While the IRS made only minor changes to Form 990, Form 990-EZ, and Form 990-PF for the 2014 tax year, the IRS made significant revisions to Schedule A. These changes increase the reporting requirements for supporting organizations, making the revised Schedule A twice as long as before and containing many questions for supporting organizations that may require a narrative response. Additionally, the revised schedule requires non-functionally integrated Type III supporting organizations to provide financial data indicating that the distribution and attentiveness requirements for such organizations have been met. The IRS also made mostly minor changes to the other Form 990 schedules.
Changes to Form 990, Form 990-EZ, and Form 990-PF
The IRS made minor changes to the core forms for 2014. The changes to Form 990-EZ were cosmetic changes only. Cosmetic changes also were made to Form 990, along with a few substantive changes:
- Reportable compensation should not be treated as deferred compensation for purposes of Part VII, Section A, of Form 990 if deferred from the calendar year ending with or within the tax year to a date not more than 2 1/2 months after the end of the calendar year ending with or within the tax year.
- New instructions have been provided for lines 5, 6, and 8 of Part XI, Reconciliation of Net Assets. The instructions clarify that the amounts reported on lines 5, 6, and 8 should match the corresponding amounts reported in the organization’s financial statements.
- New instructions have been provided for group returns involving section 509(a)(3) supporting organizations. The instructions clarify that the group return must include the new Parts IV through VI of Schedule A. If the group includes more than one non-functionally integrated Type III supporting organization, then aggregate data for those organizations may be used for Part V of Schedule A.
Form 990-PF received mostly minor changes. For Part XV, Line 3, the codes used to report the foundation status of grant recipients have been revised to include codes for individual and government grantees.
Changes to Schedule A – Public Charity Status and Public Support
The IRS has substantially revised Schedule A to include new questions for section 509(a)(3) supporting organizations. The schedule has doubled in size and the instructions include seven new pages. With this change, the IRS continues to signal its interest in reporting and compliance issues concerning supporting organizations.
Part I – Reason for Public Charity Status has been slightly reformatted to reflect the addition of the new parts for supporting organizations. Line 11(f) provides a box for supporting organizations to report the number of supported organizations.
Part II – Support Schedule for Organizations Described in Sections 170(b)(1)(A)(iv) and 170(b)(1)(A)(vi) and Part III – Support Schedule for Organizations Described in Section 509(a)(2) have not been changed.
Part IV – Supporting Organizations is a new part that must be completed by all supporting organizations. This part consists of five sections. Section A applies to all supporting organizations and includes 11 questions concerning organization and operation of the filing organization. Sections B, C, and D each apply respectively to Type I, Type II, and Type III supporting organizations. Section E applies to functionally integrated Type III supporting organizations.
Section A – All Supporting Organizations
Many of the questions in Section A may require a narrative response in addition to checking “yes” or “no.” The questions ask about the following:
- Whether the supported organizations are listed by name, class, or purpose in the supporting organization’s governing documents
- Whether any supported organization lacks a determination letter indicating classification as a public charity
- Whether any supported organization is a 501(c)(4), (5), or (6) organization
- Whether any supported organization is a foreign organization
- Whether there were any substitutions, additions, or removals of supported organizations in the tax year
- Whether the supporting organization provided support to anyone other than its supported organization
- Whether the supporting organization engaged in certain transactions with interested or disqualified persons
Section B – Type I Supporting Organizations
Type I supporting organizations must complete Section B. This section consists of two questions. The first question asks whether the supporting organization is sufficiently controlled by its supported organization(s). The second question asks whether the organization operated for the benefit of any organizations other than the controlling supported organization.
Section C – Type II Supporting Organizations
Type II supporting organizations must complete Section C. Section C consists of one question, which asks whether a majority of the supporting organization’s directors also comprised a majority of the directors of each of the supported organizations.
Section D – All Type III Supporting Organizations
All Type III supporting organizations must complete Section D. Section D consists of three questions, which are intended to determine whether the supporting organization satisfies the notification requirement and the responsiveness test.
Section E – Type III Functionally Integrated Supporting Organizations
In addition to completing Section D, functionally integrated Type III supporting organizations must complete Section E. Section E consists of three questions, which are intended to determine whether the supporting organization satisfies the integral part test. The section asks whether the organization satisfies the activities test, is the parent of each supported organization, or is supported by a governmental entity.
Part V – Type III Non-Functionally Integrated 509(a)(3) Supporting Organizations is a new part that must be completed by non-functionally integrated Type III supporting organizations. The schedule requires detailed financial information concerning the adjusted net income, minimum asset amount, distributable amount, distributions, and distribution allocations. The purpose of the schedule is to determine whether the organization satisfies the distribution requirements applicable to non-functionally integrated Type III supporting organizations.
Changes to Other Schedules
Schedules B, C, D, G, I, K, and N
Minor cosmetic changes were made to Schedules B, C, D, G, I, K, and N.
Schedule F − Foreign Activities
The instructions for Schedule F clarify that Forms 3520, 3520-A, and 5713 are not to be filed with Form 990.
Schedule H – Hospitals
Schedule H has been revised to improve the schedule’s consistency with the section 501(r) regulations concerning tax-exempt hospitals. The schedule includes several new questions concerning community health needs assessments, facilities policies and practices, and group returns.
Schedule L – Transactions with Interested Persons
The instructions for Schedule L have been made more internally consistent. The definition for an “interested person” has been standardized for purposes of Parts II through IV of the schedule. Additionally, the definition for “reasonable efforts” has been standardized for purposes of Parts III and IV of the schedule. Previously, the definitions for these terms were not uniform throughout the instructions.
The instructions, however, still include two definitions of “interested person.” For purposes of Part I, concerning excess benefit transactions, the term “interested person” means a “disqualified person” as defined under section 4958 of the Internal Revenue Code. For purposes of Parts II through IV, the term “interested person” means one of the following:
- A current or former officer, director, trustee, or key employee (for Form 990 filers)
- A current officer, director, trustee, or key employee required to be listed on Form 990-EZ (for Form 990-EZ filers)
- A creator or founder of the filing organization
- A substantial contributor
- A member of a grant selection committee (for Part III only)
- A family member of any of the above
- A 35 percent controlled entity of one or more of the above
- An employee of a substantial contributor or of a 35 percent controlled entity (for Part III)
- A former officer, director, trustee, or key employee within the last five tax years (for Part IV)
The instructions provide a “reasonable effort” definition to all parts of Schedule L for purposes of determining when transactions are reportable. In prior years, the definition applied only to Parts III and IV of the schedule. An organization is not required to report a transaction if the organization is unable to secure sufficient information about the transaction after making reasonable efforts. As an example of reasonable effort, the instructions describe the use of a questionnaire distributed annually to potential interested persons.
Schedule R – Related Organizations and Unrelated Partnerships
The instructions for Schedule R clarify the rule for reporting relationships between a voluntary employees’ beneficiary association (VEBA) and a contributing employer. A VEBA must report a contributing employer as a related organization, but the contributing employer should not report the VEBA as a related organization unless the VEBA is related to the contributing employer in some other capacity.