The revised Form 990: more transparency and compliance (Part 2).

The Taxing Issues column in the November 1 issue of The NonProfit Times started the discussion regarding the revisions to Form 990 proposed by the Internal Revenue Service (IRS). The IRS released the draft revision for comments on June 14. Comments were due by September 14. The IRS expects to release a revised draft in early 2008, for filing in 2009.

The revised 990 consists of a core form with 12 pages and 15 supplemental schedules. The IRS hopes that this format will keep the number of free-form attachments to Form 990 submissions at a minimum. The schedules ask for much of the information currently on the basic 990 and Schedules A and B, in addition to a lot of additional information.

The core form was discussed last month. This column will go over the supporting schedules as they were proposed in June. IRS personnel have indicated that some schedules might be changed in the final version, and some could be deferred past 2009, but they will be discussed here as they were drafted.

SCHEDULE A

This is titled "Supplementary Information for Organizations Exempt Under Section 501(c)(3)." The schedule contains the public support tests that are currently on Schedule A. It lists the public charity categories that are covered by IRC Section170(b)(1)(A), such as churches, schools, hospitals and others, as well as those that have to satisfy one of the numerical tests of IRC Section 509(a). If you are a supporting organization under IRC Section 509(a)(3), you will have to indicate which type you are, whether you have an IRS determination of your type, and identify the organizations you support. You will also have to indicate if you received a gift from a controlling person, their families or entities they control.

The schedule contains separate computations for the two public support tests, and you will have to make the computations of your public support percentages as you currently do. The IRS has added a fifth year to the computation. This will likely require a regulation change, as the current test only includes four years.

However, the test for initial qualification includes five years, and the IRS wants to make the two tests the same. The IRS indicated that it will have the regulations changed if it adopts this format.

Also, if you are covered by IRC Section 509(a)(1), you will be allowed to use the accrual method of accounting to compute your public support percentage.

SCHEDULE B

Called the "Schedule of Contributors," it will remain exactly as the current version. The proposed instructions do not clarify whether you should prepare this form on the cash or accrual method. Some commentators have asked for clarification on this point.

SCHEDULE C

"Political Campaign and Lobbying Activities" picks up some of the questions and schedules on the current forms, and adds some new ones. Depending on the type of organization you represent, you will only have to complete certain parts of the schedule. Part I-A, applicable to everyone, asks for a narrative description of your direct and indirect political campaign activities and how many volunteer hours and dollars you spend on them.

Part I-B, for organizations exempt under IRC Section 501(c)(3), asks if you have incurred any excise taxes under IRC Section 4955, and whether you have filed Form 4720 to pay the tax. It also asks whether you have corrected the situation.

Organizations that are not exempt under Section 501(c)(3) have to show how much they have spent on political activities and provide information about any 527 organizations they supported.

In addition, Schedule C picks up the lobbying disclosures currently on Schedule A of Form 990, as well as the information required of non-Section 501(c)(3) organizations regarding the amount of dues designated as used for lobbying expenditures.

SCHEDULE D

This will be used for information to supplement the balance sheet included in the core form, as well as the reconciliation of revenues and expenditures with your audited financial statements. The balance sheet schedules will replace the free form schedules currently called for to support various balance sheet items.

There are also schedules included for conservation easements, donor advised funds, art or historical collections, trusts and escrow accounts and endowment funds. Each of these schedules supports a question on the core form.

Schedule D also includes the reconciliation of net assets, currently on the basic Form 990.

SCHEDULE E

This will be used by private schools to report the information currently on Schedule A. There are no changes in the information requested.

SCHEDULE F

This is one of the more difficult and controversial new schedules, "Statement of Activities Outside the U.S." If it remains in its proposed format, you will have to list each country in which you operate, show the number of accounts or offices and employees you maintain by country, briefly describe your activities and show total expenditures.

There are also a number of questions about your grant-making procedures, and whether any grants were made to your insiders or those related to them. If you make grants to organizations outside the U.S., you will have to list each organization and provide financial and other information. If you give funds to individuals in other countries, you will have to describe the programs and show the number of recipients, amounts and other data.

SCHEDULE G

This covers your fundraising activities, especially gaming. It requests information regarding the types of fundraising you engage in, and includes schedules of information about your two largest events. If you engage in gaming, you will have to provide additional information; particularly about any individuals or entities you hire to conduct the events.

SCHEDULE H

"Hospitals" is probably the most controversial of the new schedules. It is completely new, three pages long, and focuses on community benefits and other hospital processes and procedures. The draft form indicates that it is applicable to all exempt organizations that provide health care, which includes more than hospitals. This is one of the forms whose implementation might be delayed, but some form of this information is likely to be required.

SCHEDULE I

This schedule covers grants and other assistance within the United States. It asks about grants to insiders and related entities. It also calls for a list of organizations or governments that received grants, as well as the amounts and purpose of the grants. Grants to individuals must be listed by type and include the number of recipients and amounts.

SCHEDULE J

"Supplemental Compensation Information; supports the details listed in the core form. If individuals receive more than the threshold compensation amounts listed on the core form, additional details are required on Schedule J. These include a breakdown of W-2 compensation into base compensation, bonuses and incentives, severance payments and other elements of compensation.

You will also have to list nonqualified deferred compensation and nontaxable benefits. The draft form also calls for the total of nontaxable expense reimbursements, but this requirement may be dropped after many objections. The draft schedule does not ask about qualified plan amounts. But, those are expected to be added, so that the total compensation package will be shown. This will assist you if you look at other organizations' compensation listings to determine comparable salaries for your key employees.

The draft Schedule J also asks whether your organization has written travel and expense policies, whether you pay for first-class travel, club dues or the use of a personal residence, and whether compensation is determined by either revenues or net earnings.

SCHEDULE K

If your organization has issued tax-exempt bonds, you currently have to provide some information on Form 990, as well as make other filings with the IRS. The draft form contains Schedule K that covers this area. It asks for descriptive listings of the bond issues, and a great deal of detailed information. It asks about private use of bond proceeds, which can disqualify the exemption of the bonds, as well as compensation paid to third parties. Most of this information is currently not included on Form 990.

SCHEDULE L

This covers loans made to or by your organization to officers, directors, trustees, key employees, highly compensated employees and disqualified persons. These are broader categories than covered by the current Form 990. You will have to list the original principal amount, balance due, dates of the loan and maturity, the interest rate, security provided and the purpose of the loan. You will also have to disclose whether there is a written agreement. While most of this information is required in supporting schedules to the balance sheet, this schedule will make it difficult to avoid providing all of the information.

SCHEDULE M

If it remains in its present format, this schedule could cause you some difficulty. It covers non-cash contributions. You will be required to provide information about a long list of types of donations. These include art, clothing, household goods, vehicles, intellectual property, securities, real estate and others. You will have to show the number of items received, revenues reported on Form 990, method of valuation and the amount shown on the balance sheet.

For some types of donations, tracking this information could be somewhat problematic. We are hopeful that the IRS will make some changes to this schedule, but we do not know whether that will occur.

SCHEDULE N