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The New Form 990

The Internal Revenue Service recently released a new Form 990 – Annual Return of Organization Exempt from Income Tax for tax years beginning in 2008 (which would be filed in 2009).  This was the first significant revision to the Form 990 since 1979 and was done as a part of the IRS’s ongoing effort to enhance transparency, identify tax-exempt organizations paying excessive compensation, and prevent conflicts of interest within exempt organizations through improved governance. 

The new Form 990 attempts to achieve these goals by going beyond the mere disclosure of financial results.  The form includes a section on governance, which consists of three parts – composition of the organization’s governing body, its governance and management policies, and its disclosure practices.  In this section, the Form 990 asks questions concerning various policies of the organization, including the following: (a) conflict of interest policy; (b) whistle-blower policy; (c) document retention and destruction policy; (d) compensation policy; and (e) joint venture policy.

Although these policies are not mandatory (the instructions to the form provide that an organization should consider its own facts and circumstances, including its size, type and culture, when deciding whether to adopt or revise its policies), organizations should carefully review their existing policies in light of the new Form 990 and consider whether to revise existing policies and/or adopt additional policies (even if your organization will be eligible to file the Form 990-EZ, as discussed below).

As with the previous Form 990, the new Form 990 also requires the reporting of compensation for certain employees and independent contractors.  The new Form 990 goes on to ask whether any of the persons for whom compensation is reported have received or accrued compensation from any unrelated organization for services rendered to the organization (in order to uncover compensation arrangements structured to circumvent the reporting of executive compensation). 

New Schedule J (Compensation) requests additional compensation information for certain individuals, including arrangements that may raise tax-compliance and transparency concerns, such as: (i) first-class or charter travel, (ii) travel for companions, (iii) tax indemnification and gross-up payments, (iv) discretionary spending accounts, (v) housing allowance or personal residences, (v) payments for business use of a personal residence, (vi) health or social club fees, and (vi) personal services (maid, chauffeur, chef).  Schedule J asks whether the organization follows a written policy with respect to such arrangements, and whether substantiation of any such costs is required prior to reimbursement

Some of the other major features of the new form include a new summary page, enhanced reporting of the organization’s relationships with insiders and other organizations, and new reporting for non-cash contributions, foreign activities, tax-exempt bonds and hospitals.

The redesigned Form 990 will be phased in over 3 years.  This will be accomplished by allowing significant numbers of small organizations to file the Form 990-EZ rather than the full Form 990.  Organizations that satisfy both the gross receipts and assets test set forth in the following table will be able to file the Form 990-EZ for the applicable year:

 

Gross Receipts:

Assets:

2008 tax year (filed in 2009)

> $25,000 and < $1 million

< $2.5 million

2009 tax year (filed in 2010)

> $25,000 and < $500,000

< $1.25 million

2010 and later tax years

> $50,000 and < $200,000

< $500,000

 

Organizations with gross receipts not more than $25,000 in the 2008 and 2009 tax years and organizations with gross receipts not more than $50,000 thereafter will be required only to file the Form 990-N (e-postcard).

Given these changes, organizations should take steps to review their governance policies and

other matters that will be reportable on the new Form 990.