A number of changes will be incorporated into the Internal Revenue Service’s new draft Form 990 for tax exempt organizations, as a result of comments received from hundreds of organizations. Comments on the draft form, released in June, were due in September.
Some of the biggest changes will come on the summary page of the form, on which the exempt organization briefly describes its key financial, compensation, governance and operational information. Some percentages will be eliminated from the summary page of the form, including those on compensation, fundraising, gaming and an expense-to-net-assets percentage. Additionally, the revenues and expenses portion of the summary page will provide a financial information picture of both the current year and the prior year, to allow a better view of material changes in revenues and expenses.
The IRS will move to the front of the form questions on an organization’s activities and accomplishments, which were located at the back of the redesigned core form. In doing so, the IRS noted that they were persuaded that “it was appropriate for these organizations to be able to tell their mission and activity story before getting into other things.”
Many questions about the Form have revolved around Schedule H for hospitals. Indeed, approximately onethird of the comments received by the IRS related to hospitals. With regard to the questions of bad debt and Medicare shortfall, some decisions are still up in the air.
The IRS says that it most likely will ask for bad debt expense and Medicare shortfall information outside of the community benefit report. On some issues there is no clear agreement on whether an activity clearly fits within the definition of community benefit. For example, while the Catholic Health Association has stated that activities such as the acquisition by a hospital of an affordable housing project should be considered as providing a community benefit, the IRS is not yet convinced on this point.
The Part III statement on governance, management and financial reporting likely will remain but be modified. The comments on that section likely will lead to a longer section in which some of the questions that appeared elsewhere have been moved there. Finally, there is a “realistic chance” that some transitional relief may be granted for those who must comply for the 2008 tax year, although final decisions on that have not yet been made. The areas most likely to get such potential relief would be those with new additional accounting and record-keeping requirements, such as Schedule H for hospitals, Schedule K for bonds and Schedule F for foreign activity, according to the IRS.
Major areas of comments included the following:
- The summary pages
- Ratios and metrics
- The focus of the Form, e.g., whether it should be about tax compliance, transparency, or promotion of best practices
- How integrated with state reporting the Form should be
- Sequencing of the core parts and schedules
- Appropriate order
- Overall reporting and recordkeeping burden on various sizes of organizations, from the smallest to the largest
- Whether certain information should be made public, based either on security or privacy concerns.
The IRS views the Form 990 as more than a tax compliance form due to its public availability. From the perspective of the IRS, the purpose of the Form is tax compliance, transparency, accountability, integrating a form that the states use, and education.