RSM Resources

Input helps with redesign of Form 990

Big changes are coming over the horizon for most not-for-profit organizations. In June 2007 the IRS introduced a redesigned Form 990. More than five years in the making, this form — and its accompanying 15 schedules — instituted ambitious changes to the 990 NFPs have come to know (and sometimes love).

Seeking input from the industry, the IRS received more than 650 comment letters. In December 2007, it issued the “final” Form 990 and schedules for 2008. To be filed beginning in the 2009 filing season, the new Form 990 has an 11-page core form and 16 “if applicable” schedules. Overall, the new form responds to the most prevalent concerns voiced by the NFP sector. For example, the form continues to allow group filings for organizations with group exemption rulings.

Although Form 990 and its set of schedules are final, the IRS is still working on the instructions and expects to have those available in June or July 2008. While there aren’t final instructions, there are explanatory documents released with the core form and each of the 15 schedules that give insight into what will be required in completing these forms. 

Highlights of the new Form 990 include:

Part I — Summary: The IRS designed this section to be a “snapshot” of the organization’s key financial, management and operational data. Part I of the draft was extremely controversial in that there were questions on compensation, fundraising percentages and strange ratios that might provide a cloudy picture of the organization’s performance. But these line items have been eliminated in the final version. Now there are questions about the number of board members, employees and volunteers. In addition, revenue and expense items are required to be entered in a two-year format (prior year and current year). Interestingly, expenses are reported in Part I by type of expense (e.g., grants, benefits to members, salaries) rather than by functional categories (program, management and general, fundraising).

Part II is merely a signature block.

Part III — Statement of program service accomplishments: In this part, an organization describes its mission, program services and accomplishments and any changes in program services. The draft had this information placed at the end of the core form, but many comments requested it be moved forward and in response the IRS moved it from page 10 to page 2. 

Part IV — Checklist of required schedules: This section contains 37 yes or no questions wherein an affirmative answer requires the organization to complete one of the 16 additional schedules. 

Part V — Statements regarding other IRS filings and tax compliance: This part contains 12 multipart questions and attempts to move required information regarding tax compliance into one section of the form. It’s intended to alert the organization to other potential federal tax compliance matters and obligations.

Part VI — Governance, management and disclosure: “The IRS believes that the existence of an independent governing body and well-defined governance and management policies and practices increases the likelihood that an organization is operating in compliance with federal tax law.” This statement is the rationale for the information required in the three sections (A. Governing body and management, B. Policies, C. Disclosure) that make up this part. Many comments on the draft questioned the IRS’ authorities to delve into these issues and whether the way the questions were worded created a presumption of wrongdoing and noncompliance.  The IRS responded by saying the section requests “information about policies not required by the Internal Revenue Code” at the top of the page.

Part VII — Compensation of [current and former] officers, directors, key employees, etc:  Note first that the highest compensated employees and independent contractors have been moved from Schedule A of the current 990 to the core form. This means that many organizations will be disclosing
this information for the first time. This section hasn’t significantly changed from the current 990. However, most organizations will have to file the additional Schedule J to provide more data about executive compensation.

Part VIII — Statement of Revenue:  This part combines the current Part I, Statement of Revenue with the current Part VII, Analysis of Income Producing Activities and hasn’t significantly changed from the draft.

Part IX — Statement of functional expenses: Uses the same format as the current Part II of Form 990. Adds line items for “Insurance,” “Information technology,” “Investment management fees” and “Payments of travel or entertainment expenses for any federal, state or local public officials.”

Part X — Balance sheet:  This part hasn’t significantly changed from the current Form 990. 

Part XI — Financial statements and reporting: Here organizations tell the IRS what method of accounting they use, whether financial statements were compiled, reviewed or audited and whether the organization is required to have a “yellow book” audit completed.

Note: The remaining 16 schedules will be covered in a forthcoming issue of Fundamentals.

Dave Moja is a director with RSM McGladrey. For more information, contact him at dave.moja@rsmi.com.