Preparing for Disclosures Under New Form 990 - Are You Ready?

Upper Saddle River, NJ – May 8, 2008 - The Internal Revenue Service (IRS) recently issued a revised version of the Form 990 to be used by tax-exempt organizations.  Based on public feedback, a final version has been implemented for reporting years starting in 2008.  Several key changes address executive compensation, the organization’s conflict of interest policy, payment to independent contractors, and the definition of related organizations.  Furthermore, the revised Form 990 will be phased in over three (3) years and includes new stipulations with respect to electronic filing.  For organizations not already filing electronically, the chart below provides additional information:

Tax Year	Size of Organization	Notes
2008	Gross annual receipts between $25,000 and $1M and total assets below $2.5 M	Required to file a new electronic postcard (Form 990-N) beginning in tax year 2008.  Threshold is annual receipts under $25,000
2009	Gross annual receipts between $25,000 and $500,000 and total assets below $1.25 M	Required to file a new electronic postcard (Form 990-N) beginning in tax year 2009.  Threshold is annual receipts under $25,000
2010 onward	Gross annual receipts between $50,000 and $200,000 and total assets below $500,000.	Required to file a new electronic postcard (Form 990-N) beginning in tax year 2010.  Threshold is annual receipts under $50,000 (for 2010 and subsequent years)

There are three (3) key features that differ from the previous version of the form.  First, a summary page of identifying information focusing on financial, compensation, governance, and operational information is now included.  Second, in addition to the core form, schedules will contain detailed information on specific areas of interest to the public and IRS.  The core form still provides summary information about an organization’s mission, finances, and fundraising expenses. However, the organization must respond to detailed questions regarding governance, compensation, and expenses. There are now fifteen (15) schedules; these require reporting of information only from those organizations that conduct particular activities.  Examples of topics covered in these schedules include public charity status, contributors, schools, foreign activity, hospitals, grants, loans, noncash contributions, and compensation.  Third, in order to ensure proper reporting of compensation and benefits, the IRS created Schedule J.

The rationale behind Schedule J is to report the taxable and nontaxable income of executives separately.  Taxable income refers primarily to fringe benefits such as first class travel, travel for companions, tax indemnification and gross-up payments, discretionary spending accounts, housing allowances, personal services, and club dues.  Nontaxable income refers primarily to healthcare benefits such as medical, dental, and vision coverage.  Any deferred compensation, equity-based compensation or contingent amounts must also be reported on the updated form.

Changes to the Form 990 were guided by three (3) principles.  The first principle was to enhance transparency and provide the IRS and public with a realistic picture of the organization, along with the basis for comparison to other organizations.  Second, the revised Form 990 promotes compliance by accurately reflecting the organization’s operations so that the IRS may efficiently assess the risk of noncompliance.  Finally, changes were also driven by the desire to minimize the burden on filing organizations.  The schedules provide assistance to organizations by requiring additional information to be reported based only on specified indicators.
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The written advice was not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer.  The foregoing legend has been affixed pursuant to U.S. Treasury Regulations governing tax practice.