How Will the Redesigned Form 990 Affect Your Organization?
The IRS has redesigned Form 990—a document that has not undergone major revisions since 1979. The proposed changes are intended to increase the transparency of tax-exempt organizations and present the IRS and stakeholders with a realistic picture of entities and their operations. The increased transparency and disclosures relate to items such as board governance, executive compensation, political activities, and foreign transactions. Here are two examples:
Executive compensation transparency
The redesigned form requires more extensive executive compensation reporting (Schedule J). For instance, the form asks for disclosure of internal policy—such as whether payments are made for first-class travel and club dues.
"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 A. Gries, a CPA and nonprofit tax manager with LarsonAllen.
New requirements for hospitals
The revisions may require some additional preparations to adjust to the new reporting requirements. For example, a new section for nonprofit hospitals (Schedule H) will require quantification of community benefit, with a breakdown of activities and programs.
"Although the IRS says this shouldn't increase the time it takes to prepare Form 990, most exempt entities, and in particular hospitals, will likely see a significant increase in the time it takes to complete the new form," states Terry O'Reilly, health care tax principal with LarsonAllen.
Purpose of the changes
According to the IRS press release, the purpose of the new form is to:
- enhance transparency
- 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
What do you think?
The IRS accepted comments through September 14, 2007: Form990Revision@irs.gov. The revised form will be implemented as early as 2008 for filings in 2009.
Why is Form 990 changing?
To understand the thinking behind the redesigned draft Form 990, read the IRS background paper.
If you have questions, please contact us.
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