What You Need to Know About
the Redesigned Form 990
Cordelia A. Glenn, Esq.
AOPO 2008 January Directors' Workshop
Park City, Utah
January 10, 2008
1
Overview
 First complete overhaul in nearly 30 years
 Draft form and instructions released June 14, 2007
 3-month comment period
 IRS incorporated many comments into final draft
 Final form released December 19, 2007
 Final instructions anticipated spring 2008
 First use: 2008 tax year (returns filed in 2009)
 For non-calendar year fiscal years: tax years
beginning in 2008
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Overview
 3 guiding principles
Enhance Transparency
 Key transparency tool relied on by IRS
 Present “realistic picture” of organization
Promote Compliance
 Vehicle for IRS to efficiently “assess risk of noncompliance”
Minimize Burden
 Material change only for organizations with complex
compensation arrangements, related entity structures, and
“activities that raise compliance concerns”
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Overview
 Why start preparing now?
 More like SEC disclosure document than tax return
 Reponses to certain questions could:
 Trigger audit or enforcement action by IRS
 Provide people unfriendly to the organization with
ammunition for negative publicity; whistleblower awards
provide financial incentive
 By identifying and resolving potential problem areas
in advance, your organization can:
 Mitigate risk of negative publicity or unwanted AG attention
 Turn Form 990 into positive PR tool
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Overview
 Old Form
 9-page core form
 2 schedules, 36 possible attachments
 New Form
 11-page core form completed by all exempt orgs
 Includes summary of key info on first page
 16 schedules focusing on “areas of interest”
 To be completed as needed (trigger questions)
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Core Form
 Parts I & II
 Summary of key information & signature block
 Part III
 Mission, program changes, and program service
accomplishments (narrative format)
 Part IV
 37 trigger questions for schedules
 Part V
 Questions flagging other potential compliance and
filing obligations
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Core Form
 Part VI
 Governance, management, public disclosures
 Part VII
 Compensation of officers, directors, key employees,
highest compensated employees, independent
contactors
 Part VIII
 Statement of revenue
 Part IX
 Statement of functional expenses
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Core Form
 Part X
 Balance sheet
 Part XI
 Financial statements and reporting
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Schedules to New Form 990
 A: Public Charity Status &
Public Support*
 B: Contributors*
 C: Political Campaign and
Lobbying Activities*
 D: Supplemental Financial
Statements*
 E: Schools
 F: Activities Outside U.S.
 G: Fundraising & Gaming*
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H: Hospitals
I: Grants*
J: Compensation Info*
K: Tax-Exempt Bonds
L: Transactions with
Interested Persons*
M: Non-Cash Contributions*
N: Liquidation, Dissolution
O: Supplemental Info*
R: Related Organizations*
Mission and Achievements
 Mission Statement (Core Parts I & III)
 First thing reviewers will see on summary page
 Provides opportunity to “tell your story” and provide
context for all other info in form
 Changes in Activities (Core Part III)
 Describe new activities, changes in activities
 Exempt Purpose Achievements (Core Part III)
 Describe achievements for 3 largest programs by
expenses
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Disqualified Persons
 Many Questions (Core Part IV, IX, X & Schedule L)
 Excess benefit transactions (current and prior)
 Outstanding loans (to or from)
 Payment of compensation
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Disqualified Persons
 Do you know who your disqualified persons are?
 Any person who was, at any time during a 5-year
look back period ending on the date of the
transaction:
In a position to exercise substantial influence
over the organization (e.g., D&O, senior
managers, facts & circumstances)
Family members of such persons
Companies 35% controlled by foregoing
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Governance, Policies, Disclosures
 Somewhat controversial
 Does IRS have authority?
 Could create de facto legal requirements and lead to
presumption of wrongdoing.
 IRS position:
 “Independent governing body and well-defined
governance and management policies and practices
increase the likelihood that an organization is operating
in compliance with federal law.”
 Form educates organizations about best practices.
 Form provides opportunity to explain responses.
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Governance (Core Part VI.A)
 Independent Directors (also in Core Part I)
 How many voting directors? How many independent?
 In draft instructions, “independent” means:
 Not a compensated employee
 Does not receive compensation or other payments as an
independent contractor
 Does not receive, directly or indirectly, material financial
benefits from the organization
 Not a spouse, sibling, parent or child of foregoing
 Definition may be revised in final instructions.
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Governance (Core Part VI.A)
 Review of Form 990
 Provided to governing body before filing?
 Note: Draft asked whether the board reviewed the
Form 990 prior to filing.
 Describe review process.
 To whom is the form provided?
 When it is provided?
 What is the level of review?
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Policies (Core Part VI.B)
 Conflict of Interest Policy
 In writing? Annual disclosure of interests?
 Describe how you monitor and enforce policy.
IRS wants to know how an organization actually
implements its conflicts policy (i.e., that the policy
isn’t just collecting dust).
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Policies (Core Part VI.B)
 Whistleblower Policy
 Does the organization have a written policy?
SOX makes it illegal to punish whistleblowers who
risk their jobs by reporting suspected illegal
activities.
Policy not legal requirement but “communicates
strong culture of legal compliance and ethical
integrity”
Policy should provide procedures for employees to
report in confidence suspected financial impropriety
or misuse of resources.
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Policies (Core Part VI.B)
 Document Retention & Destruction Policy
 Does the organization have written policy?
SOX makes it illegal to destroy documents in
anticipation of a federal investigation.
Policy not legal requirement, but auditors often
recommend it.
Policy should set schedule for maintenance/
destruction of documents by type and prohibit
destruction of records (including e-mail and other
electronic records) relating to potential litigation.
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Policies (Core Part VI.B)
 Compensation
 Must describe process for determining compensation
of CEO/Executive Director and other key employees.
 Does process include:
Review and approval by independent persons
Comparability data
Contemporaneous substantiation of deliberation
and decision
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Disclosure (Core Part VI.C)
 Form 1023, Form 990, Form 990-T
 Available in own website, another’s website, and/or
upon request?
 Note: Disclosure required by law.
 Governing Documents, Conflict of Interest
Policy, Financial Statements
 Describe how made available to the public.
 Note: Disclosure not required by law, but promotes
transparency & inspires greater confidence in the
organization.
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Compensation (Core Part VII, Schedule J)
 Big changes in reporting of compensation of
directors, officers, key employees, highest
compensated employees & independent contractors
 Use of Form W-2 and Form 1099 data to reduce
subjectivity
 More details required for compensation paid to:
 Former D&O, key employees, and HCEs
 Current D&O, key employees, and HCEs receiving
more than $150,000 in total compensation
 Persons receiving compensation from an unrelated org
for services provided to the reporting org
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Audit & Audit Committee (Core Part XI)
 Independent Accountant
 Compilation, review, or audit of financial statements
performed by independent accountant?
 Definition of “independent accountant” to be clarified
in final instructions.
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Audit & Audit Committee (Core Part XI)
 Audit Committee
 Does the organization have a committee responsible
for oversight of audit, review, or compilation of
financial statements and selection of independent
accountant?
 Required by some states under certain
circumstances (e.g., CA).
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Fundraising (Schedules G, M)
 Criticism that fundraising is misreported
 Lack of transparency on use of funds raised
 Concern about overvalued non-cash contributions
 Additional information required for use of
professional fundraisers, special events, and
gaming ($15,000 threshold)
 Note re: reporting of gaming activities: Schedule asks
whether organization is licensed by the applicable
state(s) to operate gaming activities.
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Fundraising (Schedules G, M)
 Non-cash contributions ($25,000 threshold)
 Does the organization have a gift acceptance policy
requiring review of non-standard contributions?
 New reporting requirements may result in new
recordkeeping practices and additional burden.
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Recommendations
 Educate board and management
 Consider trial run to identify & correct potential
problem areas, develop explanations
 Will expose areas needing additional recordkeeping
 Consider involving legal counsel
 Work on mission statement, program descriptions
 Will set the stage for all info in Form 990
 Identify disqualified persons & update list annually
 Examine board independence
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Recommendations (cont.)
 Examine and formalize Form 990 review process
 Prepare and present policies to Board for approval
 Conflict of Interest
 Whistleblower
 Document retention and destruction
 Compensation review
 Gift acceptance
 Consider public disclosure practices
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Recommendations (cont.)
 Consider formation of Audit Committee & examine
relationship with auditor
 Review financial arrangements with disqualified and
interested persons
 Restructure problematic arrangements if possible
 For organizations conducting solicitations and
gaming in connection with fundraising  ensure
appropriate state licensure
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Recommendations (cont.)
OVERALL GOAL:
Present as good a public profile as possible.
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