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Newsletter > November 2007 > "DRAFT REVISED FORM 990 ISSUED"
DRAFT REVISED FORM 990 ISSUED
Barbara Schwartz Bromberg, Esq, Dinsmore & Shohl LLP
On June 14, 2007, the IRS released for public comment a discussion draft of a redesigned and revised Form 990, Return of Organizations Exempt from Income Tax. This, of course, is the Form that most fraternal organizations and their foundations are required to file annually. The discussion draft constitutes a significant redesign of the Form, which has been revised only on a piecemeal basis since 1979. The public comment period is scheduled to end on September 14, 2007, but ASAE and others are asking to have the comment period extended. The IRS hopes to have the Form ready for the 2008 tax year (i.e., Forms filed in 2009).
In its news release announcing the release of the discussion draft, the IRS stated that the redesign of Form 990 is based on three guiding principles: enhancing transparency, promoting tax compliance, and minimizing the burden on the filing organization. In elaboration on these guiding principles, the IRS has stated:
- Enhancing transparency means providing the IRS and its stakeholders with a realistic picture of the organization and its operations, along with the basis for comparing the organization to similar organizations
- Promoting compliance means the Form must accurately reflect the organization’s operations and use of assets, so the IRS may efficiently assess the risk of noncompliance.
- Minimizing the burden on filing organizations means asking questions in a manner that makes it relatively easy to fill out the Form, and that do not impose unwarranted additional recordkeeping or information gathering burdens to obtain and substantiate the reported information.
The redesigned Form 990 consists of a 10-page core Form, including a summary page at the beginning. In addition, an organization may be required, depending upon its type and activities, to complete one or more schedules. A list of the proposed schedules to the redesigned Form 990 is attached.
PART I OF THE CORE FORM – THE SUMMARY PAGE
In this part, this page provides the organization’s identifying information and a snapshot of certain of the organization’s financial, compensation, governance, and operational information. The summary page highlights certain items, such as the number of individuals receiving compensation in excess of $100,000, the highest compensation amount paid by the organization, and the percentage of program service expense that is made up of officer, director and other key employee compensation. The Summary also provides information on the number of members of the governing body and the number of independent members of the governing body. Items reported in the Summary are derived from information provided elsewhere in the Form.
PART II OF THE CORE FORM
In this part, the organization is required to report information about compensation of officers, directors, trustees, and certain other employees. As is the case with the current Form 990, an organization must list each officer, director, trustee, or key employee of the organization, regardless of compensation amount. The redesigned core departs from the current Form, however, by requiring the reporting of compensation based on Form W-2 reporting for employees, and Form 1099 reporting for directors and other independent contractors. As is the case with the current Form, compensation paid by related organizations must be reported separately.
If an individual officer, director, employee or Former officer, director or employee receives more than $150,000 in reportable compensation, or receives more than $250,000 of reportable and non-reportable compensation (e.g. deferred compensation, nontaxable fringe benefits and expense reimbursements) from the organization or a related organization, then the organization would be required to complete and file Schedule J, which is an in-depth analysis of compensation. Similarly, if an individual received or accrued compensation from any source, other than the organization, for services rendered to the organization., then Schedule J is required to be filed.
PART III OF THE CORE FORM
Each organization is required to provide certain information regarding the composition of its board or governing body, certain of its governance and financial statement practices, and the means by which the organization is accountable to the public by making certain governance information publicly available. According to the IRS commentary accompanying the proposed Form “[g]ood governance and accountability practices provide safeguards that the organization’s assets will be used consistently with its exempt purposes, a critical tax compliance consideration, especially with respect to organizations that are subject to private benefit, excess benefit, and private inurement prohibitions.” The latter includes both Code Section 501(c)(7) and 501(c)(3) organizations.
PARTS IV, V, AND VI OF THE CORE FORM
These sections generally follow the current Form 990’s layout for reporting of revenues, expenses, and balance sheet items. One proposed major change places all the required supplemental financial information from Parts I, VII and VIII of the current Form 990 into a separate schedule, Schedule D, and eliminates the requirement for UBIT exclusion codes. The redesigned financial statement reporting requires additional reporting of actual and contingent federal tax liabilities, and other amounts that are not necessarily reported on an organization’s balance sheet (such as museum collections, conservation easements, and escrows held for the benefit of others).
PARTS VII AND VIII OF THE CORE FORM
These sections contain questions about the general activities of the organization and its compliance with various IRS filing requirements. Many of the questions in Part VII serve as “trigger” questions for the various schedules an organization might be required to complete, depending upon its type and activities. Part VIII requests information about the organization’s employment tax, excise tax, unrelated business income tax, and other filing obligations.
PART IX OF THE CORE FORM
Here, information on the program service and exempt function activities of the organization is required, and the organization is asked to describe its most significant accomplishment for the year.
SUMMARY OF POTENTIALLY APPLICABLE SCHEDULES
The redesigned Form’s fifteen schedules are designed to require reporting of information only from those organizations that conduct particular activities. A list of the Schedules is attached. Certain Schedules, such as Schedules A and B, generally will be completed only by public charities, such as most fraternal foundations, as is the case with the current Form. Most of the remaining Schedules will be completed by only a small percentage of the organizations filing the core Form. Nearly every organization will be required to complete at least one portion of Schedule D, Supplemental Financial Statements, similar to what is required presently.
The IRS recently released approximately 300 pages of public comments about the draft Form and more will be forthcoming. Some commentators praised certain aspects of the Form and others were critical. It behooves every fraternal organization and fraternal foundation to review the draft Form and discuss it with their tax advisor, and to watch for further developments, as almost all such organizations will be affected.