1 1 IRS Form 990 Update for Tax- Exempt Organizations Stephen Clarke Internal Revenue Service, Exempt Organizations Dallas CPA Society May 26, 2011 Material provided in this presentation is for educational use only and is not intended to establish IRS position or practice and may not be relied on or cited as precedent. For more detailed information, please refer to the "Charities and Nonprofits" section of

2 2 Form 990 Redesign--Background 1941—inception of Form —inception of Form 990 No major revisions since 1979 No major revisions since 1979 Only piecemeal revisions Only piecemeal revisions Need for change: Need for change: Obsolete—didn’t reflect changes in sector & tax law Obsolete—didn’t reflect changes in sector & tax law Did not provide full picture of organization Did not provide full picture of organization Did not meet needs of the IRS, states, or public Did not meet needs of the IRS, states, or public Three guiding principles in redesign: Three guiding principles in redesign: Promote tax compliance Promote tax compliance Enhance transparency Enhance transparency Minimize burden Minimize burden Redesigned for tax year 2008 Redesigned for tax year 2008

Tax Year (Filed in 2010 or 2011) Form to File Gross receipts are normally ≤$25, N Gross receipts are >$25,000 and $25,000 and <$500,000 and assets are <$1.25 million 990-EZ or 990 Gross receipts are ≥$500,000 and/or assets are ≥$1.25 million 990

Tax Year and later (Filed in 2011 and later) Form to File Gross receipts are normally ≤$50, N Gross receipts are >$50,000 and $50,000 and <$200,000 and assets are <$500, EZ or 990 Gross receipts are ≥$200,000 and/or assets are ≥$500,

5 990-N (e-postcard) Update 990-N: notice submitted to IRS electronically on IRS.gov Not an information return Only a notice with basic information provided (e.g., name, principal officer and address, web site, certification of under $50,000 in gross receipts 990-N threshold: Gross receipts normally ≤$50,000 (averaged over past three years) $75,000 average for first year of existence $60,000 average if in existence more than one but less than three years 2008 tax year : approx. 293,000 Forms 990-N submitted 2009 tax year: over 389,000 Forms 990-N submitted

6 6 Form 990 Filing Statistics and Trends (as of February 2011) TY2008: Approx. 224,000 Forms 990 and 323, Forms 990-EZ have completed processing TY2009: Approx. 170,000 Forms 990 and 265,000 Forms 990-EZ have completed processing Electronic filing TY2007: 12% of Forms 990 filed electronically TY2008: 26% of Forms 990 / 14% of Forms 990-EZ filed electronically TY2009: 34% of Forms 990 / 20% of Forms 990-EZ filed electronically

7 Form 990—Filing Requirements 2010 Form 990 used to report: 2010 calendar year, or A fiscal year that begins in 2010 and ends in 2011 Due date for filing: 15 th day of 5 th month after end of tax year Even if exemption application is pending or not yet filed Automatic 3-month extension Discretionary 3-month extension Form 990 must be filed electronically if: Total assets ≥ $10 million and Files ≥ 250 returns in a year Other filers may, but are not required to, file the Form electronically

8 Penalties for failure to file ■ ■ Failure to file a complete information return by the filing deadline: For organizations with annual gross receipts ≤ $1 million: $20 a day, not to exceed lesser of $10,000 or 5% of gross receipts For organizations with annual gross receipts > $1 million: $50 a day, not to exceed $50,000 Failure to file for 3 consecutive years: Automatic loss of tax-exempt status Donations are not tax deductible May reapply for reinstatement of tax exemption

9 3-Year Revocation Tax-exempt status is automatically terminated for failure to file/submit a 990-series return for 3 consecutive years Effective beginning Jan. 1, 2007 Revocations effective beginning May 15, 2010 Revocations will be posted on later in spring or summer of 2011www.irs.gov Revoked orgs. may reapply for exemption Exemption effective from date of reapplication, absent reasonable cause Taxes may be owed in interim period between revocation and restoration of exemption

10 Major Changes to 2009 Form 990 Part XI: new questions re: consolidated audited financial statements Part XI: new questions re: consolidated audited financial statements Part IV: new question re: filing of Schedule O Part IV: new question re: filing of Schedule O Part IV: new trigger question for Sch. D, Part X re: FIN 48 footnote Part IV: new trigger question for Sch. D, Part X re: FIN 48 footnote Part V: leave lines 1c, 7g, 7h blank if Qs are not applicable Part V: leave lines 1c, 7g, 7h blank if Qs are not applicable Part VIII: report on lines 2 (program service revenue) and 11 (miscellaneous revenue) codes from a new Appendix J, Business Activity Codes, which are derived from North American Industry Classification System (NAICS) codes Part VIII: report on lines 2 (program service revenue) and 11 (miscellaneous revenue) codes from a new Appendix J, Business Activity Codes, which are derived from North American Industry Classification System (NAICS) codes

11 Major Changes to 2010 Form 990 Most changes are clarifications to instructions New Part XI for reconciliation of net assets New checkboxes for each part to indicate whether part is supplemented with narrative in Schedule O New appendix on Contributions Addition of narrative parts at the end of schedules; elimination of continuation schedules Schedule B instructions direct not to attach substitutes for Schedule B, and clarify that Parts I-III may be duplicated to provide adequate space for listing all contributors Increased reporting of foreign activity on Schedule F

12 Affordable Care Act-related changes to 2010 Form 990 Changes reflecting health care legislation Facility-by-facility reporting of hospitals on Sch. H New questions reflecting section 501r regarding community health needs assessments, financial assistance, billing and collections, and gross charges New questions only need to be completed for hospital facilities with 2010 tax years beginning after Information on indoor tanning services Questions regarding 501(c)(29) qualified nonprofit health insurance issuers (under HHS CO-OP program)

13 Schedule F –Foreign Activities Part I, Line 3, col. (c): report number of independent contractors in a foreign region, along with the number of employees and agents Part I, line 3, col.(f): report total book value of investments in a foreign region Part I, col. (f): indirect expenditures for foreign activity do not have to be reported if they are not separately tracked Part II: report not only grants and other assistance to foreign organizations, but also to U.S. organizations for foreign activity Parts II and III: organizations using the accrual method of accounting that make foreign grants to be paid in future years should report the grants’ present value in Parts II and III and report any accruals of additional value in future years Parts II and III: report foreign grants regardless of the source of the grant funds (whether restricted or unrestricted) and whether the filing organization selected the grantee New Part IV requires reporting of whether organization engaged in foreign activities that require filing of other IRS forms

14 Practical Considerations in Preparing the Redesigned Form 990 Commence process of information gathering well in advance of return preparation and filing Preparer cannot operate in a vacuum Involve program staff and management Form 990 is no longer primarily a financial report Take steps to satisfy “reasonable efforts” standard Provide questionnaires to key personnel (e.g., officers, directors, key employees) to obtain information needed for compensation and related party transaction Qs

15 Beginning the Form 990 Walk- Through; Preliminary Considerations Consider following the Sequencing List (General Instruction C) in completing the Form Preliminary considerations: 501(c)(3)s: private foundation (Form 990-PF) or public charity (Form 990)? Determine related organizations Determine officers, directors, and key employees Refer to Glossary for definitions of key terms Don’t forget to complete and file Schedule O!

16 What does the IRS plan to do with information from the Form 990? Examples of current compliance projects: Determining whether section 501(c)(3) exempt organizations are meeting the public support test by reviewing Schedule A Determining why organizations filed or submitted the wrong 990-series return or notice for a particular tax year Determining which organizations that filed Form 990-N should be automatically-revoked for failing to file proper 990-series return for three consecutive years Focusing on non-compliance among 501(c)(4), 501(c)(5), and 501(c)(6) organizations

17 Resources & Comments Form 990 and instructions Background Papers and Overview Form 990 and instructions Background Papers and Overview StayExempt.org mini-courses StayExempt.org mini-courses Frequently Asked Questions Frequently Asked Questions Videos re: how to complete Form 990 Videos re: how to complete Form 990 Send comments to Send comments to Material provided in this presentation is for educational use only and is not intended to establish IRS position or practice and may not be relied on or cited as precedent. For more detailed information, please refer to the "Charities and Nonprofits" section of