0. The New Redesigned Form 990: Are You Ready?
Carolyn Duronio, Esq.
Reed Smith LLP, Pittsburgh, PA
Lynne M. Huismann, CPA
Plante & Moran, PLLC, Auburn Hills, MI

1. Form 990 Redesign Form 990 Redesign Effective for Tax Year 2008
In December 2007, the IRS released a redesigned Form 990, Return of Organization Exempt from Income Tax, for tax year 2008 (to be filed in 2009 and later years).
Draft instructions for the form were released on April 7, 2008; comments were solicited by the IRS, which have been incorporated into the final instructions as of August 19, 2008.

2. Form 990 Redesign Why Redesign Form 990?
Form 990 has not changed in over 25 years
Exempt Organization sector has changed, while the old Form 990 remained stagnant.

3. Form 990 Redesign Overview of Redesign
Old Form 990 included 9 pages, 2 schedules and 36 potential attachments
Redesigned version includes Core Form (11 pages) and 16 Schedules
New Schedules include officer/key employee compensation, foreign activities, hospitals, tax-exempt bonds, non-cash contributions
Instructions include a 26-page Glossary with definitions, and an Appendix with 26 pages of special instructions

4. Focus of Redesign Focus of Redesign to Increase Reporting Related to:
Governance
Executive compensation
Related organizations
Fundraising practices
Hospitals’ amount of community benefit

5. Guiding Principles
The Form 990 Redesign is Based on Three Guiding Principles
Enhancing transparency to provide the IRS and the public with a realistic picture of the organization.
Promoting compliance by accurately reflecting the organization's operations so the IRS may efficiently assess the risk of noncompliance.
Minimizing the burden of filing organizations.

6. Phase-in of Redesigned Form
New form is phased in over three years; Form 990-EZ may be used by smaller entities as follows:
2008 – gross receipts less than $1.0M and total assets less than $2.5M
2009 – gross receipts less than $500,000 and total assets less than $1.25M
2010 and forward – gross receipts less than $200,000 and total assets less than $500,000; threshold for filing EZ versus N raises to $50,000

7. Phase-in of Redesigned Form
Organizations not allowed to file Form 990-EZ
Controlling organizations
Organizations with donor advised funds
Certain schedules must be filed with Form 990-EZ
Schedules A, B, C, E, G, L

8. Form 990 Core Overview Heading information Additional info: DBA
Year formed
State of domicile
Schedule B question moved to Part IV
Identification of “principal officer”

9. Form 990 Core Overview Part I - Summary
Mission or significant activity
Snapshot of the numbers:
Number of board members, employees & volunteers
Revenue and expense totals, current & prior year
Asset and liability totals, current & prior year
Executive compensation and fundraising ratios removed from final draft

10. Form 990 Core Overview Part II – Signature Block Moved to first page
Added authorization for discussion with preparer

11. Form 990 Core Overview Part III - Program Service Accomplishments
Asks for the mission – instructions indicate that a mission statement should only be listed if the statement has been adopted by its governing body
Places more emphasis on undertaking significant new program service activities
Now requires segregating revenue by program service activity
Activity codes
Not decided yet what codes will be used
Not required for 2008

12. Form 990 Core Overview Part IV – Checklist of Required Schedules
Review these items carefully to determine which schedules must be completed
Some questions will require referring to other parts of the form, or to the glossary for definitions

13. Form 990 Core Overview Part IV – Checklist of Required Schedules
Items to note:
Qu. 6 – DAF’s – file Schedule D Part I
Qu. 10 – Endowments – file Schedule D Part V
Qu. 11 – various types of investments – report on Schedule D as needed

14. Form 990 Core Overview Part V – Other IRS Filings
Alerts organizations to other potential tax compliance and filing obligations
Tax shelters
Electronic filing requirement
Gambling winnings
UBI
Proper substantiation of donations
Foreign bank accounts

15. Form 990 Core Overview Part V – Other IRS Filings
Questions 8 and 9 address DAF issues:
Excess business holdings
Taxable distributions
Distributions to donors, advisors, related persons

16. Form 990 Core Overview Part VI – Governance, Policies and Disclosure
Added to identify potential compliance issues resulting from governance and management practices; IRS has informally indicated that “no” answers could lead to compliance checks or possibly audits
Inquires about number of “independent” members of governing body; final instructions provide detailed definition of “independent”
Includes the question on family/business relationships between officers, directors, trustees, key employees; “reasonable effort” must be made to obtain this information – for example, an annual questionnaire

17. Form 990 Core Overview Part VI – Governance, Policies and Disclosure
Questions whether a copy of the Form 990 was provided to the governing body before it was filed, and requires description of review process
More detail about conflict of interest policy
Questions regarding process for determining executive compensation
Questions regarding transparency and disclosure
Final instructions indicate that a “reasonable effort” must be made to obtain information for lines 1b and 2
Policies should be adopted by year-end to answer “yes”

18. Form 990 Core Overview Part VII - Executive Compensation
Moves reporting of compensation of highly compensated employees and independent contractors from Schedule A to core form, which extends reporting requirement to all NFP organizations; threshold raised to $100,000
Final instructions indicate that a “reasonable effort” must be made to obtain compensation data from related organizations
Adopts concept of “reportable compensation” as shown on Form W-2 or 1099, resulting in better comparability of data; includes compensation from related organizations if more than $10,000

19. Form 990 Core Overview Part VII - Executive Compensation
Instructions provide a chart of where to report items of compensation
Indicates for whom additional information must be provided on Schedule J
Key employees should not be listed unless they:
Receive compensation of more than $150,000;
Have organization-wide control or responsibility for at least 10% of the organization’s activities; and
Are within the top 20 persons who meet the first two tests.

20. Form 990 Core Overview Part VIII - Revenue Statement
Combined Revenue section with Analysis of Income Producing Activities to eliminate redundancy
Eliminated use of Exclusion Codes for revenue excluded from tax under sections 512,513 or 514
Membership dues are now classified either as contributions or program service revenue
Eliminated schedules for Other Investment Income, Sales of Inventory, and Sales of Assets Other than Inventory
More detail on several items – investment of tax-exempt bond proceeds, gaming revenue, fundraising events

21. Form 990 Core Overview Part IX – Functional Expense Statement
Revised lines to reflect most frequently incurred expenses
Added Payments to Affiliates which was previously included in Part I Expenses
Compensation is to be reported using the organization’s accounting method and period rather than conforming to W-2 reporting
Some expense line items more prominent: travel expense for government officials, breakdown of grant amounts, etc.
Eliminated some schedules: depreciation (including Form 4562) – keep records to substantiate amounts

22. Form 990 Core Overview Part X - Balance Sheet
Eliminated schedule for Other Notes and Loans Receivable and Other Mortgages and Notes Payable
Created Schedule L to provide detail on receivables from and payables to insiders
Created Schedule D to consolidate schedules for other items

23. Form 990 Core Overview Part XI – Financial Statements and Reporting
Accounting method
Audit and oversight, e.g. audit of financial statements, existence of audit committee
Existence of A-133 audit requirement

24. Form 990 Schedule A Public Charity Status
Refer to your IRS determination letter - determines whether you need to meet public support test
The box numbers have changed!
Provides instructions for how to handle changes in reason for public charity status
Supporting Organizations under IRC Sec 509(a)(3)
Type I, II, or III
Detail on transactions with supported organization(s)

25. Form 990 Schedule A Public Charity Status (cont.)
Two types of public support schedules now split for more clarity
Part II – for entities that rely mostly on donations
Part III – for entities that rely mostly on program revenue
Cash method no longer required
Better clarity for rules regarding failure to meet public support test in one or more years
Finally includes information regarding alternate 10% support test under Section170(b)(1)(A)(vi)
Expected to replace Form 8734

26. Form 990 Schedules B & C Form 990 Schedule B – Contributors
No significant changes
Additional clarifying information on reporting contributions from governmental units, and contributions of securities
Form 990 Schedule C – Political Campaign and Lobbying Activities
Enhanced to gather more information on these types of activities
Combines questions by type of entity in one Schedule

27. Form 990 Schedule D Supplemental Financial Statements
Details for Balance Sheet line items
Conservation Easements
Donor Advised Funds
Museum Collections
Endowment Funds
FIN 48 disclosures – include verbatim
Reconciliation of Net Assets
Reconciliation of Revenue & Expenses to Financial Statements

28. Form 990 Schedule D Supplemental Financial Statements
Part I – Organizations maintaining DAF’s or similar funds
Part V – Endowment funds
Alternative or other investments may need to be reported in other Parts of Schedule D

29. Form 990 Schedules E & F Form 990 Schedule E – Schools No change
Questions mirror Rev. Proc , requirements for private school exemption

30. Form 990 Schedule F Form 990 Schedule F – Foreign Activities
Enhanced reporting – revenue/expense from foreign activities > $10,000, or foreign grants > $5,000
Report activities by region rather than country to protect organization’s employees and volunteers
Grants to foreign organizations and individuals – IRS is interested in whether records are maintained to substantiate amounts, eligibility, selection criteria, diversion of assets
Be sure to consider due diligence requirements

31. Form 990 Schedule G Fundraising Threshold of $15,000 gross receipts
Concern over how much fundraising actually benefits organization
More detail regarding use of professional fundraisers, relationships with professional fundraisers, and financial information for special events
More detailed financial information for gaming, as well as questions to determine compliance with gaming rules

32. Form 990 Schedule H Hospitals
New and includes charity care and community benefit, billing, operations, related entities, locations, etc.
For 2008, only Part V, Facilities Information, must be completed
For 2009, all parts must be completed

33. Form 990 Schedule I
Grants to Organizations, Governments, and Individuals
New threshold of $5,000 for grants to organizations and governments
Need to report more information including EIN and type of NFP organization
Reporting for assistance to individuals includes number of recipients and non-cash assistance, but not names

34. Form 990 Schedule J Executive Compensation Reporting thresholds:
$10,000 paid to former trustee
$100,000 paid to former officer or highly compensated employee
$150,000 paid to current officer, trustee, highly compensated employee
Any person listed in Part VII, Section A received compensation from an unrelated organization for services rendered to the organization

35. Form 990 Schedule J Executive Compensation
Key employees should not be listed unless they:
Receive compensation of more than $150,000;
Have organization-wide control or responsibility for at least 10% of the organization’s activities; and
Are within the top 20 persons who meet the first two tests.

36. Form 990 Schedule J Executive Compensation
Questions regarding compensation
First class travel, club dues, housing allowance, personal services, etc.
Determination of reasonable compensation
Severance payments & non-fixed compensation
Policies regarding establishing compensation, expense reimbursement

37. Form 990 Schedule J Executive Compensation More detailed reporting
Breakdown of Form W-2 and 1099
Nontaxable benefits
Deferred compensation
Reporting for prior year amounts also
Based on calendar year rather than fiscal year
Amounts paid by reporting organization and related organizations

38. Form 990 Schedule K Tax Exempt Bonds
Resulting from results of IRS Tax Exempt Bond Compliance Initiative
More detailed reporting
Issuance of greater than $100,000
Use of proceeds
Private use
Arbitrage
Transitional relief: Only Part I required for 2008

39. Form 990 Schedule L Transactions with Interested Persons
New term “Interested Persons” – different definition for each Part
Part II, Loans to/from Interested Persons:
Current or former officers, directors, trustees, key employees, top five compensated employees (new three-prong test for “key employees”)
Disqualified persons – substantial contributors or their family

40. Form 990 Schedule L Transactions with Interested Persons
Part III, Grants/Assistance Benefiting Interested Persons:
Current or former officer, director, trustee, or key employee listed in Form 990, Part VII, Section A
Substantial contributor
Related person (includes members of grant selection committee and employees of substantial contributors)
Defines reasonable effort to obtain information

41. Form 990 Schedule L Transactions with Interested Persons
Part IV, Business Transactions Involving Interested Persons:
Current or former officer, director, trustee, or key employee listed in Form 990, Part VII, Section A
Family members or 35% owned entities
Defines reasonable effort to obtain information

42. Form 990 Schedule M Noncash Contributions
Organizations with more than $25,000 of noncash contributions or organizations receiving art, historical treasures, or conservation contributions
IRS is concerned about overvalued charitable deductions for noncash contributions
Final instructions clarify that donation of the use of facilities or services are not included
Form asks for quantity of items
Excludes quantity of books and clothing and household items

43. Form 990 Schedule N Termination or Significant Disposition of Assets
Organizations that cease operations or dispose of more than 25% of its assets
Can include sales to another exempt organization or a taxable entity, sales of assets by a partnership or joint venture in which the organization has an ownership interest, transfer of assets pursuant to a reorganization, or grant or charitable contribution of assets to another 501(c)(3) organization

44. Form 990 Schedule O Supplemental Information
Form to report additional information
Up to 2 pages to respond to each question or item
Up to 2 pages to provide other information not required by the form
Allows electronic filers the ability to provide supplemental explanations using a single attachment
Can be used to provide a statement explaining a late filing

45. Form 990 Schedule R Related Organizations and Unrelated Partnerships
Report disregarded entities and controlled taxable entities more than 50% owned
Report related tax-exempt organizations
Report unrelated partnerships with activity greater than 5% of the organization’s revenue or assets

46. Form 990 Schedule R Related Organizations and Unrelated Partnerships
Consolidates the reporting for the various relationships and complies with changes from the Pension Protection Act to report transfers with controlled entities
Threshold for reporting certain transactions with non-charitable organizations $50,000

47. What Steps Should Your Organization Take Now?
Become familiar with the new form and its application to your organization
Review governance policies and procedures so that you can answer “yes” to important questions
Conflict of interest policy, whistleblower policy, document retention/destruction
Independence standard for reporting of independent directors
Contemporaneous meeting minutes
Board review of Form 990 prior to filing

48. What Steps Should Your Organization Take Now?
Review compensation procedures relative to Schedule J
Develop written policies regarding “perks” listed on question 1a
Affirm that proper substantiation procedures are followed for expense reimbursements
Procedures for review and approval of compensation – rebuttable presumption standard
Track former officer/director/key employee status and compensation for future reporting

49. Now for the Fine Print… Absence of Federal Tax Penalty Protection
The Internal Revenue Service recently issued regulations that require written advice regarding tax matters to meet very detailed and comprehensive requirements before it can be relied upon by a taxpayer to avoid penalties that might apply if the tax benefits or results discussed in the document are disallowed. Compliance with these rigorous standards and requirements exceeds the scope of this engagement. Consequently, the analysis and advice contained in this document regarding federal tax matters is not intended to be used, and may not be relied upon by you, for the purpose of avoiding any federal tax penalty.

50. Thank You!
Carolyn Duronio, Esq. Reed Smith LLP 435 Sixth Avenue Pittsburgh, PA 
Lynne M. Huismann, CPA Plante & Moran, PLLC 2601 Cambridge Ct., Suite 500 Auburn Hills, MI  50