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The New IRS Form 990:What Does It Mean
For Your Organization?
George E. ConstantineThora A. JohnsonSerena G. Simons
Jeffrey S. Tenenbaum
September 22, 2008
Association of Corporate Counsel
www.acc.com
The New IRS Form 990:What Does It Mean
For Your Organization?
George E. ConstantineThora A. JohnsonSerena G. Simons
Jeffrey S. Tenenbaum
September 22, 2008
Association of Corporate Counsel
www.acc.com
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Overview• Introduction to the new Form 990, Jeffrey S. Tenenbaum
• The core Form 990, Thora A. Johnson
• Compensation reporting, Serena G. Simons
• Schedule highlights, George E. Constantine
• Next steps – Jeffrey S. Tenenbaum
Introduction to Redesigned Form 990
Jeffrey S. TenenbaumVenable [email protected]
The New IRS Form 990:What Does It Mean For Your Organization?September 22, 2008
Introduction to Redesigned Form 990
Jeffrey S. TenenbaumVenable [email protected]
The New IRS Form 990:What Does It Mean For Your Organization?September 22, 2008
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Background on Form 990 RedesignBackground on Form 990 RedesignReasons for redesign
first redesign since 1979more up-to-date reporting
Purpose of Form 990primary tax compliance tool for tax-exempt organizationsIRS and State tax enforcementsource of information for the public, media, researchers, and policymakers about the tax-exempt sector generally and individual organizations specifically
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IRS “guiding principles"IRS “guiding principles"Enhance transparency to provide the IRS and the public with a realistic picture of the organization, along with the basis for comparison to other organizationsPromote compliance by accurately reflecting the organization’s operations so the IRS may efficiently assess the risk of noncomplianceMinimize the burden on filing organizations
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Final form issued December 20, 2007Draft instructions and glossary issued April 7, 2008, with comment period until June 1Final instructions released on August 19Implementation for 2008 requiredPhased-in Schedules H (Hospital) and K (Bonds)
Timing of Redesigned FormTiming of Redesigned Form
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Format of Redesigned FormFormat of Redesigned FormCore form, including summary page16 schedules with applicability based on organization’s specific indicatorsFor complete set of Form 990 and final instructions, go to www.irs.gov/charities/article/0,,id=185561,00.html
The Core Form 990
Thora A. JohnsonVenable [email protected]
The New IRS Form 990:What Does it Mean for Your Organization?September 22, 2008
The Core Form 990
Thora A. JohnsonVenable [email protected]
The New IRS Form 990:What Does it Mean for Your Organization?September 22, 2008
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Overview of the Core FormOverview of the Core FormSummary page with signature block
Statement of program servicesChecklist of required schedulesChecklist of other IRS filings and tax complianceGovernance, management, and disclosure questionsCompensation reportingFinancial reporting – revenue, expenses, balance sheet, and financial statements
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The SummaryThe SummaryNew to the Form 990A snapshot of the organizationHighlights
most significant activitieskey financial, compensation, governance, and operational information
Signature block
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Statement of Program ServicesStatement of Program ServicesMission, program services, programmatic
changes, and accomplishments in narrative format
reformattedupfront so that organization can “tell story” early
Must describe three largest programsif a Section 501(c)(3), must include:
amount of grants to otherstotal expensesrevenue
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Checklist of Required SchedulesChecklist of Required Schedules J. Compensation Detail
K. Bonds
L. Transactions with Interested Persons
M. Non-Cash Contributions
N. Terminations and Major Dispositions
O. Supplemental Information
R. Related Organizations and Certain Joint Ventures
A. Public Charity Status
B. Schedule of Contributors
C. Political and Lobbying
D. Supplemental Financial
E. Private School
F. Foreign Activity
G. Professional Fundraising and Gaming
H. Hospitals
I. Grants
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Other IRS Filings and Tax ComplianceOther IRS Filings and Tax Compliance
Alerts both filer and IRS to other potential federal tax compliance and filing obligationsFor example,
UBIT and Form 990-Tsubstantiation and disclosure requirementsapplicable to charitable contributions
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Governance, Management, and DisclosureGovernance, Management, and Disclosure
Rationale: independent boards and well-defined governance and management policies increase likelihood of tax compliance, safeguarding of charitable assets, and serving of charitable interests Self-regulation and internal controlsTransparency and accountability
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Questions Regarding Board and ManagementQuestions Regarding Board and Management
Independence of board memberstotal number of voting board membersnumber of voting board members that are independentrelationships between officers, directors, and key employees
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More Questions Regarding Board and ManagementMore Questions Regarding Board and Management
Any delegation to a management companyAny material diversion of assetsMinutes taken at board and board committee meetings
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and More Questions Regarding Board and Management
and More Questions Regarding Board and Management Board receives a copy of Form
990 before filedWhat process to review Form 990
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Questions Regarding PoliciesQuestions Regarding PoliciesA written conflict of interest policy
officers, directors, and key employees required to disclose each year interests that could give rise to conflictsmonitor and enforce its conflict of interest policy
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More Questions Regarding PoliciesMore Questions Regarding PoliciesMaintain a written whistleblower
policyMaintain a written document retention and destruction policy
Note – broader than SOX requirement
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More Questions Regarding Policies More Questions Regarding Policies Follow the procedures for the
rebuttable presumptionInvest in a joint venture with taxable entity
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Questions About DisclosureQuestions About Disclosure
Make its Form 1023 availableMake its governing documents, policies, and financials available
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Legally Required?Legally Required?
Not all policies legally requiredThis point clarified on Form 990 itselfPresumption of wrongdoing, however, if not in place?
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Remaining Sections of Core FormRemaining Sections of Core FormCompensation
Revenue, expenses, and balance sheetFinancial statement and reporting
audits?audit committee?
Compensation Reporting on the Form 990
Serena G. SimonsVenable [email protected]
The New IRS Form 990:What Does It Mean for Your Organization?September 22, 2008
Compensation Reporting on the Form 990
Serena G. SimonsVenable [email protected]
The New IRS Form 990:What Does It Mean for Your Organization?September 22, 2008
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Who gets how much, and who decides?Compensation information
core form, Part VIISchedule J
Process of setting compensationgovernance and policiescore form, Part VI, Section B, item 15
Form 990 focusForm 990 focus
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Setting CompensationSetting CompensationGeneral requirements
knowledge in compensation mattersno financial interest
IRS safe harbor processindependent bodycomparability datadocumentation of decision
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General Structure For Compensation ReportingGeneral Structure For Compensation Reporting
Basic reporting on core form with more detail on Schedule JNew thresholds for reporting on key employees, highest paid non-key employees, and formers and for more detailed reportingSame structure for all organizations
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Core Form Reporting - WhoCore Form Reporting - WhoCurrent officers, directors, trustees,
and key employeesCurrent 5 highest paid non-key employees – reportable compensation over $100,000 Former officers, key employees – reportable compensation over $100,000Former 5 highest paid (different test) Former directors or trustees – reportable compensation over $10,000
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Core Form Reporting – WhoCore Form Reporting – Who“Key employee” definition$150,000 test
Employee had reportable compensation of more than $150,000
Responsibility testEmployee had or shared organization-wide control or influence similar to an officer, director, or trustee
orEmployee managed or had authority or control over at least 10% of the organization’s activities
Top 20 testEmployee one of “top 20” highest paid
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Core Form Reporting - WhoCore Form Reporting - WhoFormer status applies only to
individuals reported as current on any Form 990 from five previous yearsAlso
5 highest paid independent contractors - over $100,000 of reportable compensationIncludes organizations as well as individuals
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Core Form Reporting - WhatCore Form Reporting - WhatReportable compensation from
organizationReportable compensation from related organizationsOther compensation from organization and related organizations
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Core Form Reporting – Reportable Compensation Definition
Core Form Reporting – Reportable Compensation DefinitionFor employee, compensation reported on Form
W-2, Box 5, i.e., Medicare wages (includes vested nonqualified deferred compensation and 401(k) and 403(b) deferrals)For non-employee, compensation reported on Form 1099-MISCOther taxable compensationFor calendar year ending with or within organization’s fiscal year
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Core Form Reporting – “other” CompensationCore Form Reporting – “other” Compensation
Includes nontaxable deferred compensation (qualified and nonqualified, vested and nonvested) and most nontaxable benefitsReporting exclusion for items under $10,000, but with various exceptionsIRS requested comments on whether nonvested, nonqualified deferred compensation should be excepted
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Schedule J – Compensation QuestionsSchedule J – Compensation Questions
Fringe benefits (expanded from discussion draft)first-class or charter travel, companion travel, tax indemnifications and gross-ups, discretionary accounts, housing, payments for business use of personal residence, club dues, personal services
Severance or change in control paymentsSupplemental nonqualified deferred compensationEquity-based compensation
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Schedule J – Compensation Questions for CharitiesSchedule J – Compensation Questions for Charities
Compensation based on revenues or net earningsOther non-fixed paymentsPayments under the initial contract exception
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Schedule J – Thresholds for “Chart” ReportingSchedule J – Thresholds for “Chart” Reporting
All “Current’s” listed in Form 990, Part VII, Section A – “total” compensation over $150,000 (reportable + other)All “Former’s” listed in Form 990, Part VII, Section AAny person listed in Form 990, Part VII, Section A (line 5) who receives compensation from “unrelated” organization for services to filing organization
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Schedule J – Chart Compensation BreakoutSchedule J – Chart Compensation Breakout
Base compensationBonus and incentive compensationOther reportable (W-2/1099) compensationDeferred compensationNontaxable benefitsPreviously reported deferred compensation (intended to address double-reporting issue)
Schedule Highlights
George E. Constantine Venable [email protected]
The New IRS Form 990:What Does It Mean For Your Organization?September 22, 2008
Schedule Highlights
George E. Constantine Venable [email protected]
The New IRS Form 990:What Does It Mean For Your Organization?September 22, 2008
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Overview of The SchedulesOverview of The Schedules16 separate schedules
Reflects IRS approach of segmenting out unique types of entities and issues (e.g., hospitals, fundraising, bonds)Checklist of required schedules (Part IV of core form)
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Checklist of Required SchedulesChecklist of Required Schedules J. Compensation Detail
K. Bonds
L. Transactions with Interested Persons
M. Non-Cash Contributions
N. Terminations and Major Dispositions
O. Supplemental Information
R. Related Organizations and Certain Joint Ventures
A. Public Charity Status
B. Schedule of Contributors
C. Political and Lobbying
D. Supplemental Financial
E. Private School
F. Foreign Activity
G. Professional Fundraising and Gaming
H. Hospitals
I. Grants
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Schedule ASchedule ARemoves questions unrelated to public charity status — no more questions about school non-discrimination policies, lobbying activities, compensation of employees and contractors, related party and other “red flag” transactionsMoves public support testing period from four to five years (including the current tax year) IRS doing away with advance rulings process
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Schedule A (cont’d)Schedule A (cont’d)Change now allows accrual accounting organizations to use accrual method for calculating public support test (used to required use of cash method for Schedule A)Supporting organization questions included
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Schedule ASchedule AOther changes:
Form 990-EZ filers will be required to complete this Schedule ASpace added to make the case under the 10% “facts and circumstances” testMembership dues section included in support schedulesSeparates 509(a)(1) and 509(a)(2) support tests
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Schedule BSchedule BNo changes – requires listing of all contributors who gave $5,000 or more for the yearNote that new Schedule M captures information on non-cash contributionsGenerally not required to be disclosed publicly (except 990-PF and 527s that file Form 990 or 990EZ)
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Schedule CSchedule CSpecific form for disclosing lobbying and political activitiesSome new disclosure requirements compared to what used to be collected on the Form 990 and Schedule A
description of direct and indirect political campaign activitiesestimate of volunteer hours spent on political activities
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Schedule DSchedule DSupplemental financial statementsDisclosures regarding donor advised funds, conservation easements, art collections, other investments, trust and escrow arrangements, endowment fundsFIN 48 disclosure – uncertain tax positions under SFAS 109
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Schedule ESchedule EOnly to be completed by schoolsSame information as had been collected under Schedule A, Part V
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Schedule FSchedule FActivities outside the U.S.Recent increased scrutiny on foreign activitiesNot limited to 501(c)(3)
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Schedule F (cont’d)Schedule F (cont’d)Significant new disclosures required for entities engaging in non-U.S. activities:
for aggregate revenue or expenses that exceed $10,000disclosure of region, offices, employees, activities, expenditures
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Schedule F (cont’d)Schedule F (cont’d)Requires grantmakers to describe procedures for monitoring use of grant funds
name of recipient organizationEIN, IRS code sectionregionpurpose of grantamount of grant, manner of disbursementamount, description of non-cash assistancemethod of valuation
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Schedule GSchedule GFundraising or gaming activitiesSignificant new disclosures required, particularly for fundraising activitiesService reports “continuing noncompliance” in these areasFundraising questions – designed to facilitate “quick look” reviews by state attorneys general, charity officials
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Schedule G (cont’d)Schedule G (cont’d)Describe relationships with fundraisersList states in which the organization is registered to solicitList fundraising eventsList gaming activities
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Schedule HSchedule HHospitals – controversial new schedule“Hospital” – defined by state licensureFor 2008, only Part V (Facility Information) requiredFor 2009, entire schedule must be completed
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Schedule H (cont’d)Schedule H (cont’d)Significant inquiry regarding charity care and community benefit
Charity care policy? If yes, in writing?not bad debt expensesnot the difference between cost of care provided under Medicaid/Medicare and revenue derived therefromworksheets provide the methodology for calculatingcost reporting
Annual written report on charity care? If yes, available to public?
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Schedule H (cont’d)Schedule H (cont’d)Description of community building activities and how these activities provide community benefit and promote healthHow much bad debt, if any, is attributable to persons who qualify for financial assistance under charity care policy? Disclosure of management companies and joint ventures
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Schedule ISchedule IGrants and other assistance to organizations, governments, and individuals in the U.S.Very similar questions regarding grant recipients as asked in Schedule F$5,000 threshold
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Schedule JSchedule J
Compensation Information (covered already)
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Schedule KSchedule KSupplemental information on tax-exempt bondsSignificant new information being requested – IRS “is aware of significant non-compliance with recordkeeping and record retention requirements” for tax-exempt bondsOnly Part I required for 2008; Parts II-IV required for 2009Davis Sherman will discuss in next session
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Schedule LSchedule LTransactions with interested personsOne-pager
listing of excess benefit transactions (c)(3) and (c)(4);loans to and from interested persons;grants or assistance benefitting interested persons;business transactions involving interested persons.
“Reasonable efforts” provisions in instructions
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Schedule MSchedule MNon-cash contributionsIRS reports “significant tax compliance problems exist” with non-cash contributionsDonations of art, books, clothing, cars, boats, intellectual property, securities, qualified conservation easements, real estate, collectibles, food inventory, drugs and medical supplies, taxidermy, historical artifacts, scientific specimens, archeological artifacts
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Schedule M (cont’d)Schedule M (cont’d)$25,000 thresholdQuestion regarding “gift acceptance policy”Question regarding use of third parties to solicit, etc.
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Schedule NSchedule NLiquidation, termination, dissolution or significant disposition of assets
focus on significant transactions – liquidation, termination, dissolution, sale, exchange, disposition or other transfer of more than 25 percentnot just (c)(3)sseeking information that might suggest private inurement
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Schedule OSchedule OSupplemental information to Form 990Additional space for filers to submit narrative responsesDesigned to assist with simplifying the e-filing process
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Schedule RSchedule RRelated organizations and unrelated partnershipsExpanded questions regarding the identification of:
disregarded entitiesrelated tax-exempt organizationsrelated organizations taxable as a partnershiprelated organizations taxable as a corporation or trust
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Schedule R (cont’d)Schedule R (cont’d)Questions regarding transactions with related organizationsSignificant information regarding transactions that are often commonplace among related entitiesPart V, Line 2 limited to entities that would be described in 512(b)(13)
next steps
Jeffrey S. TenenbaumVenable [email protected]
The New IRS Form 990:What Does It Mean For Your Organization?September 22, 2008
next steps
Jeffrey S. TenenbaumVenable [email protected]
The New IRS Form 990:What Does It Mean For Your Organization?September 22, 2008
Page 68
Next StepsNext StepsDry run of new Form 990Perform gap analysis regarding policiesEstablish compensation approval proceduresDetermine if new bookkeeping requiredSelect Form 990 team
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QuestionsQuestionsGeorge E. Constantine575 7th Street NWWashington, DC 20004(202) 344-4790geconstantine@venable.
com
Thora A. Johnson750 E. Pratt StreetSuite 900Baltimore, MD 21202(410) [email protected]
Serena G. Simons575 7th Street NWWashington, DC 20004(202) [email protected]
Jeffrey S. Tenenbaum575 7th Street NWWashington, DC 20004(202) [email protected]
m
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