The Not-so-New 990 in Year 3
(2010)
Changes, Experiences
& Improvements
March 15, 2011
CalCPA San Francisco Chapter
Terry Miller
Agenda Today

Historical Perspective & Basics

IRS: What do we know about new 990 and compliance?



anecdotal experience suggests amazingly rapid adoption of
strengthened governance and filing compliance by the sector &
preparers (discussion)
Specific Changes (2009 & 2010):

Broad Changes

Core Form Changes

Schedules Changes

Glossary Changes
IRS: What do we know about FY 2011 focus?
….with opinion, gossip & speculation throughout!
2
….assuming you already know the “new” 990 pretty well.
Historical Perspective:
First Overhaul in 30 Years: Big Project

IRS released Draft 990 June 2007, received 650
formal comments, made some changes, but
dug in its heels on governance

Stated goals: 1. compliance, 2. transparency,
and 3. no increase in burden
 #3
3
was subject of public derision
Historical Perspective:
Major changes from Draft to Final for 2008

IRS’ Steve Miller 10/22/07: “…[from] the
comments, we [made] some decisions:
 The
so-called efficiency ratios will drop off the
summary page;
 We will move the program service explanations up to
the front;
 We will substantially re-format some of the more
burdensome schedules;
 And we are considering what targeted transition relief
we should provide.”
4
Basics: 990, 990-EZ or 990-N?
BIGGEST CHANGE: Transition Rules on filing
thresholds are done: 2010 is final stage.
From now on:
 File Form 990, unless:





5
Form 990-N: Gross receipts “ordinarily” <$50K
Form 990-EZ: Gross receipts “ordinarily” <$200K and Assets
<$500K
certain exceptions when the full 990 is required (e.g. DAF
sponsors)
2010 is first year that tiny $200K organizations must file
the full 990
Basics: How big are Exempt Organizations?
(n=218,337)
6
(n=310,370)
Basics: Parts of the Core Form
I & II Summary & Signature Block
III
Stmt of Program Service Accomplishments
IV
Checklist of Required Schedules
(much improved)
V
Stmts Re: IRS Filings & Tax Compliance
(evolving)
VI
Governance, Management & Disclosure
(improved)
VII
Compensation of Ofcrs, Dirs, Ttees, Key Ees,
VIII
IX
X
XI
XII
7
Highest Comped Ees, and Indep Contractors
Statement of Revenue
Statement of Functional Expenses
Balance Sheet
[New 2010] Reconciliation of Net Assets
(helpful)
[New 2009] Financial Statements & Reporting
Basics: 16 Schedules [& how to remember]
(based on “trigger questions” – various thresholds)
 (Not all schedules relevant for 990-EZ filers; none for 990-N)








8
A
B
C
D
E
F
G
H
Public Charity Status and Public Support [509a]
Schedule of [Big] Contributors
Political Campaign & Lobbying Activities
Supplemental Financial Statements [Detail]
Schools [Education]
Statement of Activities Outside the U.S. [Foreign]
Suppl. Info. Re: Fundraising or Gaming Activities
Hospitals

I

J [Justify] Compensation Information
K Supplemental Information on Tax-Exempt Bonds

Grants & Other Assistance to Orgs, Govts, and
Individuals In[side] the United States
[“k” is lawyer shorthand for contract]



L Transactions With Interested Persons [Loans]
M Non-Cash Contributions [Money-not? ]
N Liquidation, Termination, Disso, or Significant
Disposition of Assets [Non-existence]
 O Supplemental Information to Form 990 or 990-EZ
[Open Narrative (required + optional)]


9
Clarified: only narrative answers from CORE FORM
R Related Organizations and Unrelated Partnerships
IRS Examinations are on the Rise
10
IRS Exam staff is on the Rise
11
IRS: “Hey Congress! How’s that 3 Year no-file
automatic revocation workin’ for ya?”
(almost a complete debacle)



12
By May 17, 2010, there were >300,000 organizations about to be
automatically revoked for no filing in 3 years. (Pension Protection Act)
IRS would have faced many of them re-applying, typically tiny, messy
D-I-Y filings, so there was an extraordinary (not legislatively approved
or authorized) “Filing Relief Program”:
it worked! Now there are less than half as many due to be revoked
shortly (“early 2011”).
IRS is aware there may be some snakes in those
990-N weeds

“Compliance Review: EO will conduct a compliance
review of organizations that filed a Form 990-N but
previously reported financial activity indicated they were
ineligible to do so.”

Best guess is that reinstatement filings will still be fasttracked to avoid determinations backup:
13
IRS: How many determinations are there?
(about 65,000 last year, 44% got questions)
14
IRS: So how many 990 filings are there?
(about 530,000 990 & 990EZ for 2008)
15
IRS strongly prefers e-filed returns


Easier to manage, profile, and fewer errors; 27% of 2008
990s and 14% of 990EZs were e-filed

Paper filed 990s had errors 28% of the time, and 990EZs 29% of
the time, just on initial review, while

while e-Filed 990s had errors just 2% of the time, and 990EZs just
1% of the time
What errors?

Mismatched Name/EIN

Missing Schedules (especially Schedule O)

“Inconsistencies in reporting of revenues, expenses and assets”
…. expect to see mandatory e-filing for more filers
16
IRS: What schedules are actually filed?
17
IRS: So how many exams are there?
(11,449 exams, 3,893 compliance checks; % exams rising)
18
IRS: “Integrates” prior Projects into “overall process”
(translation: not discontinuing)

Combined Annual Wage Reporting 2007-2010


19
Match W-2 to 941 “helped EO improve case selection and focus
examination resources on organizations with high potential for
non-compliance” 
Consumer Credit Counseling

initial phase examined 63 largest, revoked 41; based on that
project:

sent questionnaires to all others, revoked over 59% of them “to
date”

stimulated parts of the PPA governing exempt credit counseling
organizations
IRS: “Integrates”

20
2
[Seller-financed] Down Payment Assistance

(San Francisco’s own Joe Kroll !) (gossip; per grapevine)

issued a targeted 2006 revenue ruling

examined 91, revoked 87

initiated special determination screening

of 600 determination requests thus screened, “over half were
denied, closed for failure to respond, or withdrawn” and

“In 2008, Congress passed legislation prohibiting the use of
down-payment assistance programs funded by those who have
a financial interest in the sale in order to qualify for FHA insured
mortgages.”
IRS: “Integrates”

21
Executive Compensation Compliance: Loans

project began in 2004

200 compliance checks, 50 single-issue exams

based on results: 169 examinations (of 250!), 18 revocations,
AND:
3
IRS: “Integrates”
3

Section 501(c)(7) Investment Income – examined eighty
groups reporting it but not paying tax due, revoked or
changed status of 60% of the eighty

Political Activities Compliance Initiative (PACI)





22
no longer a separate initiative
2010 election not reported publicly yet
2004, 2006, 2008 cycles: 250 examinations
common allegations on next slide; >50% “substantiated” by IRS
Only SEVEN revocations (still a bright line test?)
IRS: “Integrates”

23
Political Activities Compliance Initiative (PACI) (cont)
5
IRS: “Integrates”
6
Section
527 QSLPO organizations (owe 8871 but not
8872 because they file election commission disclosures);
3600 compliance checks revealed broad compliance
Supporting Organization 509(a)(3) Compliance



strengthened determination screening, and
300 examinations: 72 revocations, 59 reclassifications as private
foundations or public charities, 30 terminations, and
Congress tightened rules with PPA
“In light of what we have learned through the various enforcement
activities discussed above, the resources we have developed for our
staff and the public, and changes resulting from legislation, we are
winding down separate projects and incorporating them into overall
compliance processes.” … (Integration)
24
Form 990 & Schedules:
Changes since 2008
(Not planning to cover in detail:
990-EZ
Schedule H
Schedule K)
25
Broad Changes


2009: clarifies ALL 990 filers owe Schedule O
2010: changes Schedule O to only Core Form narrative
responses & explanations (for accessibility)
1.
2.
3.

Core Form headers have checkboxes required if Schedule O has
information (Parts III,V,IV,VII,XI,XII)
Continuation forms are eliminated; duplicate main pages if needed
(Schedules F-1,I-1,J-1,N-1,R-1)
New narrative sections so that O will be just for Core Form on
(Schedules E,G,K,L,R)
2009: clarifies that: organizational termination, new
programs, and changes to governing documents, must
all be reported on 990, not by letter to IRS (IRS continues
to mention this in speeches about 2010) (Parts I, III, VI)
26
1
Broad Changes

2
RE-emphasized in 2010 Instructions that Governance
Policy Questions Yes/No are only Yes if the Board
adopted the policy before the end of the tax year
 TIP: be sure to be familiar with the two-page December 2010
IRS Governance “Check Sheet” for its auditors to use; it goes
beyond 990 questions in some respects (!) 

Transition provisions on Schedules H (Hospitals) and K
(Bonds) are over (2009); full Schedules now due

27
BUT, due to Affordable Care Act (healthcare reform), 2010
Calendar 990’s with Schedule H are automatically extended 90
days and may not be filed prior to July 1 (ACA: facility-by-facility
vs. EIN-by-EIN exemption), also audited financials are now
required to be attached to 990 (2010)
Core Form Changes

Part I Summary


Part II Signature


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none
none
Part III Program Service Accomplishments

2009: New activities must be on 990 not by letter (2 instr)

2009: Activity Codes required (4)
1
Core Form Changes

2
Part IV Checklist of Required Schedules
2010: clarifies that all 501(h) public charities and all 501(c)(4,5,6)
organizations with member dues must fill out relevant parts of
Sched C (4, 5)
 2009: added “or through related org” to quasi-endowment
question (10)
 2009: lots of phrasing clarifications especially Schedule D triggers
(11) & less need for a translator generally
 2009/2010: asked whether part of consolidated audit (improved
from 2008) and if Yes, some Sched D parts optional (2009), unless
also individually audited (2010 clarification) (12b)
 2009: instruction about foreign investments as Sched F trigger (14)
 2010: Hospitals required to attach audited financials (20a)
 2010: NEW question making 512(b)13 control / Schedule R Part V
explicit (35a)

29
Core Form Changes

Part V Other IRS Filings / Compliance





2009: improved phrasing variously
2009: clarified that 1096 and W-3 questions include leased or
common paymaster employees (1a, 2a)
2010: tightened instructions on (c)(12)s regarding nonexempt-function income (13a-c instr)
2010: Affordable Care Act changes: NEW questions: (c)(29)
insurers & taxable tanning beds  (14a,b)
Part VI Governance Management & Disclosure

clarified that relations among ODTKEHCEs (2009) does not
include exempt org boards (2010) does not include “formers”
(2 instr)

30
2009/2010: clarified “material” diversion of assets (2009) in
amount, and is now (2010) “significant” diversion (5 instr)
3
Core Form Changes

31
4
Part VI Governance Mgt & Disclosure (cont)

2009: reorganized questions to move IRC authority disclaimer
only to Section B (9,10,11) 

2010: clarified local chapters/affiliates question mostly to say that
typical 509(a)(3)’s don’t count (10a instr)

2010: NEW instruction that if 990 provided to Board is redacted
in any way, must answer “No” (11a instr)

2009: conflict of interest defined for independent approval of
compensation (15)

2009: new instruction that list of states getting copy of 990 may
no longer be answered “all states” (17 instr)

2009: clarified that 990 disclosure on “Another’s website,” does
not count Guidestar (overly redacted) (18 instr)
Core Form Changes

Part VII Compensation

2009: clarifications




Highest Compensated Ees are other than ODTKEs
Key Ee status any time during year means Key Ee for reporting,
must report full year compensation
foreign person ODTKEHCEs who are compensated and reported on
1042-S should be reported like any other compensation
filing organizations should report compensation paid to
ODTKEHCEs by unrelated organization for services to the filing
organization as compensation from the filing organization if it has
knowledge of the arrangement, regardless how reported by
unrelated organization


32
5
there is a “taxable organization employee exception” for classic
volunteer / loaned executive programs, but only if employer does not
treat it as a charitable contribution to the filing organization
Management Companies providing ODTKE-like services are listed
as independent contractors in Section B, not A
Core Form Changes

Part VII Compensation (cont)

2009: clarifications (cont)




compensation of ODTKEHCEs from a “common paymaster” should
be reported as compensation from the filing organization
these measurements should all be used in determining listed
persons
CONFUSION: 2009 if related org paying ODTKEHCE was only
related part of year, report all comp for year; 2010: may report
only the part of year was related (!) (Column E)
2010: clarifications / new instructions




33
6
check the box only if no compensation from filing organization nor
related organization (Section A)
report hours worked for filing organization in Column B, report all
hours worked for related organizations on Sched O
new instructions on deferred comp (evolving; also 2009)
new totals for pages in Section A
Core Form Changes

Part VIII Revenue



2009: Business codes required for Program Service Revenues
Miscellaneous Revenues by type (2 & 11)
2010: re-clarifies that in-kind services & facilities are NOT
reported for tax, even if GAAP reportable
2010: “special events” renamed “fundraising events” throughout
(instr)


2009 & 2010: instructions clarify auction reporting (book
donated item at FMV, then sale/gift (if FMV was disclosed), then
event net (8 instr: 1f,1g,8a,8b,8c)
Part IX Expenses


34
7
2010: clarifies that lines 5-10 are for all employees, whether
paid directly or via leasing companies / paymasters; report fees
to leasing companies & paymasters on 11g (5-10, 11g)
2010: line 24f Other Expenses should not be more than 10% of
Line 25 and if it is, then must itemize on Schedule O (24f)
Core Form Changes

Part X Balance Sheet

2009: Receivables from ODTKEs changed to add “highest
comped Ees,” and drop “other related parties”, and 2010:
Receivables from 4958 disqualified persons to include from
VEBA sponsoring entities (5,6)

2009: if Line 11 publicly traded securities contains any one
security worth >5% of Total Assets, must list on Line 12 as
“Investments-other securities” (drives Schedule D disclosure)
(11,12)

Part XI Reconciliation of Net Assets
 2010: Finally! The old (pre-2008) “Line 20” for prior period
adjustments

35
Until this fix, only place this was found was on the Schedule D
reconciliation to Audited financials
8
Core Form Changes

36
9
Part XII Financial Statements & Reporting

2009: added instruction to explain on Sched O if accounting
method or year changed or “other” was checked (1)

2009: added instruction to explain on Sched O if audit oversight
or selection process changed during year (for DIY preparers:
heads up re: CA Nonprofit Integrity Act) (2c)

2009: added question about audited financials: separate,
consolidated, or both? (2d)

2009: added question asking explicitly if A-133 audit reqm’t was
met; if not, explain on Schedule O (3b)
Schedules Changes

Schedule A: Public Charity Status




new instructions to account for pledges (2009) and subtract any
uncollectible pledges from the year in which the pledge support
was counted (2010)
clarification that changing 509(a) type on Schedule A does not
update Master List; filer may submit request for determination
Schedule B: Contributors

2009: clarify that “Anonymous” not allowed

2010: instruction added that may not substitute list for Schedule
B; add form pages as needed (they say so they don’t publicly
disclose it by not recognizing it when a copy is requested)
Schedule C: Political Campaigns & Lobbying

37
1
no substantive changes; 2010 reminder that 501(h) electing
charities MUST fill out Part II-A
Schedules Changes

Schedule D: Financial Statement Details





38
2
2009: clarifies/reminds that endowments held by others should
be reported (V: 3a,b,4)
2009: itemize publicly traded securities where security is >5% of
total assets (Re-emphasized in 2010 by new requirement that
such large holdings be reported on Core Form Balance Sheet as
“Other Assets” (12) which in turn drives Sched D Part VII) (VII)
2009 AND 2010: IRS “significant changes” and speeches
emphasize that full text of FIN48 footnote is to be reported
verbatim in Part X even if there are no uncertain tax positions (X)
2009: if filer is in consolidated audit, reconciliation Parts XI-XIII
are optional (Re-emphasized in 2010 by moving this optional
notation to face of Core Form Trigger question) (XI-XIII)
Schedule E: Schools (no changes)
Schedules Changes

3
Schedule F: Foreign Activities

Eve Borenstein in 2010: “Schedule Flounder”  Opinion: IRS can’t
decide whether this is narrow focus like currency control (funds spent
there) or broad focus like staff attention while working in U.S., or even
how to treat expenditures foreign via U.S. credit card; speeches and Q&A
answers sometimes contradict common sense and instructions:
Schedule F is a “work in process” (being charitable)

2010: Part I wants number of independent contractors in region
(Col c)



39
2009/2010: Part I adds investing to “activities” conducted in
region on form (2009: added to instructions) (Col d)
2009/2010: Part I changed language: expenditures “for” region
from “in” region (2009) and added “and investments” (2010) (Col f)
2010: instruction: must report investment activity on separate line
from other activity in Part I
Schedules Changes

Schedule F: Foreign Activities (cont)






40
2009/2010: definitely current thrust towards all expenses
focused on a region not just spent in a region (Col f)
2009/2010: Part II includes grants to U.S. organizations for
foreign work
2010: Part II includes program related investments
2010: Part II valuations of future year promises should be
present value
2009: Part III similar reasoning “for” foreign activity, even if U.S.
individuals
2010: Part IV ENTIRELY NEW section about other IRS filings
which may be due
4
Schedules Changes

Schedule G: Fundraising & Gaming





Schedule H: Hospitals


41
2010: address now required for professional fundraisers, not
just names (I.2.b.i)
2009: “All States” no longer acceptable as answer where filing
organization is registered to solicit gifts (I.3)
2009: “Food and beverages” and “Entertainment” now broken
out as event expenses from former “Other direct expenses”
(which still exists) (III.7,8)
2009: Gaming manager compensation only reportable to the
extent allocable to gaming management (III.16)

2009: Full schedule due, transition relief is over
2010: Various changes, biggest one is facility-by-facility
exemption qualification rather than EIN-by-EIN (result of
Affordable Care Act) (temporary relief for yrs begin <3/23/2010)
2010: May not file until July 1, 2011 (automatic extension)
5
Schedules Changes

Schedule I: Grants Inside U.S.



2010: asks about severance / change-of-control payments not
just from filing organization but also related orgs (I.4.a)
2009: new question added to ask whether, if filing organization
took advantage of the so-called “first bite” rule (#8), it also used a
rebuttable presumption procedure anyway (I.9)
Schedule K: Tax-exempt Bonds


42
2010: now clear that grants to U.S. organizations for foreign
work are reported on Schedule F not Schedule I [or both?]
Schedule J: Compensation


6
2009: Full schedule due, transition provisions over
2009 & 2010: various clarifications, some new columns, some
new lines
Schedules Changes

43
7
Schedule L: Transactions with Interested Persons

2009: mostly clarified exemption from reporting for certain bonds
purchased by interested persons (publicly traded etc), and how
to report grants and scholarships without revealing donor names
(relation to a substantial contributor is an interested person)

2009: Part IV clarification on reporting joint ventures with
interested persons, and clarification that governmental entities
and instrumentalities are not interested persons

2010: Part IV clarification that business transactions [with
interested persons] include insurance contracts, and that entities
controlled by family members of interested persons count as
interested persons
Schedules Changes

Schedule N: Liquidation, Termination, Dissolution


Schedule O: Supplemental Information [to Core Form]

44
2010: in keeping with notion that termination must be reported
on Form 990, old lines asking if IRS had recognized termination
by letter have been deleted
2010: clarification mentioned earlier that O is now only for Core
Form responses
8
Schedules Changes

45
9
Schedule R: Related Organizations

2009 & 2010: definition of Control, and more abstract methods
of Control, keep evolving, more examples in instructions,
Glossary changes

2009: treat Governmental entities as exempt orgs for Part II

2010: New 512(b)(13) Yes/No column in Part II for each Related
organization (II,g)

2010: New % of ownership column in Part III partnerships (III,k)

2010: New column to explain method of valuing transactions in
Part V Line 2 (V.2.d)

2010: continued confusion about applicability of 512(b)(13) to
related 501(c)(non-3) organizations [discussion if time] (V)
Glossary Changes
2009:
incorporated
in Core
Form
instructions


2009:
46
1
Glossary Changes

47
2010 changes:
2
IRS: What do we know about FY 2011 focus?

“Integration” of earlier projects







Automatic revocation of over 120,000 EOs
Reinstatement applications from some of the 120,000
W-2 / 941 Matching
Credit Counseling & Seller Financed Down Payment Assistance
Political Activity (?)
509(a)(3) Support Organizations [especially Type III]
New Initiatives

48
1
Form 990 as a Compliance Tool [data mining for miscreants]
“As more organizations file the redesigned Form 990, EO Examinations will
use the updated form to identify non-compliant and potentially noncompliant organizations for examination, to develop targeted compliance
projects and to inform and supplement educational efforts. In FY 2011, EO
will continue to work with our research office to develop more robust risk
models and refine compliance queries to promote a more finely tuned
compliance approach and more tailored education efforts.”
IRS: What do we know about FY 2011 focus?

New Initiatives (cont)


512(b)(13) Project (particularly Colleges & Universities)
Charitable Spending Initiative [a/k/a “commensurate test”]
targeted examinations:





Colleges and Universities Project, ongoing



49
400 Questionnaires, May 2010 report, 30 ongoing exams
Exempt Organizations Services and Assistance (small EOs)


high levels of fundraising expense
high levels of UBTI with low levels of program
high ratios of officer compensation compared to program
low levels of program compared to revenues
how best to educate small charities?
focus groups, phone surveys, cost-benefit analysis
Form 990-N Mis-filers
2
IRS: What do we know about FY 2011 focus?

New Initiatives (cont)
Governance Check Sheet (started Dec 2010) data analysis
 Mortgage Foreclosure Assistance – modeled on credit
counseling and seller-financed down payment assistance
 501(c)(12) Project – non- “mutual” income
 Section 501(c)(4),(5) and (6) Organizations [the new PACI?]
 Voluntary Employee Benefit Associations (c)(9) over $100K

50
3
Questions?
(I am happy to email you a full size copy of
these slides, and will post on my website
on the 990 page.)
Terry Miller
62 Rudden Ave
San Francisco CA 94112-2540
415-333-6320
Terry@TerryMiller.biz
www.TerryMiller.biz
FYI: to submit comments on the Form 990:
Stephen Clarke, stephen.m.clarke@irs.gov, 202-283-9474,
or Form990revision@irs.gov
51