The Redesigned Form 990: Advising Nonprofit Organizations

EXECUTIVE SUMMARY * CPAs helping nonprofit organizations file the new, redesigned IRS information Form 990 can provide valuable service in understanding the scope of its new schedules and other reporting requirements. * The full form is required for tax year 2008 of organizations with gross receipts of $1 million or more and $2.5 million or more in assets. More organizations will be required to file it rather than the shorter EZ form, however, starting in 2009, when the threshold begins dropping in two stages to gross receipts of $200,000 or more and total assets of at least $500,000 in 2010. * Although Form 990 is only two pages longer than before, it is accompanied by 16 schedules, many of them new and unprecedented in the level of detail in their inquiry. * Many questions target so-called excess benefit transactions. Certain organization employees and officers are "listed persons" subject to reporting on compensation in many more of its possible forms than previously. The new form also requires organizations to report on how they determined reasonable compensation for their top management official. * Organizations also are asked whether they have a written policy covering conflicts of interest, including how it is monitored and enforced. ********** [ILLUSTRATION OMITTED] Most nonprofit organizations are now reviewing their first redesigned IRS Form 990 and its many new information requirements designed to enhance transparency and accountability. CPAs with nonprofit clients now are seeing the pieces fit together with satisfaction or, if drawing together the information has been difficult, perhaps with some concern. Many small organizations may be in need of some quick pointers and suddenly need your help. The new form, unveiled in late 2007, must be used for tax years beginning in 2008 by nonprofit organizations required to file Form 990, Return of Organization Exempt From Income Tax. WHO MUST FILE THE NEW FORM 990? As previously was the case, the full form is required only of larger organizations, with an abbreviated form for smaller ones and an e-postcard for the smallest. The reporting thresholds have changed, however, and will continue changing this year and next. Whether an organization will be subject to the stringent reporting requirements of the Form 990 depends on its financial activity (see sidebar, "EZ--or Not? "). For tax year 2008, that benchmark for the full Form 990 is gross receipts of $1 million or more and total assets of $2.5 million. It declines this year and again in 2010, so more organizations will be required to file the full form. For the 2009 tax year, the filing threshold drops to gross receipts of $500,000 or more and total assets of $1.25 million or more. For the 2010 tax year, the filing threshold drops to gross receipts of $200,000 or more and total assets of $500,000 or more. Any organization that fails to file its required form--Form 990-N, Form 990-EZ, or Form 990--for three consecutive years will have its tax-exempt status terminated. The core Form 990 is now 11 pages, only two more pages than before, but it also has 16 accompanying schedules, many of them new. Some of the core form's questions simply gather information to obtain a better understanding of the organization. However, other questions can trigger a punitive action by the IRS against either the organization or against the board members and management. Moreover, this additional information is also available to the public. As formerly, organizations' forms 990 and 990-EZ are by law available for public inspection, including on the Internet at www.guidestar. org. In addition, Form 990-T for unrelated business income is now public record. The new Form 990 has a number of questions designed to determine whether any activities have occurred that warrant revocation of the tax-exempt status or the imposition of sanctions on the nonprofit's board and management. …