Tax Forum Spotlights 990 Revisions, Bond Developments

November 13, 2007

After 30 years with only minor changes, Form 990 will soon get a makeover. Speaking at the NACUBO Tax Forum, held in Chicago at the end of October, Lois Lerner, the director of the IRS’ Exempt Organizations unit, discussed the reason for and extent of the proposed changes.

The decision to revise Form 990, reported Lerner, resulted from the significant amount of negative publicity over the past several years in the tax-exempt organization area. Concerns included allegedly abusive activities conducted by exempt credit counseling organizations, excessive compensation and benefits paid to nonprofit executives, and questions about the extent of hospitals’ community benefit activities. The IRS undertook compliance initiatives in each of these areas, the results of which underscored the need for additional and more relevant information on the Form 990.

The new format-a core form with potentially 15 schedules to be completed-will enable the IRS to update Form 990 more easily and more frequently, Lerner said. She noted that the IRS received about 650 letters and more than 3,000 pages of text commenting on the draft, which was released in June. Based on that feedback, the IRS already has made several changes to the summary page of the new core form, including eliminating questions related to compensation percentages, fundraising percentages, and comparisons of an organization’s net assets to total expenses.

Lerner specifically discussed the comments submitted by NACUBO. Several of the NACUBO recommendations will be adopted, including the following:

Assets will have to be reported only on a category basis; they will not have to be listed individually.
Additional space will be added to make the form easier to complete. A new schedule will be added to allow organizations to provide more information.
The information on compensation paid to trustees will relate only to amounts paid to those people in their capacity as trustees. For a board member who also serves as an adjunct faculty member, for example, the 990 would report only amounts paid for his or her service as a trustee.
The information on foreign activities will be provided on a regional basis only, not on a country-by-country basis, to help protect the safety of overseas employees.
The information requested on joint ventures will not include passive partnership investment.
Transitional relief for implementation of Schedule K relating to bonds.
For now, the IRS will continue to allow group returns.

Some of NACUBO’s requested modifications, however, will not be implemented, such as the request that certain information be reported to the IRS yet remain exempt from public disclosure. According to Lerner, the IRS does not have the authority to exempt information from public disclosure unless the information is exempted by statute. She also said that the IRS will require any nonprofit entities licensed by their state to operate as a hospital to complete Schedule H.

To have the new Form 990 ready by 2009 for the 2008 filing season, Lerner said her office must complete its work by the end of this year. The instructions to the form are not subject to this deadline, however. She asked colleges and universities to provide input as the Exempt Organizations division continues work on the 990 instructions through next summer.

Tax-Exempt Bond Audits to Increase
Joining Lerner at the Tax Forum was Cliff Gannett, director of the IRS Tax-Exempt Bonds division. He reported that the division will increase staffing by about 20 percent, which will enable the IRS to substantially increase the number of tax-exempt bonds audits in the coming year.

Gannett said that his division continues to identify many problems related to post-issuance compliance. This is a difficult area, he acknowledged, because a bond issue may be outstanding for as many as 30 years, and the issuer must remain in compliance with the tax laws for the entire life of the bond. For additional information, Gannett recommended a recent publication issued by the Bonds division: After the Bonds Are Issued, Then What?

His division recently completed a charitable organization bond examination initiative. Record retention surfaced as the most significant finding, prompting the IRS to send questionnaires to about 200 bond issuers, specifically asking about this area.

NACUBO Contact: Mary M. Bachinger, director, tax policy