On August 19, 2008, the Internal Revenue Service (IRS) issued revised "draft" instructions for completing the 2008 redesigned Form 990, Return of Organizations Exempt from Income Tax. While the revised instructions are still marked as a "draft," it is the expressed expectation of the IRS that the final version of the instructions, due to be issued in late 2008, will not contain further material changes. These instructions contain numerous changes to Schedule H for reporting by tax-exempt hospitals as compared with those issued in April 2008, and in general, are intended to provide greater clarity than prior instructions.

Changes to the revised instructions include:

  • Narrowing the definition of who is included in "key employee" for purposes of reporting compensation and transactions with interested persons, which is limited to 20 employees.
  • Requiring that an organization use reasonable efforts to obtain from interested persons or third parties information to complete certain portions of Form 990, including those related to independence, determining whether relationships exist among directors, trustees, key employees or officers, deterring compensation paid to such persons by related organizations, and determining whether interested persons were involved in certain transactions. The IRS describes what might constitute reasonable efforts, including sending a questionnaire to such individuals.
  • Revising the test of whether a voting member of a governing body is independent, which is whether the individual is involved in a transaction that is required to be reported.
  • Clarifying that physician clinics and skilled nursing facilities are eligible for treatment as a subsidized health service.
  • Clarifying reporting requirements with respect to interested party transaction.

All of the changes to the instructions for completing Schedule H and the rest of Form 990 are explained in the August 19, 2008, IRS Background Paper entitled "Changes to April Draft Instructions." The Background Paper and the revised instructions are available online.