IRS Form 990: The Next Generation

1
IRS Form 990 The Next Generation

• October 30, 2008
• Public Interest Clearinghouse
• Jenny Chung, Program Manager
• Randall Gaines, Controller
• www.insightcced.org

2
Insight Center Overview

• The Insight Center for Community Economic
  Development (formerly NEDLC) is a national
  research, consulting, and legal organization that
  develops and promotes innovative solutions that
  help people and communities become, and remain,
  economically secure.
• Insight Center is a legal services support
  center that provides technical assistance to CA
  legal services organizations on legal issues
  arising in CED projects or related to tax-exempt
  organizations.

3
Overview

• Background Increasing Scrutiny of Tax-Exempt
• Organizations
• IRS goals for revising Form 990
• New Form 990-N
• Overview of Changes to Form 990
• major changes affecting legal services
  organizations
• changes to reporting of exempt activities
• reporting about business and family
  relationships
• additional information about director officer
  compensation
• extensive reporting of transactions with related
  organizations

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Increasing Scrutiny of Tax-Exempt Organizations

• Federal
• 1996 IRC Section 4958 (excise tax penalties)
• excessive compensation or excess benefit
  transactions with insiders
• also, penalties on managers that approve such
  arrangements
• 2002 Sarbanes-Oxley Act (governance standards
  for public companies)
• 2004 Ways Means Cmte hearings on NPs IRS
  adopts new 1023
• 2006 Pension Protection Act (addtl reporting
  reqs)
• 2007 Form 990 revision
• State
• 2004 CA Nonprofit Integrity Act

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Goals of Revised Form 990

• IRS goals include
• increased oversight transparency,
• greater tax law compliance, and
• minimizing burden on taxpayer
• Major changes
• reporting of transactions with controlled
  entities
• increased reporting on transactions with
  directors, officers, and key employees
• Result heightened state and federal focus on
  nonprofits

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New Form 990-N (e-Postcard)
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Smaller Organizations - Form 990-N (e-Postcard)

• Pre-2007 tax year tax-exempt organizations with
  gross annual revenues under 25,000 generally
  were not required to file Forms 990 or 990-EZ.
• Aug 2006 The Pension Protection Act added a
  filing requirement to ensure that the IRS and
  potential donors have current information about
  all organizations.
• 2007 tax year and beyond Tax-exempt
  organizations with annual gross receipts of
  25,000 or less must file electronic Form 990-N,
  (unless otherwise exempt from filing)
• "Electronic Notice (e-Postcard) for Tax-Exempt
  Organizations not Required to File Form 990- or
  990-EZ"

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Smaller Organizations - Form 990-N (e-Postcard)

• Form 990-N must be filed electronically
  (http//epostcard.form990.org/)
• Form 990-N is due the 15th of the 5th month
  after end of taxable year
• e.g. if tax year ends Dec 31, 990-N due May 15 of
  the following year
• If not filed for three consecutive years, org
  loses tax-exempt status
• What must be reported
• EIN, tax year, legal name and mailing address
• Any name the organization uses
• Name and address of principal officer
• Organizations website address
• Statement confirming gross receipts normally
  under 25,000
• Statement if org has terminated or is in the
  process of terminating operations
• Note IRS intends to increase the Form 990-N
  filing threshold from 25,000 in gross receipts
  to 50,000 in gross receipts, beginning with the
  2010 tax year.

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Revised Form 990
10
Revised Form 990

• First significant revision since 1979
• Phased in for 2008 2010 tax years
• Based on organizational income and assets
• 11-page Core Form 16 Schedules
• http//www.irs.gov/charities/article/0,,id181091
  ,00.html

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Revised Form 990 Phase-In Thresholds

• Organizations exceeding either threshold must
  file the new Form 990. Those below both required
  amounts may file the Form 990-EZ.

12
Revised Form 990 Core Form

• Changes Affecting Reporting of Exempt Activities
• Organizations must now describe the exempt
  purpose achievements for each of their 3 largest
  program areas, measured by expenses. (Part III)
• If the organization performed any significant
  program services not listed on the prior years
  Form 990, it must describe the new program
  service. The organization must also describe if
  it ceased or made significant changes to a
  program. (Part III)

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Revised Form 990 Core Form

• Questions about board composition, governance and
  policies, documentation of
• meetings and recording of actions of the board
  (Part VI) include
• Number of voting members, independent voting
  members
• Delegation of control or management duties
• Significant changes to organizational documents
  since last 990 filed
• Documentation of board and committee meetings
• Conflict of interest policy
• Annual disclosure of potential conflicts
• Monitoring and enforcement of policy
• Whistleblower policies
• Document retention/destruction policies
• Decisions on CEO and other key employee
  compensation include independent person or
  reference to outside data
• Joint ventures with a taxable entities
• Policies for safeguarding tax-exempt status

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Revised Form 990 Core Form

• Increased reporting about Directors and Officers
  
• Must report family and business relationships
  among current and former officers, directors,
  trustees, and key employees (Part VI, Schedule L)
• family relationship spouse, ancestors, siblings
  (whole or half blood), children (natural or
  adopted), grandchildren, spouses of siblings,
  children, and grandchildren
• business relationship
• (1) one person is employed by another through a
  sole proprietorship or entity in which he/she is
  a trustee, director, officer, key employee, or
  35 owner),
• (2) transactions 10K during tax year (with
  person or organization in which he she is
  trustee, director, officer, key employee, or
  35 owner),
• (3) persons are each directors, trustees,
  officers, or 10 owners in same business or
  investment entity
• former reported on any of orgs prior five Form
  990 or 990 E-Z
• not former if person was an officer, director,
  trustee, or key employee at any time during the
  organizations tax year

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Revised Form 990 Core Form

• Increased reporting about Directors and Officers
• Reporting business relationships between the
  organization and current and former officers,
  directors, trustees, key employees, and their
  family members (Part IV, Schedule L)
• direct and indirect business relationships
• Direct person is an officer, director, trustee,
  key employee, partner, or member of an entity (or
  a shareholder of a professional corporation)
  doing business with the organization
• Indirect person owns more than 35 interest in
  an entity doing business with the organization,
  individually or collectively with other officers,
  directors, etc.

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Revised Form 990 Core Form

• Reporting about Director and Officer
  Compensation (Part VII)
• Names, hours per week, and compensation of
• Current officers, directors, trustees (no min.
  threshold), and key employees (over 150,000)
• Current and former 5 highest compensated
  employees receiving over 100,000
• Former officers and key employees over 100,000
• Former directors and trustees who received, in
  that capacity, over 10,000
• Reported compensation includes compensation from
  organization and any related organization, which
  includes one or more of the following
• Parent an organization that controls the filing
  organization
• Subsidiary an organization controlled by the
  filing organization
• Brother/Sister an organization controlled by the
  person or persons that control the filing
  organization
• Supporting/Supported organizations under
  509(a)(3) supported to/by the organization and
  any related organizations
• Volunteer exception does not include
  compensation from a related org paid to a
  volunteer officer, director, or trustee if the
  related org is a for-profit entity.

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Revised Form 990 Core Form

• Addtl information about Revenue and Expenditures
• More detail about revenue (Part VIII)
• Total
• Related/exempt function
• Unrelated business income
• Excluded from unrelated business income under IRC
  Sec. 512-514
• Additional reporting (Part IX)
• Insurance Advertising and promotion Joint costs
  from combined educational campaigns/fund
  solicitation
• Additional descriptions of expenditures (Part IX)
• Miscellaneous expenses cannot exceed 5 of total
  expenses

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Revised Form 990 - Schedules

• There are now 16 schedules
• Schedules most applicable to legal services
  organizations
• include
• Schedule A Public Charity Status and Public
  Support
• Required for all 501(c)(3) orgs
• Organizations can now use their own method of
  accounting cash accting not required
• IRS no longer to issue advance rulings orgs no
  longer file Form 8734
• IRS will now issue determination letter of public
  charity status if organization can reasonably be
  expected to be publicly supported
• organization has 5 tax years to establish public
  support (current year 4 prior), based on 990

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Revised Form 990 - Schedules

• Schedule C Political Campaign and Lobbying
  Activities
• Political activities are a basis for revocation
  of an organizations 501(c)(3) status, lobbying
  is OK if not a substantial part of organizations
  total activities
• Lobbying reporting requirements differ for orgs
  that have made the Section 501(h) election by
  filing Form 5768
• Must report volunteer hours for political
  activity (and for lobbying by orgs that did not
  make the 501(h) election)
• Schedule J Supplemental Compensation
  Information
• For any org where current officer, director,
  trustee, or employee received
• over 150,000, former officer, key employee,
  highest compensated employee received over
  100,000, and/or former director or trustee
  received over 10,000
• in compensation
• Breakdown of base, bonus/incentive, other pay,
  deferred
• compensation, nontaxable benefits and other
  non-fixed payments
• Procedures used to establish compensation for
  CEO

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Revised Form 990 - Schedules

• Schedule L Transactions with Interested Persons
  (IPs)
• Current and former officers, directors, key
  employees of org or controlled entities
• Requires reporting of
• Excess benefit transactions
• Loans to and from IPs
• Grants or assistance benefiting IPs (includes
  relatives of IP)
• Business transactions with IPs (includes
  relatives of IP)
• Review the instructions and other materials on
  IRC section 4958 before responding to the excess
  benefit questions
• Schedule M Non-Cash Contributions
• Organizations that received more than 25,000 in
  non-cash contributions
• Information about the donation of property
• Gift acceptance policy
• Use of related or unrelated persons to help
  raise funds through
• non-cash contributions

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Revised Form 990 - Schedules

• Schedule R Related Organizations and Unrelated
  Partnerships
• 6 major parts
• Part I Disregarded Entities
• total income and end-of-year assets of the
  disregarded entity
• Part II Related Tax-Exempt orgs
• exempt code section, public charity status, and
  direct controlling entity
• Part III Related Organizations Taxable as
  Partnerships
• direct controlling entity, predominant income,
  share of total income and end-of-year assets,
  unrelated business income

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Revised Form 990 - Schedules

• Schedule R (continued)
• Part IV Related Organizations Taxable as
  Corporation/Trust
• direct controlling entity, type of entity,
  percentage ownership
• Part V Transactions with Related Organizations
• gifts, grants, contributions loans, sales,
  purchase/exchange of assets
• Part VI Unrelated Organizations Taxable as
  Partnerships
• partnership (unrelated organization) through
  which organization conducted more than 5 of its
  activities

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Revised Form 990

• Prepare your organization
• Policies
• Establish processes for collecting information
  on
• business relationships between directors,
  officers, key employees, etc. and organization,
  and business and family relationships among
  directors, officers, key employees, etc
• e.g. annual and as-needed disclosures from
  directors, officers, key employees, etc.
• volunteer hours spent on lobbying activities
  (for non-501(h) filers)
• non-cash donations (e.g. silent auctions)
• transactions with related organizations

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Revised Form 990

• Helpful Resources
• IRS online mini-courses on Redesigned Form 990
• www.stayexempt.org
• November 4 from 2-3 EST, IRS will host a free
  webinar, Preparing for the new Form 990
• http//www.taxtalktoday.tv/
• December 3, Alliance for Justice will be
  presenting an all-day workshop in San Francisco
  for Form 990 preparers
• www.afj.org

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Questions
Contact Information Jenny Chung
(jchung_at_insightcced.org) Randall Gaines
(rgaines_at_insightcced.org) 510-251-2600