Redesigned 990 Requires Extensive Preparation From Credit Unions
| Story Highlights |
- The Form 990 reporting burden has greatly increased for most credit unions, including disclosures of information organizations have never been required to report.
- Many tax-exempt organizations must begin implementing systems to gather the newly required data.
- The filing date for the revised Form 990 is fast approaching (effective for 2008 filings).
- The redesigned 990 is meant to make tax-exempt organizations more transparent.
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Credit unions need to begin preparing for the redesigned Form 990, which goes into effect for the 2008 tax year (returns due May 15, 2009 or after). According to the IRS, the changes are intended to increase the transparency of tax-exempt organizations. The last time the 990 underwent major revisions was in 1979.
Because the reporting requirements have increased substantially, many organizations will have to build accounting systems and practices to gather the required information.
For example, the core form went from having 9 to 11 pages, and includes 16 additional schedules; however, all of the schedules may not be applicable to your operations.
“Now is the time to ascertain how the new form will impact your credit union. You need to understand what action steps to take prior to year end to assist in accumulating information for the filing. I recommend you pay particular attention to the governance section,” explains Rich Gabrielson, financial institutions principal with LarsonAllen.
It will be much easier to compile the data in 2008 than to go back and recreate it in 2009. To provide guidance on how to fill the new form out, the IRS issued final instructions and tools in August 2008.
How the changes will impact credit unions
Most exempt entities will experience a significant increase in the time it takes to complete the new form, especially those with complex activities or structures. In addition, disclosures such as the top five highest-paid employees and independent contractors have never been required to be reported by credit unions.
Understand your responsibilities
CEOs, CFOs, and other financial leaders are responsible for:
- Preparing an accurate and complete Form 990
- Presenting the public with a realistic picture of your entity’s operations, which may require designing, implementing, and maintaining the processes and practices to file the 990
Those charged with governance have fiduciary responsibilities:
- Overseeing the 990 reporting process
- Ensuring the establishment of appropriate governance policies and practices
- Evaluating management’s efforts to comply with the new requirements
How to begin preparing
- Review the core form, schedules, and instructions to determine what additional records your organization needs to document
- Read through the governance section to determine how your policies and procedures stack up to the new questions
- Develop, implement, and/or revise your governance polices and practices (if necessary) to avoid negative attention from the IRS
- Develop, implement, and/or revise your information gathering policies (if necessary) to ensure you have the processes in place to compile the data needed to complete the new form
Summary of key 990 changes
The most significant changes that will impact a credit union filing include:
- More comprehensive core form
- Front page summary snapshot
- New governance section
- New schedules to replace existing “unstructured attachments” with formal schedules
- Focus on compensation and excess benefit transactions
- Non-cash contribution reporting
All nonprofits must complete the core form
- Part I: Summary
- Part II: Signature Block
- Part III: Program Services Accomplishments
- Part IV: Checklist of Required Schedules
- Part V: Other IRS Filings and Tax Compliance
- Part VI : Governance, Management, and Disclosures
- Part VII: Compensation
- Part VIII: Statement of Revenues
- Part IX: Statement of Functional Expense
- Part X: Balance Sheet
- Part XI: Financial Statements and Reporting
Part VI: governance
Tax-exempt organizations must disclose whether they have adopted policies for the following:
- Conflicts of interest
- Whistleblowers
- Document retention and destruction
- Rebuttable presumption for CEO, top management, and other officers and key employees
- Investments in joint ventures
- The audit committee
- Safeguarding exempt status with respect to subsidiaries
- Reimbursement of travel and entertainment expenses
- Gift acceptance
- Conservation easement
- Investments
- Tax-exempt bond compliance
- Community benefit report
- Charity care
- Debt collection
Part VII: compensation
“Although exempt organizations have seen increased scrutiny in the area of executive compensation throughout the years, the redesigned Form 990 broadens executive compensation reporting to include the organizational practices followed when establishing compensation with officers, directors, trustees, and key employees,” says Karen A. Gries, nonprofit tax manager with LarsonAllen.
The revisions specifically require reporting on:
- The threshold for the five highest-paid non-officers
- Former officers, key employees, or five highest-paid persons (past five years) over $100,000
- Former directors and trustees over $10,000
- Reported compensation must agree with information reported on W-2 or Form 1099
- Internal practices/policies, such as whether payments are made for first-class travel and club dues
In addition, the IRS has provided definitions of key terms to use when determining the appropriate disclosures regarding compensation.
For more information on the compensation reporting requirements, see the section below titled “Schedule J: compensation.”
Part IX: functional expenses
Within this section of the new form, tax-exempt organizations must disclose:
- Service fees for management, legal, accounting, lobbying, professional fundraising, investment management, and other service fees
- Travel and entertainment for public officials
Additional schedules
Not all of the additional 16 schedules are applicable to credit unions. Generally, they will have to fill out six of them:
- Schedule D: Supplemental Financial Statement Detail
- Schedule J: Compensation
- Schedule L: Transactions with Interested Persons
- Schedule M: Non-Cash Contributions (for those receiving benefits from sponsoring entities)
- Schedule O: Supplemental Information
- Schedule R: Related Organization
Schedule J: compensation
Additional disclosures are required if compensation for a person reported in the Part VII section of the core 990 form includes:
- First class/charter travel
- Travel for companions
- Tax indemnification/gross up payments
- Discretionary spending accounts
- Housing allowance/residence for personal use
- Payments for business use of personal residence
- Health/social club dues or initiation fees
- Personal services (i.e., maid, chauffeur, or chef)
When compensation includes the items listed above, organizations must provide further disclosures on reimbursement practices:
- Whether the organization follows a written policy regarding payment or reimbursement of all expenses
- Whether the organization requires substantiation prior to reimbursing or allowing expenses incurred by all officers, directors, trustees, and CEO/executive director
Schedule J also requires disclosures on whether reported individuals:
- Received any severance payments
- Participated in or received payment from a supplemental nonqualified retirement plan or equity-based compensation arrangement
- Whether any payments are contingent on revenue or net earnings
- Whether the organization provides any non-fixed payments
- Whether the organization made any payments subject to the initial contract exception
In addition, Schedule J inquires about whether expenses are reimbursed under accountable plan rules, and requires information on the compensation setting process for the CEO/executive director, such as:
- Compensation committee
- Independent compensation consultant
- Comparison of Form 990 of other organizations
- Written employment contract
- Compensation survey or study
- Approval by the board of directors or compensation committee
Schedule L: transactions
Expanded reporting may be required on:
- Loans (name of interested person, whether debtor or creditor, original principal amount and balance due, whether in default, approved by board/committee, and written agreement)
- Business transactions (name of interested person, relationship with organization, amount and description of the transaction, and whether the transaction constitutes a revenue sharing agreement)
Schedule M: non-cash contributions
Contributions of $25,000 or more require reporting on:
- Break out of non-cash contributions across several categories, such as works of art, art-historic treasures, books and publications, intellectual property, taxidermy, publicly-traded stock, and more
- Number of contributions, revenues, and method of determining revenues for each category
- Contributions by sponsoring organizations of facility space and other services, which are anticipated to be the reportable issue for credit unions
Schedule O: supplemental information
A blank schedule is provided so that organizations can share narrative information regarding any section of the return or schedules.
Schedule R: related organizations
Nonprofits must identify related organizations by providing disclosures for:
- Disregarded entities (i.e., single-member LLCs)
- Related tax-exempt organizations
- Related partnerships, corporations, or trusts
- Transactions with related organizations
How we can help
With our 990 tools, we can help you understand and comply with the new disclosure requirements. We are working with clients to:
- Develop plans for upcoming filing dates
- Identify exposure areas
- Draft responses to the extensive questions
Helpful IRS links
For more information, contact Rich Gabrielson, financial institutions principal, or Karen A. Gries, nonprofit tax manager, at 1-888-529-2648.