On October 14, the IRS issued, without comment, a draft of the 2010 “core” Form 990, the annual information return required from tax‐exempt organizations with gross receipts over $500,000 or total assets over $1.25 million. The IRS has not yet released drafts of any schedules to the 2010 Form 990.
After extensively revising Form 990 in 2008, the IRS made only minor changes for 2009, and appears to be on the same course for 2010. The vast majority of this year’s changes are minor clarifications and technical corrections. The few substantive changes, summarized below, stem primarily from the Patient Protection and Affordable Care Act of 2010 (“PPACA”).
New “Reconciliation of Net Assets” Section
The draft Form 990 contains a new Part XI, which requires the reporting organization to show that the end‐of‐year net assets reported on the Part X balance sheet equal the sum of the organization’s start‐of‐year net assets and current year revenues, less current year expenses. Any discrepancy must be explained on Schedule O (“Supplemental Information”). Because the IRS has not published draft schedules to the 2010 form, it is not clear whether this new reconciliation section will affect the similar, but more detailed disclosure required from organizations that obtain independent audited financial statements and are required to complete Schedule D, Part XI (“Reconciliation of Changes in Net Assets from Form 990 to Audited Financial Statements”).
Higher Materiality Threshold for Miscellaneous Expenses
Part IX of Form 990 previously required that organizations itemize all expenses exceeding 5 percent of total functional expenses. The draft 2010 form increases that threshold to 10 percent of total functional expenses.
Hospitals Must File Audited Financial Statements
Section 9007(d) of the PPACA imposes additional reporting requirements on organizations that operate one or more hospital, including a requirement that they provide audited financial statements to the IRS on an annual basis. The draft 2010 Form 990 specifies that hospitals and hospital operators must attach such statements to the return. This is a new requirement for most small hospital operators.
New Requirements for Qualified Nonprofit Health Insurance Issuers
Section 1322 of the PPACA established a new category of tax‐exempt health insurance providers, known as “qualified nonprofit health insurance issuers” and described in Section 501(c)(29) of the Code. The PPACA requires all 501(c)(29) organizations to report annually (1) the amount of reserves required by each state where they are licensed to issue qualified health plans, and (2) the amount of reserves on hand. The draft Form 990 requests these items.
New Line for Tanning Service Providers
Section 10907 of the PPACA imposed a 10 percent tax on indoor tanning services, including any such services provided by exempt organizations. Accordingly, the draft Form 990 now requires any organization that received payments for tanning services to disclose those payments, and confirm that the organization reported them on Form 720 (or explain on Schedule O why it did not).