Print this page
Tax-Exempt Return Gets Overhaul
From Executive's Tax & Management Report
January 2009
Tax-exempt organizations required to file a return for 2008 will be completing redesigned forms during the 2009 filing season.
Form 990 and Form 990-EZ, which had remained virtually unchanged since 1979, are the information returns that must be completed by tax-exempt entities that are required to file a tax return. The IRS recently updated the forms and related instructions.
The IRS's revision of Form 990 was "based on three guiding principles: enhancing transparency, promoting tax compliance, and minimizing burden on the filing organization," the IRS explained in a summary of the revision process.
The final revised instructions were released in August 2008. "These instructions are the final step in a tremendous effort to bring the Form 990 up to date and to reflect the diversity and complexity of the tax-exempt community," said IRS Commissioner Doug Shulman. "The revised form will give the IRS and the public a much better view of how exempt organizations operate. The improved transparency provided by these changes will also benefit the tax-exempt community."
Since this form is a public document, it is used by individuals as well as various state regulators to acquire the information they need about tax-exempt organizations.
Revised Filing Thresholds for Form 990-EZ
The IRS had considered discontinuing the use of Form 990-EZ but ultimately decided to continue using it through tax year 2010 - with revised thresholds for filing. In three years, all charitable and exempt organizations will file Form 990.
The revised thresholds are aimed at making the transition easier for organizations who previously only filed Form 990-EZ:
- 2008: If an organizations has less than $1 million in gross receipts and $2.5 million in assets, then it may still file the 990-EZ.
- 2009: Those thresholds are reduced by half.
- 2010: Only organizations that have $500,000 in assets and less than $200,000 in gross receipts can still file Form 990-EZ.
Major changes for Form 990-EZ include the following:
- A filing disallowance is provided for Sponsoring or Controlling Organizations (Code Sec. 412(b)(13)).
- Several new questions which, if answered in the affirmative, require the filing of Schedule C, L or Form 990.
- Additonal detail must be provided for the five highest paid employees with compensation of over $100,000.
- Certain activities carried on by the entity trigger the required filing of Schedules A, E, G and N.
Do Revisions Minimize Filing Burden?
The IRS's Tax Exempt and Government Entities Division Commisioner Steven T. Miller has said the IRS intended to minimize the filing burden with the redesign, but it appears that the new Form 990 will have exactly the opposite effect. The new core form that all organizations must complete is 11 pages long with 11 component parts. The 11 parts consist of (in order) the following:
- Summary
- Signature Block
- Statement of Program Service Accomplishments
- Checklist of Required Schedules
- Statements Regarding Other IRS Filings and Tax Compliance
- Governance, Management, and Disclosure
- Compensation of Officers, Directors, Trustees, Key Employees, Highest Compensated Employees and Independent Contractors
- Statement of Revenue
- Statement of Functional Expenses
- Balance Sheet
- Financial Statements and Reporting
Sixteen Supplementary Schedules
In addition to the core form, there are 16 supplementary schedules that must be completed if the schedules are applicable to the tax-exempt organization based on its activity. A tax-exempt organization can determine which additional schedules are required by completing Part IV-Checklist of Required Schedules.
Prior to the revision, several schedules required an organization to include an attachment to the Form 990 because the forms were not structured to allow proper reporting of the necessary informatin. Many of these new schedules were designed specifically to eliminate the need to file the previously required attachments.
Previously, Form 990 had only two schedules, A and B. The 2008 form includes redesigned Schedules A and B and new Schedules C through R (with no Schedules P and Q). Here is an overview of the schedules:
- Redesigned Schedule A applies exclusively to the reporting requirements of organizations that maintain a public charity status. The disclosure of the five highest compensated employees and contractors, previously reported on Schedule A, is now reported on Form 990 Parts VII and VIII. Schedule J-2 is designed as a continuation sheet to report any overflow persons or compensation that cannot be reported on Schedule A. Lobbying and political disclosure and private school related questions now appear on Schedules C and E, respectively.
- Schedule B, which is the Schedule of Contributions received over $5000, was not changed.
- Schedule C reports the lobbying and political activities carried on by the tax exempt entity and now includes non-IRC 501(c)(3) organizations.
- Schedule D is required for details relating to donor advised funds; conservation easements; art, historical treasure, or other similar collections; trust and custodial arrangements; and the maintenance of endowment funds. Schedule D also provides balance sheet detail and a reconciliation of changes in revenue, expenses and net assets.
- Schedule E is required for tax-exempt organizations conducting themselves as a school.
- Schedule F must be filed by entities operating outside the United States.
- Schedule G provides more details about fundraising and gaming activities that exced $15,000 and $5,000 specific thresholds, respectively.
- Schedule H, which applies exclusively to hospitals, defines what a hospital is. The goal of this schedule is to assess the benefit that the organization provides to the community. Since this form will require additional extensive recordkeeping, only Part V must be filed for 2008. The whole schedule must be filed for 2009.
- Schedule I discloses the recipient of any grants or other assistance exceeding $5,000.
- Schedule J focuses on compensation of former and current officers and employees.
- Schedule K provides additional information on tax-exempt bonds.
- Schedule L tracks transaction between interest parties.
- Schedule M reports any noncash contribution over $25,000 that the organization received in addition to any contribution, no matter the value, of art or similar collectible items. Schedule N's purpose is to record signigicant disposition of assets.
- Schedule O is a blank form used to report any additional information not contained on the core form or any of the other additional schedules.
- Schedule R is required for disclosure of related organizations and activities with unrelated partnerships.
Elizabeth Alderson is a Tax Senior Associate at HORNE LLP. She can be reached at elizabeth.alderson@horne-llp.com
