Because the reporting requirements have increased substantially, many organizations will have to build accounting systems and practices to gather the information now required.

For example, all nonprofit 990 filers must now fill out the 11-page core form (versus the current 9-page form). And there are 16 additional schedules that you may be required to complete, depending on your organization type and activities.

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 draft instructions and tools. They accepted public comments through June 1, 2008.

What you need to know	What you can do now	How we can help
Key changes Why the form changed How the changes will impact you	Understand your responsibilities Begin preparing	Updates, seminars, presentations, tips, and services

Key changes to the Form 990
On June 14, 2007, the IRS issued the first proposed draft of the redesigned Form 990—a document that has not undergone major revisions since 1979. They accepted feedback through September 14, 2007.

Nearly 700 comments were received from many sources including the AICPA, trade associations, and legal and accounting professionals. After considering the responses, the IRS made significant changes to the final version released on December 20, 2007.

The most notable changes are summarized below:

Governance
The redesigned form asks questions about the detail of (and adherence to) governance and management policies and practices including:

• Was the Form 990 provided to the governing body?
• Does your organization have a written conflict of interest policy?
  • Access a sample conflict of interest policy from the IRS
• Does your organization have a whistleblower policy?
  • Access a sample whistleblower policy from the National Council of Nonprofit Associations
• Does your organization have a written document retention and destruction policy?
  Access a sample document retention and destruction policy from the St. Louis Volunteer Lawyers and Accountants for the Arts

While positive answers to these questions are not required, negative responses could invite further scrutiny from the IRS.

Hospitals (Schedule H)
“The reporting requirements for hospitals have increased significantly. They will have to fill out many of the additional 16 schedules,” stresses Reed Seabright, health care tax manager with LarsonAllen.

To give hospitals time to prepare, only the first documentation rule below is required in 2008. The rest go into effect in 2009. The revisions specifically require reporting on:

• A listing of the name, address, and other information for each facility operated by the hospital
• Charity care and community benefit, including the cost, revenue offset, and net cost of charity care, lack of reimbursement from Medicaid, community health improvement services, subsidized health services, research, and cash and in-kind contributions
• Community building activities
• Bad debt, Medicare, and collection practices
• Management companies and joint ventures

Executive compensation (Schedule J)
“Although exempt organizations have seen increased scrutiny in the area of executive compensation throughout the years, the redesigned Form 990 further increases the required reporting. The proposed form broadens executive compensation reporting to include the organizational practices followed when establishing compensation with officers, directors, trustees, and key employees,” notes Karen Gries, nonprofit tax manager with LarsonAllen.

The revisions specifically require reporting on:

• Threshold for five highest-paid non-officers (non-key employees is a total of more than $100K from the organization and any related organizations)
• Former officers, key employees, or five highest-paid persons (past five years) over $100K
• Former directors and trustees over $10K
• Reported compensation must agree with information reported on W-2 or Form 1099
• For those meeting these thresholds, additional reporting requirements (completion of one of the 16 additional schedules) apply for any former officer, director or trustee, key employee, or highest-paid person, or for any current person in any of those groups if that person’s total compensation is greater than $150K
• Internal policy, such as whether payments are made for first-class travel and club dues

Tax-exempt bonds (Schedule K)
The redesigned form requires more extensive tax-exempt bond reporting. To give organizations time to adapt, only the first documentation rule below is required in 2008. They all go into effect in 2009. The revisions specifically require reporting on:

• Issuer name, EIN, CUSIP # for each bond issue
• Proceeds (and use of invested proceeds) for each issue
• Private use of each issue
• Arbitrage for each issue

Organizations will not be required to report information on bonds issued prior to 2003.

Non-cash contributions (Schedule M)
The redesigned form requires more extensive reporting on non-cash contributions including:

• Break out of non-cash contributions across several categories such as works of art, art-historic treasures, books and publications, intellectual property, taxidermy, and more
• Number of contributions, revenues, and method of determining revenues for each category

Supplemental information (Schedule O)
A blank schedule is provided so that organizations can share narrative information regarding any section of the return or schedules.

Why did the Form 990 change?
According to the IRS, the purpose of the new form is to:

• Increase transparency of tax-exempt organizations
• Present the IRS and stakeholders with a realistic picture of entities and their operations
• Promote compliance by accurately reflecting the organization’s operations and use of assets
• Minimize the burden on filing organizations by asking questions in a manner that makes it relatively easy to fill out the form

Although financial scandals contributed to the nonprofit reform, there are benefits. Now your organization has the opportunity to publicly share how your operations and finances align with your mission (in the optional narrative section of the form).

How the changes will impact your organization
The IRS says the changes shouldn’t increase the time it takes to prepare Form 990, but we believe most exempt entities will experience a significant increase in the amount of time it takes to complete the new form.

To help minimize fee increases for our tax clients, LarsonAllen is revising our 990 process to be as efficient as possible while complying with the new rules.

Understand your responsibilities
Client management including CEOs, CFOs, and other financial leaders are responsible for:

• Preparing an accurate and complete Form 990
• Designing, implementing, and maintaining the processes and practices required to gather the required information to present the public with a realistic picture of your entity’s operations

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

Begin preparing
To reduce snags at the end of the year, we recommend nonprofits get ready now:

• Review the entire form, schedules, and instructions to determine what additional records your organization needs to document
• Read through the governance section of the redesigned Form 990 and determine how your policies and procedures stack up to the new questions in the revised Form 990
• 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

How LarsonAllen can help
We can assist you in understanding and complying with the new 990 disclosure requirements.

View our presentation to learn more about the changes and implications of the new 990.

Through articles, presentations, and seminars, LarsonAllen plans to continue offering nonprofits tips on how to get ready for the new 990.

Upcoming training

• September 10, Charlotte, NC

Past training

• April 22, St. Louis, MO
• May 2, Eau Claire, WI
• June 9, Minneapolis, MN
• June 11, Philadelphia, PA
• June 12, Phoenix, AZ
• June 24, St. Paul, MN
• June 25, St. Cloud, MN
• July 25, Boston, MA
• July 29, Naples, FL
• July 30, Fort Myers, FL

Stay tuned for future updates and seminars in other regions.

Helpful IRS links

• Form 990 11-page core form and 16 additional schedules
• Frequently asked questions
• Background paper

For more information, contact Karen Gries, nonprofit tax manager, or Reed Seabright, health care tax manager, at 1-888-529-2648.