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Not-For-Profit changes for Form 990

In 2008 the IRS issued the redesigned form 990 return of organizations exempt from income tax. This redesigned form will require new and enhanced information. Although the new form 990 is effective for the 2008 tax year (years beginning in 2008), in many cases tax exempt organizations will need to act soon in order to comply with its reporting requirements and be able to demonstrate good governance practices.

The current 990 form had not kept pace with changes in the tax exempt sector since its last major revision in 1979. The IRS says that the new form is designed to enhance transparency and promote tax compliance.

The new form 990 has been expanded to 11 pages with 16 possible schedules, depending on the type of organization and its activities. Significant changes to the form include required disclosures on governance, executive compensation and transactions with related parties. Detailed information may be required on governance and management policies and practices depending on responses to certain questions. In addition, the statement of Program Service Accomplishments now require disclosure of revenues, grants and expenses for the largest three program services, determined by total expenses.

Those charged with governance within a tax-exempt organization are responsible for the accurate completion of the form. They will need to review the organization’s design, implementation and maintenance of processes and practices in order to gather and report the required information. This is a public relations opportunity to promote your organization as these forms are available to the public.

The IRS also announced a graduated transition period for smaller organizations, which will be allowed to file 990EZ instead of form 990. For the 2008 tax year, organizations with gross receipts over $1 million or total assets over $2.5 million will be required to file form 990. For the 2009 tax year, organizations with gross receipts over $500,000 or total assets over $1.25 million will be required to file form 990. The filing thresholds will be set permanently at $200,000 gross receipts or $500,000 total assets, beginning with the 2010 tax year.

According to the IRS, the changes should not increase the time it takes to prepare Form 990; however, we expect that most organizations will see significant increases in the amount of time to gather the information, document it and complete the form, particularly in the initial year of the new form.