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
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.
1
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.
2
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
3
Focus of Redesign
 Focus of Redesign to Increase Reporting
Related to:
 Governance
 Executive compensation
 Related organizations
 Fundraising practices
 Hospitals’ amount of community benefit
4
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.
5
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
6
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 990EZ
 Schedules A, B, C, E, G, L
7
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”
8
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
9
Form 990 Core Overview
 Part II – Signature Block

Moved to first page

Added authorization for discussion with preparer
10
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
11
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
12
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
13
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
14
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
15
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
16
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”
17
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
18
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.
19
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
20
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
21
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
22
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
23
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)
24
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
25
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
26
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
27
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
28
Form 990 Schedules E & F
 Form 990 Schedule E – Schools

No change

Questions mirror Rev. Proc. 75-50, requirements for
private school exemption
29
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
30
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
31
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
32
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
33
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
34
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.
35
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
36
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
37
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
38
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
39
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
40
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
41
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
42
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
43
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
44
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
45
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 noncharitable organizations $50,000
46
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
47
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
48
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.
49
Thank You!
Carolyn Duronio, Esq.
Reed Smith LLP
435 Sixth Avenue
Pittsburgh, PA 15219
412-288-3131
CDuronio@ReedSmith.com
Lynne M. Huismann, CPA
Plante & Moran, PLLC
2601 Cambridge Ct., Suite 500
Auburn Hills, MI 48326
248- 375-7327
Lynne.Huismann@plantemoran.com
50