What Form 990 Changes Could Mean to Your Organization
IRS Form 990 for tax-exempt organizations is a work in progress, and the IRS previously redesigned the form in 2008. After issuing a draft of the 2010 form to incorporate changes to language that has been problematic in the past, the service posted a final 2010 core form and related schedules to their website (www.irs.gov) at the end of December. McGladrey national lead for Exempt Organization Technical Tax Services James P. Sweeney recently hosted a webinar detailing these changes and their possible effects on organizations.
Core form changes
Part I, Summary
The clarification is now in line with the instructions, indicating the number of employees that were issued a W-2 via the W-3 transmittal for the calendar year ending with or within the reporting year.
Line 7a has also been clarified, stating “Total unrelated business revenue from Part VIII, column (C), line 12.” In previous versions of the form, this line stated “Total gross unrelated business revenue from Part VIII, column (C), line 12.” There was some confusion over what exactly needed to be entered in that line because Part VIII, the statement of revenue on the core form, has items of gross income that are not accounted for in column (C) which could potentially be treated as unrelated business income subject to tax. Removing the word “gross” provides clarity as to what is needed in line 7a.
Lines 7a and 7b are key elements in Part I and are expected to often come under scrutiny from the IRS. For instance, if the total listed in line 7a is a six- or seven-figure amount with a relatively low figure in line 7b listed as unrelated business taxable income, the IRS may take a second look. Too much of a discrepancy could indicate a few different things, sometimes an overzealous allocation of expenses to offset unrelated business income flows or just incorrect allocations of overhead to reduce tax exposure.
Part II, Signature Block
Also included in the paid preparer area is a block to print or type the preparers’ name. This new area should help remove all doubt regarding illegible signatures. Under the new program, there is going to be a higher amount of monitoring of paid preparers. The block regarding whether the IRS can discuss the return with the preparer remains, but it is not in any way intended to take the place of Form 2848, Power of Attorney. The authorization for the IRS to discuss a return lasts until the due date of the next year’s return, not including extensions.
Part III, Statement of Program Service Accomplishments
Part IV, Checklist of Required Schedules
Line 11 includes yes and no answers, which were not included on the previous form. By evolving from the 2009 form’s bullet point format and allowing specific answers, the IRS hopes to achieve better tracking of responses and specifically which parts of Schedule D are being filled in.
In line 12, a highly contentious question was included in the form designed in 2008, asking whether an organization received a GAAP financial statement. After the 2009 form included a question regarding consolidated statements, the 2010 form has dropped the reference to line 12A and just made this a two-part question, a separate financial statement question and a consolidated statement question. Of course, if an organization received both kinds of audited financial statements, they could answer “yes” to both questions.
It is recommended for 501(c)(3) organizations seeking outside grant funding to fill in the reconciliation schedules on Part D if you answer “yes” to question 12b and “no” to 12a, although, the form and instructions list it as optional. Some grant making organizations like to see reconciliation of the numbers on the Form 990 to the audited financial statements, whether they are consolidated statements or not. Depending on the grant maker, unwarranted delays in issuing funds because of the lack of a reconciliation calculation on the filed form 990 should be avoidable.
In lines 14, 15 and 16, Schedule F is now referenced, requiring additional information for grantmaking procedures. This reminds individuals that they do need to provide their grantmaking procedures as a part of Schedule F if it is required to be filed. In addition, Schedule F now includes a new Part IV, regarding specific yes and no questions associated with the filing of foreign disclosure forms 926, 3520, 3520-A, 5471, 8621, 8865 and 5713. Organizations now will be required to know what they are invested in and state on Schedule F if they had entered into the listed transactions on the Schedule.
There is an additional line item for line 20, which looks at Schedule H for hospitals. Line 20b has been added, requiring hospital financial statements to be attached to Form 990 if the organization answers “yes” to question 20a. New health care regulations require that tax-exempt hospitals must submit this information going forward, so it is imperative that statements be completed prior to the Form 990 filing.
A new line 35b has been added, relating directly to controlled and controlling entity payments that are required to be reported.
Part V, Statements Regarding Other IRS Filings and Tax Compliance
Line 13 is a new item to Part V that looks at qualified nonprofit health insurance issuers, otherwise known as 501(c)(29) organizations. These organizations were authorized as tax exempt in section 1322 of the 2010 Health Care Act, and code section 4958(e)(1) was amended to add these organizations to those that are deemed to be applicable tax-exempt organizations related to the excess benefits transaction tax. The definition of a qualified health plan can be found in section 1301 of the act. The legislation authorized $6 billion in funding and instructed the director of the Department of Health and Human Services to establish a co-op (consumer operated and oriented) plan to foster the creation of qualified not-for-profit health insurers to offer qualified health plans in the individual and small group markets. Generally, an organization will qualify as a not-for-profit health insurance provider if it meets a list of rules. Part V helps to ensure that these organizations maintain certain types of reserves that must be reported to comply with new statutory requirements.
Part VI, Governance, Management and Disclosure
Part VII – Compensation of Officers, Directors, Trustees, Key Employees, Highest Compensated Employees and Independent Contractors
Part IX – Statement of Functional Expenses
Part X, Balance Sheet
Part XI, Reconciliation of Net Assets
There are also several changes to individual schedules in Form 990.
For more information, please contact McGladrey national lead for Exempt Organization Technical Tax Services James Sweeney at 703.336.6514.