Introduction
New section on reconciliation of net assets
Higher materiality threshold for miscellaneous expenses
Hospitals must file audited financial statements
New requirements for qualified non-profit health insurance issuers
New line for tanning service providers


Introduction

On October 14 2010 the Internal Revenue Service (IRS) issued, without comment, a draft of the 2010 'core' Form 990, the annual information return required from tax-exempt organisations with gross receipts of more than $500,000 or total assets of more than $1.25 million. The IRS has not yet released drafts of 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, summarised below, primarily stem from the Patient Protection and Affordable Care Act of 2010.

New section on reconciliation of net assets

The draft Form 990 contains a new Part XI, which requires the reporting organisation to show that the end-of-year net assets reported on the Part X balance sheet equal the sum of the organisation's start-of-year net assets and current year revenues, less its current year expenses. Any discrepancies must be explained on Schedule O (Supplemental Information). As 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 organisations 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 organisations to itemise all expenses exceeding 5% of total functional expenses. The draft 2010 form increases that threshold to 10%.

Hospitals must file audited financial statements

Section 9007(d) of the Patient Protection and Affordable Care Act imposes additional reporting requirements on organisations that operate one or more hospitals, 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 non-profit health insurance issuers

Section 1322 of the act established a new category of tax-exempt health insurance providers, known as 'qualified non-profit health insurance issuers' and described in Section 501(c)(29) of the code. The act requires all 501(c)(29) organisations to report annually both the amount of reserves required by each state where they are licensed to issue qualified health plans and the amount of reserves on hand. The draft Form 990 requests these items.

New line for tanning service providers

Section 10907 of the act imposed a 10% tax on indoor tanning services, including those provided by exempt organisations. Accordingly, the draft Form 990 now requires organisations that received payments for tanning services to disclose those payments and to confirm that the organisation reported them on Form 720 (or explain on Schedule O why they did not).

For further information on this topic please contact Diara M Holmes, Sharon W Nokes or David A Lawson at Caplin & Drysdale by telephone (+1 202 862 5000), fax (+1 202 429 3301) or email (dmh@capdale.com, swn@capdale.com or dal@capdale.com).

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