Viewpoints
Getting Prepared for the New Form 990s
Gerald Archibald
Originally Published In:
ROCHESTER BUSINESS JOURNAL
April 2008
Author: Gerald J. Archibald, CPA
“I would suggest the taxation of all property equally, whether church or corporation.” Ulysses S. Grant
April is typically known for the explosion of the spring season in all its splendor. Unfortunately, it is also known for being tax month for American taxpayers.
However, for tax-exempt organizations with calendar year ends, May is tax-filing month. This year’s filing for tax-exempts, known as Form 990, has essentially been the same since 1978. However, this column will provide you with the necessary information to address the myriad of tax reporting changes required on the new Form 990, which is effective for calendar year 2008 tax filings.
Before you say you can wait on this and set this aside, be aware that action may be necessary now to ensure compliance for your organization with the new Form 990 filing requirements. First, a little background would be helpful.
In September 2007, the Internal Revenue Service issued a substantially revised and reformatted Form 990, which is a required annual filing of all non-profit organizations. The U.S. Congress directed the Internal Revenue Service in 2005 to revise the Form 990, which had not been substantially revised for several decades. The requirements of the new form will necessitate every non-profit organization to review policies and procedures in a number of areas. Specifically, the new form requires affirmative or negative responses by the filing organization with respect to a broad array of questions that have not been required in the current form. Many of the Form 990 revisions are a result of the reform recommendations submitted to Congress by the initial Panel on Non-Profit Reform (www.nonprofitpanel.org). The 75-page report submitted to Congress included thirteen key areas of recommended reform initiatives for the nation’s non-profit organizations.
It is clear in the revised Form 990 that Board governance policies and procedures (e.g., conflicts of interest) as well as Executive Compensation and Benefits are two primary areas of extreme focus by both Federal and State government regulators and enforcement agencies. It is also apparent that the IRS intends to use this form as a litmus test for determining which non-profits require an audit field visit.
The revised Form 990 is available for review on www.irs.gov. Formal IRS instructions for completion of the Form 990 were issued in April 2008. Each non-profit Board and management team should review its policies during 2008 to identify any matters which may require review and modification.
The following questions related to policy expectations on the new Form 990 must be answered by all organizations:
1. Does the organization have a policy for the contemporaneous documentation of the meetings held, or written actions undertaken, during the year by the governing body and each committee with authority to act on behalf of the governing body?
2. If the organization has local chapters, branches or affiliates, is there written policies and procedures governing the activities of such chapters, affiliates and branches to ensure their operations are consistent with those of the organization?
3. Does the organization have a policy for the organization’s governing body, or approved committee/individual, review the Form 990 before it was filed?
4. Does the organization have a written conflict of interest policy that includes:a. Officers, directors or trustees, and key employees are required to disclose interests that could give rise to conflicts.
b. Annual updates of the disclosure.
c. Regular and consistent monitoring and enforcing of compliance with the policy.
5. Does the organization have a written whistleblower policy?
6. Does the organization have a written document retention and destruction policy?
7. Does the organization have a written policy/process for determining compensation of the CEO, Executive Director, or top management official and other officers or key employees, that includes a review and approval by independent persons, comparability data, and contemporaneous substantiation of the deliberation and decision.
8. If the organization invests in, contributes assets to, or participates in a joint venture or similar arrangement with a taxable entity during the year, does the organization adopt a written policy or procedure requiring the organization to evaluate its participation in joint venture arrangements under applicable Federal tax law, and taken steps to safeguard the organizations exempt status with respect to such arrangements?
9. The Internal Revenue Code Section 6104 requires an organization to makes its form 1023 (or 1024 if applicable), 990 and 990-T available for public inspections. Is there a policy or procedure indicating how the organization is making these available, for example on the organizations website, on another’s website or upon request?
10. Does the organization have a policy or procedure for making its governing documents, conflict of interest policy and financial statements available to the public, if applicable?
In addition to the above, the following information is requested on the revised Form 990:
1. Total number of volunteers (estimated if necessary).
2. Number reported in Box 3 of Form 1096, Annual Summary and Transmittal of U.S. Informational Returns.
3. The number of W-2G forms completed
4. The number of voting members that are independent.
5. Did the Organization comply with backup withholding rules for reportable payments to vendors and reportable gaming (gambling) winnings to prizewinners?
6. Did the Organization file all required federal employment tax returns?
7. Did the organization delegate control over management duties customarily performed by or under the direct supervision of officer, directors or trustees, or key employees to a management company or other person?
8. During the year, did the organization become aware of a material diversion of the organization’s assets?
9. Does the organization have members or stockholders?
10. Does the organization have members, stockholders, or other persons who may elect one or more members of the governing body?
11. Are any decisions of the governing body subject to the approval by members, stockholders or other persons?
12. Is there an officer, director or trustee, or key employee listed in the Form 990, that cannot be reached at the organization’s mailing address.
13. If the organization’s financial statements were audited, reviewed or compiled by an independent accountant, does the organization have a committee that assumes responsibility for oversight of the audit, review, or compilation of it’s financial statements and the selection of an independent auditor?
14. As a result of Federal award, was the organization required to undergo an audit or audits as set forth in he Single Audit Act and OMB A-133? If yes, did the organization undergo the required audit or audits?
Additionally, the new core form allows organizations to describe its exempt accomplishments and mission up-front and provides more opportunities throughout the form to explain its activities. Other major changes were made to the form’s summary page, and the various schedules (15 may be required), including those relating to executive compensation, related organizations, foreign activities, hospitals, non-cash contributions, and tax-exempt bonds and other matters.
In summary, management and the Board of Directors should familiarize themselves with the reporting requirements of the new Form 990. Even though these reporting requirements will not be effective until the 2008 return is filed in 2009, there are a number of future requirements, specifically with respect to governance, that should be addressed during 2008. If you would like a copy of our electronic template for purposes of reviewing your compliance with new 990 requirements, please email at garchibald@bonadio.com.
If all else fails, be confident that Spring will turn to Summer soon! In this case, compliance time is on your side.
Disclaimer: The Bonadio Group provides the information in Viewpoints for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in Viewpoints are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
