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With the “new” Form 990 having gone through its first year of filing, the IRS has made some improvements and clarifications to the revised 2009 forms for calendar year 2009 and fiscal year 2010 returns. In addition to improving the wording of the trigger questions, revising definitions, and clarifying instructions, the IRS has attempted to guide organizations in preparing a more complete return.

EXISTING ITEMS: EFFECTIVE 2009

990-EZ: The thresholds for organizations allowed to file the short form 990 are reduced in 2009, requiring more organizations to complete the full revised form. Most organizations with annual gross receipts of less than $500,000 for tax year 2009, and total assets at the end of the year less than $1,250,000 can file Form 990-EZ. This is an increase over 2008 amounts which were $1,000,000 and $2,500,000, respectively.

FIN 48: With the end to the deferral period for FIN 48, Accounting for Uncertainty of Tax Positions (now called Accounting Standards Codification (ASC) 740-10), most organizations will now be required to include the text of the footnote disclosure in the 990 as part of Schedule D. The IRS clarified that any portion of the FIN 48 footnote that addresses only the filing organization’s liability must be provided verbatim. However, the organization can summarize the filing organization’s share of liability when it’s part of a consolidated footnote.

EXPANDED REPORTING

Organizations filing Schedules H and K must complete all parts of these schedules for the 2009 tax year.

Schedule H (Hospitals) — Beginning this year, the IRS requires an organization to report information about whether the hospital is providing sufficient care to needy individuals and/or other community benefits to justify its tax-exempt status; and to provide information about management companies and joint ventures in which the organization is a participant. For this schedule, a hospital is defined as a facility that is required to be licensed, registered, or similarly recognized by a state as a hospital. The schedule is required even when a hospital is operated through a disregarded entity or a joint venture treated as a partnership for tax purposes. If an organization operates multiple hospitals, or files a group return for a group that operates one or more hospitals, only one Schedule H should be completed by aggregating the information from all the hospitals. Medical facilities operated as a joint venture or partnership should be reported in Part IV.

Schedule H is not filed for a hospital located outside the U.S., nor by hospitals that are operated by a separate tax-exempt entity or an organization taxable as a corporation for federal tax purposes (unless included in a group exemption).

Schedule K — This schedule is required to report each outstanding tax-exempt liability that had an outstanding principal amount in excess of $100,000 as of the last day of the tax year, and was issued after December 31, 2002. Bonds issued after December 31, 2002, to refund bonds issued before January 1, 2003 have special reporting rules. These refunding bonds are subject to the reporting requirements of Parts I, II, and IV; however, Part III does not need to be completed.

Schedule K is used to provide certain information on outstanding liabilities associated with tax-exempt bond issues. Generally, the IRS wants to confirm that organizations issuing tax-exempt bonds are maintaining the proper records and are not circumventing arbitrage requirements with their investment of the proceeds. The IRS is also concerned that arrangements with respect to bond-financed property may result in private business use.

The filing organization may complete Schedule K using the same period as the Form 990, or it may use any other 12-month period or periods selected by the organization and used consistently for an obligation for purposes of Schedule K and computations in accordance with the requirements under IRC Sections 141-150. For 2009 only, the filer should include on Part II, line 5 the cumulative amount of bond proceeds used to pay fees for credit enhancement that are taken into account in determining the yield on the issue for purposes of Code section 148(h).

Schedule O - Among the top errors reported on 2008 forms was the omission of Schedule O which requires certain disclosures from all organizations. IRS has added instructions to elicit a more complete filing and ensure all necessary disclosures are made.

CHANGES AND CLARIFICATIONS

During the 2008 filing season, the IRS released a series of Frequently Asked Questions (FAQ) to provide clarification of the instructions on areas including compensation, foreign activities, transactions with interested persons, and related entities. These FAQs have been incorporated into the new form and schedules.

Codes for Part III, Statement of Program Services Accomplishments, are still not developed and remain deferred; however, the business activity codes for Part VIII, Statement of Revenue, can now be completed based on NAICS codes so they can more closely match the revenue types.

The IRS clarifies that changes in organization activities and organizational documents should be described on the 990, rather than provided in a letter to EO Determinations section.

Many organizations were disconcerted that a consolidated audit prevented them from describing themselves as audited for 990 purposes. A question has been added for organizations to indicate they are included in a consolidated financial statement audit.

Part V of the 990 covering IRS filings and compliance now includes better information regarding how to answer the questions in this section and on handling compensation through related organizations and reporting agents.

Part VI on governance issues is reorganized somewhat and instructions clarify how to appropriately respond and disclose necessary information.

Penalties: The IRS requires full compliance and, for years beginning after 2006 new law allows IRS to revoke tax-exemption for an organization that is required to file a 990 form and fails to do so for three consecutive years. Most organizations must at least file a 990-N, or risk loss of exemption. Also, IRS clarifies that an organization that files an incomplete return by failing to complete a required line or omitting a required disclosure or schedule can be subject to penalties. Penalties also apply if information is incorrect, and can be imposed on both the responsible person and tax preparer.

IMPACT OF NEW FORM

The government, press and others are looking closely at the new Form 990. Although no section of the form is expected to trigger an IRS audit, the IRS is using information from the new form to focus attention on key compliance and exemption areas. Current activities by the IRS regarding compensation, overseas operations, revenue streams, UBIT, and lobbying and political activity continue. The new form’s format is also guiding organizations to readdress their status for public support purposes, and some organizations are now finding they have or may become a private foundation.

The new form will continue to challenge organizations and their preparers, but as implications of the disclosures become clearer and more returns become public, a better understanding of required disclosures and best practices will be established. IRS continues to focus on education and guidance and has a variety of materials available online.