The Internal Revenue Service (“IRS”) has recently announced two new
Revisions to Form 990
The IRS recently released for public comment a discussion draft of a
redesigned Form 990, Return of Organizations Exempt From Income Tax. The Form
990 is the information return filed by many public charities and other exempt
The redesign of Form 990 is based on three guiding principles: (1) enhancing
transparency to provide the IRS with a realistic picture of the organization and
its operations, along with the basis for comparing the organization to similar
organizations; (2) promoting tax compliance by accurately reflecting the
organization’s operations and use of assets so that the IRS can efficiently
assess the risk of noncompliance; and (3) minimizing the burden on the filing
organization by asking questions in a manner that makes it relatively easy to
fill out the form without imposing unwarranted additional recordkeeping or
information gathering burdens.
The redesigned Form 990 consists of a ten page core form that each Form 990
filer must complete. In addition, it has fifteen schedules requiring information
reporting only from those organizations that conduct particular activities. A
brief summary of the ten page core form follows:
Part I is a summary page which provides the organization’s identifying
information and a snapshot of the organization. By looking at the summary page,
users will find a breakdown of the organization’s revenues, expenses, assets,
liabilities, and net assets, to quickly see the size and key financial measures
of the organization.
Part II requires the organization to report information about compensation of
officers, directors, trustees, and certain other employees. As with the current
Form 990, organizations must list each officer, director, trustee, or key
employee of the organization, even if not compensated.
Part III requires each organization to provide certain corporate governance
information. This information includes the composition of its board or governing
body, certain governance and financial statement practices, and the means by
which the organization is accountable to the public by making certain governance
information publicly available. This requirement reflects the IRS’s continuing
belief that good governance and accountability practices provide safeguards for
Parts IV, V, and VI require the reporting of revenues, expenses, and balance
sheet items. A major change, however, moves much of the current supplemental
financial information from the main part of the Form 990 to a separate schedule.
Part VII requires information about the organization’s general activities.
Many of the questions are ones that will, depending on the response, trigger the
need for an organization to complete an additional schedule.
Part VIII requests information about the organization’s employment tax,
excise tax, unrelated business income tax, and other filing obligations.
Depending on the answer, these questions may also trigger the need for an
organization to complete an additional schedule.
Part IX requires information on the organization’s program service and exempt
function activities. It also asks the organization to describe its most
significant accomplishment for the year.
The fifteen schedules are designed to require reporting of information only
from those organizations that conduct particular activities. The IRS believes
that certain schedules, such as Schedules A and B, will generally need to be
completed only by public charities. The IRS also anticipates that most of the
remaining schedules will be completed by only a small percentage of the
organizations filing the main form, but nearly every organization will be
required to complete at least one portion of the Schedule D, Supplemental
Additional information about the Form 990 is
Potential Voluntary Compliance Program
The IRS Advisory Committee on Tax Exempt Organizations has recommended that
the IRS establish a voluntary compliance program for exempt organizations. The
June 13, 2007 report and recommendation of the Advisory Committee suggested that
this voluntary compliance should enable charities and other nonprofit
organizations to address inadvertent noncompliance with the tax laws. Currently,
there is no voluntary compliance program for charities and other nonprofit
organizations. Instead, the IRS addresses issues as they arise on a case-by-case
The Advisory Committee suggested that the voluntary compliance program have
five basic elements: (1) it should be available only to a defined set of
eligible exempt organizations; (2) it should resolve specific issues; (3) it
should be clearly structured with written guidance addressing process and
procedure; (4) it should be voluntary; and (5) it should provide finality
through binding closing agreements or other documentation.
The Advisory Committee has recommended that the IRS implement the voluntary
compliance program in a series of phases with the ultimate goal of creating a
comprehensive program. To that end, it suggested an initial transitional
program, designed to prevent the loss of tax-exempt status for organizations
that fail to file Forms 990 for three consecutive years (a new provision of the
Pension Protection Act of 2006), leading to a longer term program addressing the
The key feature of the transitional program is to allow all tax-exempt
organizations not under audit, in appeals, or in litigation to file outstanding
Forms 990, 990-EZ, 990-PF, or 990-T for the most recent three tax years, as well
as outstanding Forms 941, 1099, and W-2. The tax-exempt organization would be
required to pay all taxes due, with interest, but would not be subject to
The longer term program would build on the transitional program by
establishing a formal, structured, and open-ended program to address similar
problems, albeit with a higher entry threshold, such as a reasonable cause
requirement and a showing that the tax-exempt organization is not subject to
excise taxes for self-dealing, failure to distribute income, excess business
holdings, taxable expenditures, lobbying, political activity, excess benefit
transactions, prohibited transactions by donor advised funds, or premiums paid
on personal benefit contracts or the private foundation termination tax.
Notably, although the Advisory Committee proposed that the longer term
program address “other” compliance issues, these compliance issues do not appear
to include failure to identify, report, and pay the excise taxes described
above. As a result, the voluntary compliance program may not have the breadth or
depth necessary to insure its success.
The Advisory Committee was established in May 2001 under the Federal Advisory
Committee Act to provide an organized public forum for discussion of issues
affecting tax exempt organizations and government entities. The Advisory
Committee provides regular input to the IRS relating to the development and
implementation of policy concerning employee plans; exempt organizations;
tax-exempt bonds; and federal, state, local, and Indian tribal government
issues. The Advisory Committee currently has twenty-one members. The members
include representatives who deal with employee retirement plans; tax-exempt
organizations; tax-exempt bonds; and federal, state, local, and Indian tribal
governments. Advisory Committee members are appointed by the Secretary of the
Treasury, meet annually, and generally serve two-year terms.