The IRS has revised Forms 990 and 990-EZ for the 2013 tax year, as well as the instructions for the 2013 Forms 990, 990-EZ, and 990-PF. The due date for filing the required 2013 return for an exempt organization that is on a calendar year is May 15, 2014 unless the organization obtains an extension to file. The revised instructions highlight several important changes of which exempt organizations should be aware.
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- Changes to Form 990 and Form 990-EZ
- Changes to the Instructions for Form 990
- Changes to Form 990 and 990-EZ Schedules
- Changes to the Instructions for Form 990-PF
Short Period Returns
The instructions for Form 990 and Form 990-EZ provide that a short period return cannot be filed electronically unless it is an initial or final return. Organizations wishing to file an electronic short period return must check the “initial return” or “terminated” checkbox in Item B, if appropriate.
Changes in Accounting Period
Organizations that file Form 990-N must report a change in accounting period on Form 990, Form 990-EZ, or Form 1128 or in a letter to the IRS. The instructions for Form 990 explain that organizations that change their accounting period must report any section 481(a) adjustments in Parts VIII through XI of Form 990 and also in Parts XI and XII of Schedule D. Section 481(a) adjustments prevent the duplication or omission of items of income or expense as a result of the change in accounting period. Parts VIII through XI of Form 990 identify the reporting organization’s revenue, functional expenses, balance sheet, and reconciliation of net assets. Parts XI and XII of Schedule D identify the reporting organization’s reconciliation of revenue and expenses from the Form 990 to the organization’s audited financial statements.
Name and Address Changes
The instructions for Form 990 and 990-EZ clarify what documentation must be attached to support a name change. The documentation for corporations remains the same – a copy of the amendment to the organization’s articles of incorporation with proof of filing with the state government in which the organization incorporated. For trusts and unincorporated associations, however, the instructions now specify that amendments to trust agreements, articles of association, constitution, or other organizing documents must bear an effective date of the name change. For trusts, the amendment must be signed by at least one trustee. For unincorporated associations, the amendment must be signed by at least two officers, trustees, or members.
The instructions for Form 990 and 990-EZ also state that an address change should be reported on Form 8822-B, Change of Address or Responsible Party – Business, if an organization has not already reported the change on its Form 990, 990-EZ, or 990-N or in a letter to the IRS.
Supporting Documentation for Terminations, Dissolutions, Mergers, and Revocations
The “terminated” checkbox in Item B must be checked by any organization that has terminated, ceased operations and dissolved, merged into another organization, or had its exemption revoked. The instructions for Form 990 and 990-EZ now require any such organization to include a certified copy of its articles of dissolution or merger, if available, or otherwise a copy of a resolution by the organization’s governing body approving plans to liquidate, terminate, dissolve, or merge.
Reporting Contributions, Rental Income, and Cost of Goods Sold
The instructions for Form 990 and Form 990-EZ clarify that contributions do not include discounts on services provided to an organization. Additionally, the definition of “contribution” in the Form 990 Glossary has been revised to clarify that discounts on the sale of goods in the ordinary course of business and donations of services or the use of materials, equipment, or facilities are not contributions.
The instructions to Form 990 and Form 990-EZ clarify that rental income includes income from any real property rented by an organization, not just investment property.
For purposes of determining the cost of goods sold, the instructions for Form 990 and 990-EZ now provide that an organization can include the cost of donated goods at their fair market value at the time of acquisition.
Reporting Amounts Paid to Independent Contractors
Under the instructions for both Form 990 and Form 990-EZ, if an organization can distinguish between fees paid to independent contractors for services and expense reimbursements paid to independent contractors, the organization should report the fees and the expense reimbursements separately. If the organization cannot distinguish between these amounts, all such amounts should be included on line 11 (Form 990) or line 13 (Form 990-EZ).
Reporting Compensation to Directors for Non-Director Services
The instructions for Form 990 and 990-EZ have revised the definition of “reportable compensation.” Reportable compensation includes compensation paid to a director (or trustee) for services provided by that person to the organization (or any related organization) as an independent contractor. Such “non-director independent contractor” compensation must be reported in Section A, Part VII (Form 990) or Part IV (Form 990-EZ).
Qualified Nonprofit Health Insurance Issuers
The Affordable Care Act added section 501(c)(29) organizations to the list of tax-exempt organizations. Section 501(c)(29) organizations are qualified nonprofit health insurance issuers that have received a loan or grant from the Centers for Medicare and Medicaid Services CO-OP program. These organizations must file Form 990. The instructions to various parts of the Form 990 and schedules have been updated in numerous places to reflect the inclusion of section 501(c)(29) organizations in the category of Form 990 filers.
Schedule A: A public charity that files Schedule B with its Form 990 or 990-EZ can exclude contributors that fall below the greater-than-$5,000 or 2% of total revenue threshold, but only if the organization also checks the box on Schedule A, Part II, line 13, 16a, or 16b.
Schedule D: Organizations filing Form 990 that act as an agent, trustee, custodian, or other intermediary for assets that are not included in Part X should include those accounts on Schedule D.
Schedule F: The IRS has defined “domestic individual” in the Form 990 glossary as “an individual who lives or resides in the United States and is not a foreign individual.”
Management Company’s Compensation of Organization’s Persons
For organizations that have delegated management duties to a management company or person, the instructions for line 3, Part VI, clarify what compensation from the management company should be reported. The organization should report compensation paid by the management company to any of the organization’s officers, directors, trustees, key employees, or highest compensated employees, if the compensation was received for services provided to the organization or related organizations during the year. This is a change from previous instructions, which required reporting of any compensation received from a management company.
Reportable Compensation of Officers, Directors, etc.
Compensation paid by an unrelated management company to an organization’s key individuals (officers, directors, trustees, key employees, or highest compensated employees) is not reportable in Part VII, Section A, although such compensation may be reportable in response to line 3, Part VI, or in Part IV of Schedule H.
The instructions also clarify that, for purposes of reporting current and former key employees and highest compensated employees, a “current” key employee or highest compensated employee is a person who was an employee at any time during the calendar year ending with or within the organization’s tax year. The wording of previous instructions implied that a “current” key employee or highest compensated employee was a person who was a key employee or highest compensated employee for the entire calendar year ending with or within the organization’s tax year.
Changes to the Statements of Revenue and Functional Expenses
When reporting the direct expenses of fundraising events on line 8b, Part VIII, the instructions clarify that organizations should include expenses incurred before, during, or after the fundraising event. For example, the costs of invitations for a fundraising dinner would be included as direct expenses, in addition to the food and beverages served during the event.
Changes to Appendices D, E, and F
The instructions in Appendix D remind organizations that both original and amended returns are subject to public inspection.
For purposes of group returns and reporting significant diversions of assets pursuant to line 5, Part VI, the instructions in Appendix E provide clarification. A significant diversion of assets is computed on a subordinate-by-subordinate basis by separately considering the total assets and gross receipts of each subordinate, and not including the assets or receipts of the parent or other subordinates.
For purposes of group returns and reporting transactions with interested persons on Schedule L, the instructions in Appendix E provide clarification. In determining whether a transaction between a subordinate and its interested persons meets the reporting thresholds of Part IV, Schedule L, only the payments between the subordinate and its interested persons should be considered.
Appendix F now clarifies when a single-member LLC will be treated as a disregarded entity of its sole member.
Schedule A – Public Charity Status and Public Support
The instructions for Schedule A have been significantly revised with respect to supporting organizations. The new instructions remind all supporting organizations that they must be “responsive to the needs or demands of one or more supported organizations” to reflect the implementation of final regulations for Type III supporting organizations. The instructions now reflect the final regulations pertaining to Type III functionally integrated and non-functionally integrated supporting organizations. The instructions explain the notification requirement, the responsiveness test, and the integral part tests applicable to Type III functionally integrated supporting organizations and Type III non-functionally integrated supporting organizations.
Schedule D – Supplemental Financial Statements
The instructions to Schedule D require additional information for program-related investments reported in Part VIII. Organizations are now required to describe each program-related investment on a separate line, indicate whether the investment is a loan or equity investment, and identify any domestic organizations in which investments have been made. The instructions also clarify that organizations should report any credit counseling, debt management, credit repair, or debt negotiation services in Part XIII.
Schedule F – Statement of Activities Outside the United States
The instructions for Schedule F require reporting of grants made to domestic persons or organizations when made for the purpose of providing grants to designated foreign beneficiaries. Organizations do not need to report on Schedule F any investments in foreign entities that are traded on a U.S. stock exchange. Organizations reporting grants to foreign individuals must report or estimate the number of recipients; for organizations that provide an estimate of that number, the instructions no longer require an explanation of the estimate. The instructions also specify that Forms 3520, 3520-A, and 5713 should not be attached to the Form 990.
Schedule H – Hospitals
The instructions for Schedule H contain several revisions. “Direct offsetting revenue” now includes restricted grants to be used for community benefit, although such grants should only be reported in Line 7i if the restriction for community benefit is in writing. The instructions also clarify that financial assistance does not include self-pay or prompt pay discounts. An organization must list in Part V, Section A, the state license number for each of its hospital facilities. Organizations that complete Part V of Section B for one or more hospital facilities must also complete a separate Part V of Section C for each of those facilities. For any facilities that considered residency as a factor in calculating amounts charged to patients, line 12 on Part V, Section B, needs to be checked for each facility.
Schedule J – Compensation Information
The instructions for Schedule J permit organizations that used a compensation consultant to check any box in line 3 if the consultant relied on any of the methods listed. The instructions also clarify that payments made pursuant to voluntary separation or termination agreements should be reported on line 4a. The instructions for reporting compensation from unrelated organizations refer back to the instructions for Line 5, Section A, Part VII, of the Form 990.
Schedule K – Supplemental Information on Tax-Exempt Bonds
The instructions for Schedule K provide additional explanation of the private security or payment test referenced in line 7, Part III. There are also new instructions regarding the sale or disposition of bond-financed property to be reported in lines 8a, 8b, and 8c of Part III.
Schedule L – Transactions with Interested Persons
The instructions for Schedule L clarify the definition of a “35% controlled entity” to include entities controlled by family members of an organization’s current or former officers, directors, trustees, or key employees. The instructions also clarify that certain foreign organizations may be treated as section 501(c)(3) organizations for purposes of reporting business transactions in Part IV. The instructions also clarify that a transfer to an interested person for the purpose of making investments will be reportable only to the extent of fees charged by the interested person, rather than by the amount of the assets transferred.
Schedule N – Liquidation, Termination, Dissolution, or Significant Disposition of Assets
The instructions for Schedule N have been updated to track the new language in the instructions for Form 990 and 990-EZ regarding documentation supporting a liquidation, termination, dissolution, or merger.
Schedule R – Related Organizations
The instructions for Schedule R clarify the reporting rules for section 501(c)(9) voluntary employees’ beneficiary associations (“VEBA”) and their sponsoring organizations. VEBAs must report their sponsoring organizations as a related organization, but sponsoring organizations are not required to report a VEBA as a related organization unless the two organizations are related in some other capacity.
New Completion Requirements Table
The revised instructions for Form 990-PF now include a table indicating which parts of the form apply to various types of private foundations. The table expands on language from the prior instructions.
New Codes for Foundation Status of Grant Recipients
For foundations reporting grants or contributions in line 3, Part XV, the instructions include new codes to use when reporting the foundation status of recipients. There are ten codes, covering non-charitable recipients, public charities, private foundations, supporting organizations, and public safety organizations.
Penalty for Failure to Deposit Employment Taxes
The instructions remind private foundations that they are subject to the section 6656 penalty for failure to deposit employment taxes when due.
Section 507(b)(1)(B) Terminations
The revised instructions contain additional details regarding the advance notice requirement for terminations under section 507(b)(1)(B) by operation as a public charity under sections 509(a)(1), (2), or (3) for a continuous 60-month period. The instructions clarify that foundations intending to take advantage of section 507(b)(1)(B) must give proper notice to the IRS.
Changes in Address or Responsible Party
The instructions indicate that Form 8822-B should be used to notify the IRS of changes in business mailing address, business location, or responsible party.
Initial Return of Former Public Charities
For former public charities that are filing their first Form 990-PF as a private foundation, the instructions clarify that such organizations are treated as a private foundation for the reporting year only for purposes of filing Form 990-PF, paying the excise tax on investment income, and terminating private foundation status.
Reporting Interests in Pass-through Entities
For foundations that have interests in pass-through entities (such as partnerships, trusts, and S corporations), the instructions remind filers that tax items reported on the Schedule K-1 for the entity’s tax year ending with or within the foundation’s tax year should be reported in columns (b) and (c) of Part I on the foundation’s Form 990-PF.
Excess Business Holdings
If a foundation was the controlling organization of a controlled entity under section 512(b)(13), the foundation must attach a schedule listing the name, address, and tax number of each controlled entity. The instructions now provide that the schedule must include a statement whether the controlled entity is an excess business holding.
The instructions for line 3a, Part VII-B, concerning excess business holdings, have been expanded to provide a better explanation of the excess business holdings rule.
The instructions have added a clarifying paragraph for Part IX-B which provides that foundations should only report in the “amount column” the amounts of program-related investments that may be treated as qualifying distributions. As the instructions make clear, this amount does not include (1) a loan guarantee made by the foundation (unless the foundation makes a guarantee payment that would be a qualifying distribution) or (2) amounts that are described in the exceptions found in the instructions for column (d), line 25, Part I. Amounts that are not reportable in the amount column should instead be reported in the column describing the investment.
Valuation of Real Estate
The instructions for line 1c, Part X, remind foundations that all assets must be valued annually except for real estate, which may be valued every five years if certain procedures are followed.
Applying Excess Distributions from Prior Years
If a foundation elects to apply excess distributions from prior years to satisfy the distribution requirements, the instructions for line 7, Part XIII, require the foundation to make that election in a statement that conforms to the requirements of section 53.4942(a)-3(c)(2) of the regulations.
For more information on the significant changes in the 2013 Form 990 and 2013 Form 990-EZ, click here.
For access to all of the 2013 Form 990 series – including forms, schedules, and instructions – click here.
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