Changes to the Federal 990
- Why the dramatic change to the Form 990?
The Internal Revenue Service believes that a well-governed charity is more likely to obey the tax laws, safeguard charitable assets, and serve charitable interests than one with poor or lax governance. A charity that has clearly stated its purposes that describe its mission, has a knowledgeable and committed governing body and management team along with sound management practices is more likely to operate effectively and consistent with tax law requirements.
It is important for the charitable sector to maintain the highest level of integrity and credibility. Non profits should be held to a higher standard than for profits and as fiduciaries of other people’s monies, they must exercise duty of care.
The huge growth in the nonprofit sector in recent years has influenced Congress and the IRS to greatly modify the reporting requirements for nonprofit organizations. Government has determined that the new Form 990 series of tax forms is the strongest method to communicate to all sectors of society what is transpiring in aggregate and specific accomplishments of respective organizations. Since Form 990 returns are public documents, (we provide PDF copies of returns to all our clients for you to place on your website or make available at any given time) the information they contain is available to anyone who wishes to review them. By expanding the amount of information that is to be reported in Form 990, the transparency of organizations will increase as well.
I believe the intent of the new form is to “paint” a picture of the taxpayer’s status and accomplishments in the prior year by requiring numerous narrative descriptions. It appears that the goal it getting back to the original nonprofit application to ensure that the Organization is still performing the same services for the original purpose.
- Two Significant Areas of the Form 990 (which have not changed dramatically)
One of the most important areas of the Form 990 is Part III (Statement of Program Service Accomplishments). This section requires the Organization to provide information regarding its program services and exempt purpose achievement. The importance of this part cannot be overemphasized, for it will be the target of analysis by donors, foundations, watchdog agencies such as the Better Business Bureau, Charity Navigation and others. Reviewer of the return will want to see the Organization’s specific accomplishments, how many individuals it serviced, and how it benefited the community. THIS SECTION CAN BE A SIGNIFICANT REPORTING AND MARKETING TOOL FOR AN ORGANIZATION.
Another important area of the Form 990 is Part IX, the Statement of Functional Expenses. This is still the place readers will find out how much of every dollar your organization spent last year on your non-program activities: fundraising and management. It is very important not to overstate these overhead costs due to poor accounting allocation methods.
- When does the New Form 990 go into effect?
The IRS released the redesigned form in December 2007, for use in reporting for tax year 2008 information filed in 2009 and beyond. The Redesigned form consists of a core form to be completed by all tax-exempt organizations required to file Form 990 and 16 schedules (as compared to 2 schedules on the old form) to be completed depending on the organization’s type of activities. Transition rules are in place to permit small organizations time to adjust to the new form.
Your Organization’s Form 990 is due 4 and one-half months after the close of your fiscal year. For example, if your fiscal year ends June 30 your 990 is due on November 15; if your fiscal year end is December 31 it is due on May 15.
For the 2008 tax year we will prepare for organizations with gross receipts less than $1.0 million and total assets less than $2.5 million Form 990-EZ, Short Form Return of Organization Exempt from Income Tax (not redesigned for 2008).
For the 2009 tax year (to be filed in 2010 or 2011) we will prepare Form 990-EZ for entities with gross receipts that are less than $500,000 and total assets less than $1.25 million. Organizations above these thresholds will require the filing of Form 990.
The filing thresholds for the 990 EZ will be set permanently at $200,000 gross receipts and $500,000 total assets beginning with the 2010 tax year.
The IRS is expected to issue a revised Form 990-EZ. We anticipate that the 990-EZ revised will be similar to the new requirements of the 990 so we suggest that you prepare to comply with the new requirements within the next fiscal year. We have included a questionnaire/checklist that entails what those requirements will be and we suggest that your organization implements procedures to comply with the new requirements. This checklist will also help determine the additional schedules to be completed within in the Form 990.
The revised Form 990 requires substantial additional detail compared to previous reporting requirements. Some major changes in reporting requirements from the 2007 Form 990 include a new governance section and substantial revisions to the reporting of the organization’s compensation of officers, directors, trustees, key employees, and highest compensated employees. The requirements to provide so much additional detail may prove burdensome and complex. This is why we suggest filing the 990-EZ for organizations below the thresholds to keep the organizations tax preparations costs reasonable.
In addition to the changes in the format of the 990 there is a new requirement for organizations that normally have gross receipts of less than $25,000. Those organizations must now file Form 990-N, Electronic Notice (e-postcard) for Tax-Exempt Organizations not Required to File Form 990 or 990-EZ (with exceptions for certain §509(a)(3) supporting organizations and for certain religious organizations, governmental organizations, and political organizations). The minimum requirements for the 990-N is expected to increase in the year 2010 so that it can be filed by organizations having gross receipts of less than $50,000.
In addition I am attaching an article from guidestar.org that I hope you will find extremely resourceful:
Governance and Related Topics-501©(3) Organizations
Download a copy of the Riley & Associates, PC “new 990” checklist