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| [The Not-so-New] Form 990 (Since 2008) |
| Attached is a full screen powerpoint and a 3-up handouts version as pdf, and a markup of the 2010 990 showing, in excruciating detail, each form change in 2009 and in 2010. The powerpoint discusses the IRS 2010 report and 2011 workplan, in my words (you might want to read theirs). They also publish significant changes each year (2009 and 2010), and of course the 990 Core Form has a "What's New" section in the instructions, though the Schedules instructions do not. |
| The Not-so-New 990, Three Years out (2010 |
| Governance: IRS "crown jewel" |
| Public Support Tests & the Advance Ruling Period: Big changes! |
| Which Form to File? 990-N? 990-EZ? 990? |
| The 990-N find and file at: http://epostcard.form990.org |
| All 990 filers must now file SOMETHING every year; if they fail to for three years, they lose their exemption. Filers who are too small to file the 990 or 990EZ now must go online and file the "990- N "e-postcard" which is very easy. If you lose exemption, you must return to "start" and file for exemption all over again. This change is theoretically NOT part of the 990 revision, but came in through the Pension Protection Act in 2006. The idea was to clean up the list - even after a special grace period they are due to revoke the exemption of about 130,000 organizations early in 2011. One last background...one good friend, Eve Borenstein (see my page on Resources: Lawyers for more on Eve, who also is doing trainings on this new 990) calls the 990-N the "990-No" :-) It's SIMPLE online, free, “e-postcard”. All it asks for is: Employer Identification Number (EIN or FEIN) also known as a Taxpayer Identification Number (TIN)) Tax year you are filing for Organization’s legal name and mailing address + any other names the organization uses Name and address of a principal officer e.g. Chair or President Web site address (if any) Confirmation that gross receipts normally <=$25K Whether going out of business |
| Form 990, unless small enough: Form 990-N (simple online “e-postcard”) 2010 & beyond: Gross receipts “ordinarily” <$50K Form 990-EZ 2010 & beyond: Gross receipts <$200K and Assets <$500K |
| The 990 Structure |
| Key Parts of the 990 Core Form I Summary (dashboard for the public) III Program Service Accomplishments (similar to old 990) IV Checklist of Required Schedules (the so-called “trigger questions” - decoder below) V Other Filings & Tax Compliance (you can’t “plead the 5th”) VI Governance, Mgt & Disclosure (more below - an outline I am proud of!) VII Compensation (unduly complex; more below) VIII Revenue (UBTI analysis on same page) IX Functional Expenses (very slight changes) X Balance Sheet (virtually unchanged from old 990) XI Reconciliation of Net Assets (the old Line 20!) XII Financial Statements & Reporting (audits? etc). The 16 Schedules (they made them somewhat alliterative; these are my names and some guesses on the alliteration intended) A Public Support / Public Charity basis (990 & EZ) B Contributors (no change; 990 & EZ) C Campaign & Lobbying Activity (990 & EZ) D Supplemental Financial Statement Detail (990 only) E Schools [Education] (no substantive change) (990 & EZ) F Foreign Activities & Grants (990 only) G Gaming (& Fundraising) (990 & EZ) H Hospitals (990 only) I Domestic Grants (Inside U.S.) (990 only) J Compensation (Justification?) (990 only) K Tax-Exempt Bonds ("K" is lawyer abbrev for contract) (990 only) L Loans and Insider Transactions (990 & EZ) M Non-Cash Contributions (990 only) N Termination / Disposition of Assets (990 & EZ) O Open for Narrative answers, both required & optional (990 only) R Related Organizations (990 only) |
| Biggest Changes with the 2008 overhaul |
Compensation – Details AND Process
“Governance” (Governance, Management & Disclosure) – Wide Range of Questions
Other Important Areas of Change
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| No more Advance Ruling Period - No More Form 8734 - All Accrual Basis - 5 Year Measurement Well, that about summarizes the changes. Advance Ruling Period / 8734. IRS will send you a new letter if you are within your advance ruling period - now you just don't calculate % until Year SIX (Yrs 2-3-4-5-6) and then if it is under 33.3% for through Year FIVE (1-2-3-4-5) and if under 33.3% then test through SIX with 10% plus facts & circumstances, and if not then test through FIVE with 10% plus facts & circumstances, and if not then go file 990-PF you have just become a private foundation. More scary in some ways is the fact that the new Schedule A allows filers to change public charity status among all nine choices by simply filling out the narrative schedule. It's like giving razor blades to small children I fear. The 8734 is gone unless it's in process now. 5 Year Measurement Periods / Accrual Basis. If you have been reporting cash basis as you were supposed to you must now go back and recalculate the test on an accrual basis (imagine change in present value discount for a future pledge :)...hey! I favored cash method and was about the only one...now we'll see what happens). One other change is it now clarifies which kinds of income that escapes UBI due to an exclusion counts in the denominator besides interest and passive income (answer: that income excluded as not regularly carried on). In my graffiti version, I mark the code sections to tie to the form's questions and instructions. I'm told this last one was always true but the form didn't precisely track the regs. In 2008 I did a session at the AICPA Not for Profit Annual conference on the public support tests under this "new" 990. The materials are a powerpoint and an outline view. |
| IRS has dug in its heels on governance. Some have referred to it as their crown jewel. They are not governance experts and never have been. Some of this produces really stupid results - example is they want to know a lot about "endowments" but they include "quasi-endowments" which are just a board-created category within unrestricted net assets - perhaps their goal is to get boards to stop hoarding (as if!). Risk Indicator of Private Benefit. The IRS primary concern is that narrow governance, lack of good conflict policies and such might be indications that a charity is serving narrow private purposes rather than public charitable ones. I agree with them about this risk, but there is evidence that this is slopping over, due possibly to lack of training, into exemption reviews & denials. That is a true risk and reminds one of the movie where they bused "pre-crime" thoughts. Hence, on my governance outline below, I footnoted that movie. Two quotes. First is IRS' Lois Lerner speaking to the National Association of State Charity Officials, and the second is authority Bruce Hopkins commenting on a case denying exemption due to no conflict policy and a narrow board (and other warning signs its only fair to acknowledge): “Some folks would argue that we have gone beyond where we should be going” with such questions, Lois G. Lerner, director of the Exempt Organizations Division of the IRS… “We disagree; we think that governance is a very big part of accountability,” said Ms. Lerner. “There is some argument that this is only the purview of the states. The IRS believes it is your purview but it is also of interest to us.”… “Ms. Lerner said governance policies are one factor that figure into “risk models” that the IRS uses to help decide “which organizations we should use our scarce resources on” when selecting charities for review.” -- From “Governance Is Key Issue in Regulating Charities, IRS Official Tells State Leaders,” Chronicle of Philanthropy, 10/16/07 “…organization was denied…tax-exempt status, in part because…it did not adopt a conflict-of- interest policy and it lacks an independent board. “…This attempt to invoke the private benefit doctrine is ludicrous. That doctrine is to be applied when there is actual private benefit. It is not to be invoked on the basis of wild speculation, such as the possibility that the organization’s assets “could” be used to benefit one or more board members. “… It is imperative that this matter be advanced to the courts, where this arbitrary and capricious policy can be stopped.” -- Bruce Hopkins, in Nonprofit Counsel, October 2008 (Wiley Periodicals), commenting on PLR 200830028 News Flash: in Dec 09, IRS released a governance "check sheet" (checklist) and "guide sheet" (instructions) for its field auditors to use in evaluating governance. These include detailed questions on Bylaws and you should study them if you advise nonprofits or have any questions about your governance compliance. |
| Form 990 continues to evolve. IRS publishes lists of what it sees as key changes; some of them are important to folks who might be reading this site, some aren't (bonds, hospitals). The forms and instructions for 2010 are ready now on the IRS website. The best thing I've had the pleasure to read was a transcript of IRS' Stephen Clarke speaking to the Georgetown tax law conference last spring and itemizing changes and IRS' thinking in quite concise yet thorough fashion. It was sent to a list of Eve Borenstein's 990 worship circle by Paul Streckfus from his electronic journal, and I don't have copyright to post it here. Eve tells me his electronic journal is affordable (if I get a job perhaps) and I'd recommend it to anyone deeply engaged with this stuff. One change many of you will be glad to know about is the Old Line 20 where you could show any adjustment from Last Year's Net Assets + Income - Expenses = This Year's Net Assets has been brought back (in 2008 and 2009 the only way to find such an adjusting line was on Schedule D reconciliation to audited statements...now it's in the Core Form, Part XI). The Schedule F Foreign Activities continues to be "Schedule Flounder" where IRS ping pongs back and forth from year to year between a narrow focus sort of rooted in currency control to a very broad focus where they want expenses for U.S. based staff *focused* on foreign work to be counted. The latter is clearly where they are headed now including the instructions saying to report grants to U.S. organizations or individuals as foreign grants if intended for foreign work. It would be nice if they'd re-title the form from its current organizations "outside" the U.S. I think they realize they've floundered around on this enough that if you have a reasonable cost accounting system and at least capture monies spent in foreign regions and show grants made in foreign regions with purposes you will be alright (also IRS is now in charge of the Treasury Department foreign bank accounts reporting, and that has to be gotten right; perhaps as part of this they've added a whole page to Schedule F about other IRS filings related to foreign investments). |
| Another great site Eve Borenstein's TaxExemptLaw.org |
| Make sure to visit www.TaxExemptLaw.org, the homepage of the 990 training schedule and various helpful materials from Eve Borenstein, who I describe on my Technical Assistance providers page. Among other things, Eve and her partners at Bellevue's Clark Nuber CPA firm have developed a great survey tool to gather information needed to assess relationships among Part VII listed persons, conflicts of interest, with assorted Schedules L and R implications. In a complex organization, such a tool can save you much worry and grief. Eve describes it as a "unique and efficient interactive master workbook by which tax-exempt organizations can create user-friendly individualized questionnaires for their Board members, Officers and “Key Employees” (as well as—for grantmaking organizations—grant committee members or substantial contributors) sufficient to generate user-friendly questionnaires that comply with the IRS’ “reasonable efforts” requirement to seek information from these individuals." |