Supplemental compensation information for officers, directors, trustees, key employees, and other highly compensated employees.
- Schedule M: Noncash contributions.
- Schedule R: Related organizations and unrelated partnerships.
The redesigned Form 990 and instructions can be found on the IRS website.
John Miller is a faculty instructor at Metropolitan Community College in Omaha, NE. Robert Caplan is a sole practitioner in Foster City, CA, and is a member of the AICPA Tax Division’s IRS Practice and Procedures Committee. For further information about this column, contact Mr. Miller at firstname.lastname@example.org.