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Redesigned Form 990 Released by IRS

January 2, 2008

IRS Publishes Final Revision of Form 990; Instructions to Follow

The IRS has issued in final form the revised and expanded Form 990 for tax-exempt organizations. The new form, to be used beginning in 2009 for the 2008 tax year, is the first major revision of the form since 1979. The guiding principles of the revision are to enhance transparency, promote tax compliance, and minimize the burden on filing organizations. For most colleges and universities, however, the new reporting regime will be more complex and burdensome than before.

The new format responds to many of the comments received on the draft form, including those filed by NACUBO and 18 other higher education associations. The final revision includes a core form that all exempt organizations will complete along with up to 16 schedules to be attached if relevant. Smaller entities, identified by gross receipts and total assets, will be allowed to phase in the new form over three years.

The form and schedules are final, but the Service is still working on the instructions and expects to issue them in early 2008. However, the documents accompanying the release of the form provide insight into what the instructions will say and should be reviewed carefully.

The core form consists of 11 parts, which have been reordered from the draft. These parts, as revised from the draft, are described below.

Part I Summary and Part II Signature Block. This new section, which is designed to provide a snapshot of the organization’s key financial, compensation, governance, and operational information, was extremely controversial in the draft. The final summary page now includes a column for prior year revenue and expense data to provide a two-year comparison and highlight trends and changes. Questions on compensation, fundraising percentages, and ratio of total expenses to assets all have been eliminated. Expenses now are reported by type of expense, such as grants, benefits, and salaries, rather than by functional expense category such as, program service, management and administrative, and fundraising. The form does include a question on professional fundraising expenses.

One change of interest to colleges and universities is the decision to allow group returns for organizations with group exemption rulings. The discussion draft had proposed to eliminate these returns.

Part III Statement of Program Service Accomplishments. This part replaces existing Parts VII (Analysis of Income Producing Activities) and VIII (Relationship of Activities to the Accomplishment of Exempt Purposes). The organization describes its exempt-purpose achievements for each of the three largest program services based on expenses. Section 501(c)(3) and (4) organizations must report the amount of grants and allocations made to others and the total expenses, and revenue, if any, for each program service reported.

Part IV Checklist of Required Schedules. This section asks a series of questions to help organizations identify which schedules to complete. An affirmative response means that an organization should file the designated schedule along with the core form.

Part V Statements Regarding Other IRS Filings and Tax Compliance. This section is intended to alert the entity to other potential federal tax-compliance and filing obligations. A question on foreign bank accounts was moved to line 4a of this part from proposed Schedule F.

Part VI Governance, Management, and Financial Reporting. New to Form 990, this section was revised and split into three parts - governing body, policies, and disclosures. The IRS eliminated a question concerning the number of transactions reviewed under the entity’s conflict of interest policy and replaced it with two new questions about implementing and monitoring such a policy. Questions regarding the board’s composition now apply only to voting members. The question regarding board review of Form 990 now asks whether the form is provided to the governing body before it is filed and requires a description of the process.

Part VII Compensation of Officers, Directors, Trustees, Key Employees, and Other Highest Compensated Employees or Independent Contractors. The IRS no longer will accept fiscal year amounts for reporting compensation in this part but, instead, will require calendar-year reporting based on the W-2 and 1099 forms. (Fiscal year institutions still will use the fiscal year methodology to report aggregated compensation on the statement of expenses.) Of particular interest to colleges and universities is that information on compensation paid to trustees will relate only to amounts paid to them in their capacity as trustees.

The Service also raised from $50,000 to $100,000 the threshold for determining the five highest compensated employees. The form now includes a column for "Other compensation from the organization," which may reflect the estimated, not the actual, value of retirement plan and other nontaxable fringe benefits. For security reasons, the final form will not require the organization to report the personal addresses for any individuals listed in the form; instead, organizations may provide an alternative mailing address or physical location for those who cannot be reached at the organization’s address.

Part VIII Statement of Revenue. The new form combines Parts I (Statement of Revenues) and VII (Analysis of Income Producing Activities) from the current form, making no significant changes to the draft.

Part IX Statement of Functional Expenses. This section does not differ significantly from the current form. It requires the organization to breakout reported expenses by functional category (program service, management and administrative, fundraising).

Part X Balance Sheet. The form retains the current Form 990 balance sheet format and did not adopt separate reporting for land, building, and equipment or a breakdown between investment property and land, building, and equipment as had been proposed.

Part XI Financial Statements and Reporting. This new section consolidates and revises information regarding financial statement reporting and preparation. Some questions from the governance section of the discussion draft were moved to this section. At the suggestion of the Office of Management and Budget (OMB), a question has been added about whether the organization is required to have an A-133 audit.

Revisions Address College and University Concerns.  The IRS also revised most of the schedules in the final form, and many of the revisions address concerns voiced by colleges and universities. The revisions include the following:

  • Schedule A, Public Charity Status and Public Support. The revised form’s Schedule A focuses exclusively on status and public support. The public support testing period now is five years, up from four. Organizations also will use the same method of accounting for Form 990 and for determining public support, rather than using the cash method only for public support.
  • Schedule D, Supplemental Financial Statements. This schedule was revised to eliminate reporting investments and other assets on an asset-by-asset basis and to establish reporting thresholds.
  • Schedule F, Statement of Activities Outside the United States. The revised schedule establishes the reporting threshold at $10,000 for aggregate expenses or revenues from foreign activities. Country-by-country reporting has been replaced with regional reporting, to help protect the safety of overseas employees.
  • Schedule J, Compensation Information. This schedule requires reporting on individuals with either reportable compensation greater than $150,000 or more than $250,000 of total compensation, nontaxable fringe benefits, and expense reimbursements. As revised, de minimis fringe benefits and nontaxable expense reimbursements do not need to be reported.
  • Schedule K, Supplemental Information on Tax Exempt Bonds. Part IV, which had requested information on third-party compensation, has been eliminated; instead, the part now requests information on arbitrage. Bonds with an outstanding principal of less than $100,000 and bonds issued before 2003 do not need to be reported. For 2008, only Part I will need to be completed, which asks for basic identifying information about outstanding bond issues.
  • Schedule L, Transactions with Interested Persons. The final schedule consolidates the reporting of most relationships and transactions involving insiders, including excess benefit transactions, grants, and other business transactions, into this schedule.
  • Schedule R, Related Organizations and Unrelated Partnerships. Part V of this schedule, as revised, eliminates reporting on certain transfers between 501(c)(3) organizations and on transfers from 501(c)(3) organizations to other nonrelated tax-exempt organizations. For transactions with specified types of organizations, reporting is required only if the transaction exceeds $50,000 per related organization.

Resources:  The Service’s news release, background materials, and the 2008 Form 990 are posted on the IRS Web site.

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