The 2012 Form 990 and Form 990-EZ for tax year 2012 contain certain changes. The due date for filing the required return for an exempt organization that is on a calendar year taxable year is May 15, 2013, unless the organization obtains an extension to file. The Form 990 instructions highlight several important changes of which exempt organizations should be aware.
The instructions clarify that if an organization accepts a contribution in the name of one of its activities or programs, the organization should indicate the organization’s name in the donor acknowledgement as well as the activity or program name.
Reporting Income and Shares of Assets of Joint Ventures or Partnerships
For organizations filing either Form 990 or Form 990-EZ, filers can now report their interests in joint ventures and other partnerships in accordance with their books and records, rather than using Schedule K-1 from Form 1065. This applies to Parts VIII, IX and X of Form 990, and Part II of Form 990-EZ.
Changes to General Instructions for Form 990
The general instructions now remind filers not to include Social Security numbers on Form 990, because the return must be publicly disclosed upon request. The general instructions also clarify that an organization with a short accounting period may file either 2011 Form 990 or 2012 Form 990, and only hospital organizations are required to include a copy of their most recent audited financial statements with the return.
Changes to Specific Instructions for Form 990
The instructions for lines 33 and 34 of Part IV clarify that related C corporations and related S corporations should be reported in Schedule R, Part IV.
If an organization delegated management duties to a management company, the instructions for line 3 of Part VI clarify the information to be reported on Schedule O.
The instructions clarify that the reporting of hours worked by officers, directors, trustees, key employees and highest-compensated employees, in Section A of Part VII, should include hours worked for related organizations in addition to hours worked for the filing organization. Additionally, the instructions for Section A now include an example of reporting benefits provided through self-insured medical reimbursement plans. The instructions for Section B clarify that insurance providers should not be reported as independent contractors.
When completing Part VIII concerning revenue, filers must check a new checkbox if Schedule O contains a response to a question in Part VIII. For section 501(c)(3) organizations that are shareholders in S corporations, the instructions clarify that all allocations of income from S corporations must be treated as unrelated business income.
The instructions for Line 3 of Part IX provide that filers must include grants to U.S. organizations or individuals for the purpose of providing grants or assistance to designated foreign organizations or foreign individuals. The prior instructions referred to grants to U.S. organizations or individuals “for foreign activity.” Fees paid for “other” services, reported as an expense on Line 11g of Part IX, must now be listed on Schedule O when the amount of the expense exceeds 10 percent of total functional expenses; filers must list the type and amount of each such expense on Schedule O.
When completing Part X concerning a filer’s balance sheet, filers must check a new checkbox if Schedule O contains a response to a question in Part X.
The definitions of some important terms have been revised. In determining the five-year disqualification period for a “disqualified person,” if the period ended within the organization’s tax year, the organization may treat the person as a disqualified person for the entire tax year. The definition of “grants and other assistance” no longer includes program-related investments. The definition of “professional fundraising services” now includes the preparation of applications for grants or other assistance.
Changes to General Instructions for Form 990-EZ
The general instructions now remind filers not to include Social Security numbers on Form 990-EZ, because the return must be publicly disclosed upon request. The general instructions also clarify that an organization with a short accounting period may file either 2011 Form 990-EZ, 2012 Form 990-EZ or 2012 Form 990.
Changes to Specific Instructions for Form 990-EZ
For Part IV concerning the list of officers, directors, trustees and key employees, filers are no longer required to list addresses in column (a) and should enter titles in column (a) instead of in column (b). Similarly, for Part VI, line 50, filers are no longer required to list addresses in column (a) and should enter titles in column (a) instead of in column (b). For Part VI, Line 51, filers are still required to list addresses for independent contractors paid more than $100,000. Additionally, insurance providers should not be reported as independent contractors on Line 51.
Changes to Form 990 and 990-EZ Schedules
For Schedule A, the IRS reminds filers that Medicare and Medicaid payments are treated as gross receipts from patients, rather than as contributions from the government payor for purposes of the public support tests.
For Schedule B, if an organization using the accrual method reports a pledge of noncash property on its Form 990, it must check the “noncash” box in Part I and complete Part II even if the organization did not receive the property during the tax year.
For Schedule D, Part XI, Reconciliation of Change in Net Assets from Form 990 to Audited Financial Statements, has been removed. Additionally, the instructions to Schedule D clarify that donor-advised funds are not limited to funds or accounts that meet the definition of “funds” under GAAP. The instructions also provide that every organization required to complete Part X, Line 2, regarding liability for uncertain tax positions, should provide the text of the financial statement footnotes — whether determined in accordance with FIN 48, IFRS or other country-specific accounting standards.
For Schedule F, the instructions clarify that an organization reporting both expenditures and investments in a region should report those amounts on separate lines in Part I for that region. Grants and other assistance to U.S. organizations or individuals that are designated for foreign organizations should be reported in Parts II and III. Finally, foreign program-related investments should be reported in Part I, but not as grants in Parts II or III.
Schedule G, Part II, Line 2 has been revised, to clarify that all contributions, whether charitable or not, should be reported for each reported fundraising event.
Schedule H has a few minor tweaks. A hospital organization may not complete a single Part V, Section B for multiple hospital facilities, if it could check the same checkboxes in Part V, Section B for each facility. The instructions to Schedule H now clarify that an organization should not report as a community benefit any payments in exchange for an economic or physical benefit, including certain payments made in lieu of taxes.
Schedule K expands Part V reporting of procedures to corrective action for tax law violations to apply to all of the bonds reported on Schedule K.
Schedule L has several new columns in its various parts, including new columns for reporting the relationship between a disqualified person and the filing organization, reporting the purpose of a loan between an interested person and the filing organization, and reporting the purpose of grants and other assistance to interested persons. The instructions clarify that deposits into and withdrawals from bank accounts are not reportable loans or business transactions, so long as they are made in the ordinary course of business. The instructions now explicitly define when a nonprofit organization is “more than 35% controlled” for purposes of determining whether it is an interested person for reporting of business transactions.
The instructions for Schedule N have been revised to clarify that an organization in the process of winding up its affairs at the end of the tax year should not complete Part I but may need to complete Part II. Additionally, the definition of “significant disposition of net assets” for Part II has been revised to exclude grants or other assistance made in the ordinary course of the organization’s exempt activities.
The instructions for Schedule R have been revised. The instructions clarify that VEBAs only need to report their contributing employers’ names in Parts II-IV, and do not need to include additional information such as address, EIN or financial information. The instructions also clarify that named beneficiaries of certain trusts may not have a determinable interest in the trust for purposes of determining whether the trust is a related organization. The instructions include additional examples of “indirect control” under section 318 and “Exempt Code sections” of related tax-exempt organizations.
The limitations for determining which return an organization is required to file remain the same as for 2011. If an organization has gross receipts that are normally less than $50,000, that organization is eligible to file Form 990-N for its 2012 tax year, although it may choose to file Form 990 or Form 990-EZ. If an organization has gross receipts normally greater than $50,000 but less than $200,000 and total assets less than $500,000, the organization is eligible to file Form 990-EZ for its 2012 tax year, although it may choose to file a Form 990. If an organization has gross receipts of $200,000 or more or total assets of $500,000 or more for its 2012 tax year, the organization is required to file a Form 990.
McGuireWoods Nonprofit & Tax-Exempt Organizations Group
Our nonprofit and tax-exempt attorneys provide advice and guidance that enable charities and other nonprofits to operate more efficiently and effectively in today’s increasingly complicated, regulated, and competitive environment.
McGuireWoods Education Practice
Our education attorneys represent public and private colleges and universities. This representation includes statutory and regulatory compliance and investigation work relating to the Higher Education Act of 1965 and federal student aid programs. It also includes issues relating to NCAA investigations, faculty tenure, financing expansion, low-income housing, 501(c)(3) and other tax issues, student lending compliance and investigations, intellectual property, students and academics, housing, governance, endowment management and construction.