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IRS Form 990: The Next Generation

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Note: IRS intends to increase the Form 990-N filing threshold from $25,000 in ... IRS no longer to issue advance rulings; orgs no longer file Form 8734 ... – PowerPoint PPT presentation

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Title: IRS Form 990: The Next Generation


1
IRS Form 990 The Next Generation
  • October 30, 2008
  • Public Interest Clearinghouse
  • Jenny Chung, Program Manager
  • Randall Gaines, Controller
  • www.insightcced.org

2
Insight Center Overview
  • The Insight Center for Community Economic
    Development (formerly NEDLC) is a national
    research, consulting, and legal organization that
    develops and promotes innovative solutions that
    help people and communities become, and remain,
    economically secure.
  • Insight Center is a legal services support
    center that provides technical assistance to CA
    legal services organizations on legal issues
    arising in CED projects or related to tax-exempt
    organizations.

3
Overview
  • Background Increasing Scrutiny of Tax-Exempt
  • Organizations
  • IRS goals for revising Form 990
  • New Form 990-N
  • Overview of Changes to Form 990
  • major changes affecting legal services
    organizations
  • changes to reporting of exempt activities
  • reporting about business and family
    relationships
  • additional information about director officer
    compensation
  • extensive reporting of transactions with related
    organizations

4
Increasing Scrutiny of Tax-Exempt Organizations
  • Federal
  • 1996 IRC Section 4958 (excise tax penalties)
  • excessive compensation or excess benefit
    transactions with insiders
  • also, penalties on managers that approve such
    arrangements
  • 2002 Sarbanes-Oxley Act (governance standards
    for public companies)
  • 2004 Ways Means Cmte hearings on NPs IRS
    adopts new 1023
  • 2006 Pension Protection Act (addtl reporting
    reqs)
  • 2007 Form 990 revision
  • State
  • 2004 CA Nonprofit Integrity Act

5
Goals of Revised Form 990
  • IRS goals include
  • increased oversight transparency,
  • greater tax law compliance, and
  • minimizing burden on taxpayer
  • Major changes
  • reporting of transactions with controlled
    entities
  • increased reporting on transactions with
    directors, officers, and key employees
  • Result heightened state and federal focus on
    nonprofits

6
New Form 990-N (e-Postcard)
7
Smaller Organizations - Form 990-N (e-Postcard)
  • Pre-2007 tax year tax-exempt organizations with
    gross annual revenues under 25,000 generally
    were not required to file Forms 990 or 990-EZ.
  • Aug 2006 The Pension Protection Act added a
    filing requirement to ensure that the IRS and
    potential donors have current information about
    all organizations.
  • 2007 tax year and beyond Tax-exempt
    organizations with annual gross receipts of
    25,000 or less must file electronic Form 990-N,
    (unless otherwise exempt from filing)
  • "Electronic Notice (e-Postcard) for Tax-Exempt
    Organizations not Required to File Form 990- or
    990-EZ"

8
Smaller Organizations - Form 990-N (e-Postcard)
  • Form 990-N must be filed electronically
    (http//epostcard.form990.org/)
  • Form 990-N is due the 15th of the 5th month
    after end of taxable year
  • e.g. if tax year ends Dec 31, 990-N due May 15 of
    the following year
  • If not filed for three consecutive years, org
    loses tax-exempt status
  • What must be reported
  • EIN, tax year, legal name and mailing address
  • Any name the organization uses
  • Name and address of principal officer
  • Organizations website address
  • Statement confirming gross receipts normally
    under 25,000
  • Statement if org has terminated or is in the
    process of terminating operations
  • Note IRS intends to increase the Form 990-N
    filing threshold from 25,000 in gross receipts
    to 50,000 in gross receipts, beginning with the
    2010 tax year.

9
Revised Form 990
10
Revised Form 990
  • First significant revision since 1979
  • Phased in for 2008 2010 tax years
  • Based on organizational income and assets
  • 11-page Core Form 16 Schedules
  • http//www.irs.gov/charities/article/0,,id181091
    ,00.html

11
Revised Form 990 Phase-In Thresholds
  • Organizations exceeding either threshold must
    file the new Form 990. Those below both required
    amounts may file the Form 990-EZ.

12
Revised Form 990 Core Form
  • Changes Affecting Reporting of Exempt Activities
  • Organizations must now describe the exempt
    purpose achievements for each of their 3 largest
    program areas, measured by expenses. (Part III)
  • If the organization performed any significant
    program services not listed on the prior years
    Form 990, it must describe the new program
    service. The organization must also describe if
    it ceased or made significant changes to a
    program. (Part III)

13
Revised Form 990 Core Form
  • Questions about board composition, governance and
    policies, documentation of
  • meetings and recording of actions of the board
    (Part VI) include
  • Number of voting members, independent voting
    members
  • Delegation of control or management duties
  • Significant changes to organizational documents
    since last 990 filed
  • Documentation of board and committee meetings
  • Conflict of interest policy
  • Annual disclosure of potential conflicts
  • Monitoring and enforcement of policy
  • Whistleblower policies
  • Document retention/destruction policies
  • Decisions on CEO and other key employee
    compensation include independent person or
    reference to outside data
  • Joint ventures with a taxable entities
  • Policies for safeguarding tax-exempt status

14
Revised Form 990 Core Form
  • Increased reporting about Directors and Officers
  • Must report family and business relationships
    among current and former officers, directors,
    trustees, and key employees (Part VI, Schedule L)
  • family relationship spouse, ancestors, siblings
    (whole or half blood), children (natural or
    adopted), grandchildren, spouses of siblings,
    children, and grandchildren
  • business relationship
  • (1) one person is employed by another through a
    sole proprietorship or entity in which he/she is
    a trustee, director, officer, key employee, or
    35 owner),
  • (2) transactions 10K during tax year (with
    person or organization in which he she is
    trustee, director, officer, key employee, or
    35 owner),
  • (3) persons are each directors, trustees,
    officers, or 10 owners in same business or
    investment entity
  • former reported on any of orgs prior five Form
    990 or 990 E-Z
  • not former if person was an officer, director,
    trustee, or key employee at any time during the
    organizations tax year

15
Revised Form 990 Core Form
  • Increased reporting about Directors and Officers
  • Reporting business relationships between the
    organization and current and former officers,
    directors, trustees, key employees, and their
    family members (Part IV, Schedule L)
  • direct and indirect business relationships
  • Direct person is an officer, director, trustee,
    key employee, partner, or member of an entity (or
    a shareholder of a professional corporation)
    doing business with the organization
  • Indirect person owns more than 35 interest in
    an entity doing business with the organization,
    individually or collectively with other officers,
    directors, etc.

16
Revised Form 990 Core Form
  • Reporting about Director and Officer
    Compensation (Part VII)
  • Names, hours per week, and compensation of
  • Current officers, directors, trustees (no min.
    threshold), and key employees (over 150,000)
  • Current and former 5 highest compensated
    employees receiving over 100,000
  • Former officers and key employees over 100,000
  • Former directors and trustees who received, in
    that capacity, over 10,000
  • Reported compensation includes compensation from
    organization and any related organization, which
    includes one or more of the following
  • Parent an organization that controls the filing
    organization
  • Subsidiary an organization controlled by the
    filing organization
  • Brother/Sister an organization controlled by the
    person or persons that control the filing
    organization
  • Supporting/Supported organizations under
    509(a)(3) supported to/by the organization and
    any related organizations
  • Volunteer exception does not include
    compensation from a related org paid to a
    volunteer officer, director, or trustee if the
    related org is a for-profit entity.

17
Revised Form 990 Core Form
  • Addtl information about Revenue and Expenditures
  • More detail about revenue (Part VIII)
  • Total
  • Related/exempt function
  • Unrelated business income
  • Excluded from unrelated business income under IRC
    Sec. 512-514
  • Additional reporting (Part IX)
  • Insurance Advertising and promotion Joint costs
    from combined educational campaigns/fund
    solicitation
  • Additional descriptions of expenditures (Part IX)
  • Miscellaneous expenses cannot exceed 5 of total
    expenses

18
Revised Form 990 - Schedules
  • There are now 16 schedules
  • Schedules most applicable to legal services
    organizations
  • include
  • Schedule A Public Charity Status and Public
    Support
  • Required for all 501(c)(3) orgs
  • Organizations can now use their own method of
    accounting cash accting not required
  • IRS no longer to issue advance rulings orgs no
    longer file Form 8734
  • IRS will now issue determination letter of public
    charity status if organization can reasonably be
    expected to be publicly supported
  • organization has 5 tax years to establish public
    support (current year 4 prior), based on 990

19
Revised Form 990 - Schedules
  • Schedule C Political Campaign and Lobbying
    Activities
  • Political activities are a basis for revocation
    of an organizations 501(c)(3) status, lobbying
    is OK if not a substantial part of organizations
    total activities
  • Lobbying reporting requirements differ for orgs
    that have made the Section 501(h) election by
    filing Form 5768
  • Must report volunteer hours for political
    activity (and for lobbying by orgs that did not
    make the 501(h) election)
  • Schedule J Supplemental Compensation
    Information
  • For any org where current officer, director,
    trustee, or employee received
  • over 150,000, former officer, key employee,
    highest compensated employee received over
    100,000, and/or former director or trustee
    received over 10,000
  • in compensation
  • Breakdown of base, bonus/incentive, other pay,
    deferred
  • compensation, nontaxable benefits and other
    non-fixed payments
  • Procedures used to establish compensation for
    CEO

20
Revised Form 990 - Schedules
  • Schedule L Transactions with Interested Persons
    (IPs)
  • Current and former officers, directors, key
    employees of org or controlled entities
  • Requires reporting of
  • Excess benefit transactions
  • Loans to and from IPs
  • Grants or assistance benefiting IPs (includes
    relatives of IP)
  • Business transactions with IPs (includes
    relatives of IP)
  • Review the instructions and other materials on
    IRC section 4958 before responding to the excess
    benefit questions
  • Schedule M Non-Cash Contributions
  • Organizations that received more than 25,000 in
    non-cash contributions
  • Information about the donation of property
  • Gift acceptance policy
  • Use of related or unrelated persons to help
    raise funds through
  • non-cash contributions

21
Revised Form 990 - Schedules
  • Schedule R Related Organizations and Unrelated
    Partnerships
  • 6 major parts
  • Part I Disregarded Entities
  • total income and end-of-year assets of the
    disregarded entity
  • Part II Related Tax-Exempt orgs
  • exempt code section, public charity status, and
    direct controlling entity
  • Part III Related Organizations Taxable as
    Partnerships
  • direct controlling entity, predominant income,
    share of total income and end-of-year assets,
    unrelated business income

22
Revised Form 990 - Schedules
  • Schedule R (continued)
  • Part IV Related Organizations Taxable as
    Corporation/Trust
  • direct controlling entity, type of entity,
    percentage ownership
  • Part V Transactions with Related Organizations
  • gifts, grants, contributions loans, sales,
    purchase/exchange of assets
  • Part VI Unrelated Organizations Taxable as
    Partnerships
  • partnership (unrelated organization) through
    which organization conducted more than 5 of its
    activities

23
Revised Form 990
  • Prepare your organization
  • Policies
  • Establish processes for collecting information
    on
  • business relationships between directors,
    officers, key employees, etc. and organization,
    and business and family relationships among
    directors, officers, key employees, etc
  • e.g. annual and as-needed disclosures from
    directors, officers, key employees, etc.
  • volunteer hours spent on lobbying activities
    (for non-501(h) filers)
  • non-cash donations (e.g. silent auctions)
  • transactions with related organizations

24
Revised Form 990
  • Helpful Resources
  • IRS online mini-courses on Redesigned Form 990
  • www.stayexempt.org
  • November 4 from 2-3 EST, IRS will host a free
    webinar, Preparing for the new Form 990
  • http//www.taxtalktoday.tv/
  • December 3, Alliance for Justice will be
    presenting an all-day workshop in San Francisco
    for Form 990 preparers
  • www.afj.org

25
Questions
Contact Information Jenny Chung
(jchung_at_insightcced.org) Randall Gaines
(rgaines_at_insightcced.org) 510-251-2600
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