In June 2007, the Internal Revenue Service (IRS) released a draft revision of the Form 990, the annual information return that tax-exempt organizations file with the IRS and make available to the public. Please see McDermott Hot Topic "IRS Releases ‘Extreme Makeover’ of Form 990 Return for Exempt Organizations." The IRS has posted on its website the hundreds of comments submitted during the 90-day comment period that expired on September 14, 2007.
A senior advisor in the IRS National Office has just announced the IRS’s plans to make the following significant revisions to the draft revised Form 990 that it proposed in June. The remarks were delivered at an American Bar Association Section of Taxation meeting on September 28, 2007.
- Many of the percentage disclosures on the front page of the Form (e.g., management and director compensation as a percentage of total program service expenses) will be deleted. Instead, the front page will require side-by-side disclosure of prior year and current year financial numbers, so as to show a running two-year comparison of key financial data.
- The explanation of "program service accomplishments" (used by many organizations to highlight to the public the most significant exempt activities in which they engage) will be moved from the end of the Form to the front of the Form.
- The IRS is strongly considering a reduction in the portions of the Form that would apply to small exempt organizations, and to increasing the revenue threshold that triggers the obligation to file Form 990.
- The revised Form 990 will retain detailed questions regarding governance policies and practices. However, the questions will be significantly revised. For example, the IRS will delete the current draft question asking how many potential conflict of interest situations were vetted by the governing board during the year.
- The core of the draft Form 990 requires basic disclosure of compensation for all current and former (in the last five years) officers, directors, trustees, key employees and the highest compensated employees and independent contractors. This will be revised to require more segmented disclosure of the elements of total compensation and benefits. The goal is to make the basic disclosure of compensation on the core form more usable by organizations in comparing their own levels of compensation to those of other exempt organizations.
- Certain forms of compensation or benefits will not have to be disclosed on the separate Schedule J, which applies to more significant levels of compensation. Examples of disclosure items that will be deleted include nontaxable expense reimbursements, nontaxable de minimis fringe benefits and any second reporting of nonqualified deferred compensation.
- The IRS still intends to implement the overhauled Form 990 for fiscal years beginning in 2008, but it is likely to provide several forms of transitional relief. For example, some portions of the Form and some of the schedules (or portions of those schedules) are likely to be delayed, including Schedules H (hospitals), K (tax-exempt bonds) and F (foreign activities). Also, reporting thresholds may be increased temporarily to alleviate some of the filing burden in the first year or two.
- The IRS is continuing to discuss internally certain requested revisions to proposed Schedule H (hospitals). These include defining "hospital" more narrowly and expanding the reporting of Medicare shortfalls and bad debt as potential forms of community benefit or charity care. The IRS remains convinced at this point that the charity care and community benefit table in Part I of the proposed Schedule H is appropriate. However, the current billing and collection table in Part II of the proposed Schedule H is likely to be dropped or revised substantially.
Despite these changes, the IRS advised that it remains committed to its goal of implementing an overhauled Form 990 for reporting years starting in 2008, that it is listening to and responding to the comments that have been provided, and that many issues and questions remain in active and intense discussion.