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Changes to 2009 Form 990

For calendar year 2008 (and fiscal year 2009) nonprofit organizations, the IRS unveiled a completely new Form 990. The new form included an 11-page “core” form and 16 schedules. The core form was applicable to all eligible filers, while the schedules applied to different organizations depending upon their activities. The IRS released hundreds of pages of instructions meant to clarify what information was to be included in a return. Not surprisingly, there were instances in which the new instructions proved ambiguous. In other circumstances, the information that was filed was not consistent with the policy aims of the IRS. Consequently, the 2009 version of Form 990 and related instructions include many changes.

Before we discuss the new changes, let’s review changes for 2009 that were previously disclosed.  The eligibility thresholds for filing the full form 990 (as opposed to form 990-EZ) decrease to either more than $500,000 (from $1 million) in gross receipts or more than $1.25 million (from $2.5 million) in total assets. Organizations with bond obligations issued or refinanced after December 31, 2002 will now be required to file the full Schedule K. Hospitals will now be required to file the full Schedule H.

The 2009 Form is very similar to the 2008 Form. Most of the changes are clarifications of the instructions.

Core Form – Part VI – Governance

The substance of Part VI has not changed. The questions have been rearranged to segregate the questions about management and the governing body from the questions about policies. The policy section includes all of the questions that are not mandated by law (conflict of interest, board review of Form 990, joint venture policy, etc.) but that are considered to be best practices by the IRS. It would appear that the IRS is segregating these questions to further emphasize their importance.

The instructions provide a couple of important clarifications. Many organizations either used e-mail or web portals to make Form 990 available to their board members in accordance with a question to that effect. Many advisors believed that this was a proper interpretation of the instructions. The IRS clarifies that as long as the organization makes the version to be filed available to all voting members, it may answer question 11 “yes.” In the case of use of a web portal, the board members must be notified that the form is available on the portal and they must be notified of the web address of the portal.

The second clarification involves question 15 with regard to compensation policies. The instructions make clear that the IRS is asking whether the organization followed the full rebuttable presumption process set forth in the IRS Code and Regulations. The rebuttable presumption is a three-part test that requires compensation decisions to be considered by (1) a board or committee independent from the compensated party in question, (2) in writing, (3) taking into consideration comparable compensation data of similarly situated organizations.

Consolidated Financial Statements

The 2008 instructions required organizations audited or reviewed as part of a consolidated financial report to answer “no” to questions relating to whether or not the organization had an audit or review. In 2009, on Part IV, question 12a and Part XI, question 2d organizations can indicate that they were part of a consolidated financial report. Organizations that are part of a consolidated report still are not required to provide a financial statement reconciliation to Form 990 on Schedule D, Parts XI, XII, and XIII.

Schedule F

The IRS felt that it was not capturing the true breadth of foreign activity on the 2008 form. The 2009 instructions clarify that the types of foreign activities to be reported include investments in foreign entities, conducting board meetings abroad, and sending agents to seminars or conferences outside the United States. Expenditures to be reported include travel expenses to, from, and within a foreign region, but allocations of indirect expenditures are not necessary if the organization does not separately track them. Grants and assistance to US citizens made in the US for foreign travel should be reported. Moreover, even foreign activities paid for in US funds drawn from US banks and paid to US vendors or recipients must still be reported as foreign activities.

The new instructions also include investments in foreign entities — even if passive (i.e., off-shore hedge fund investments). The investments are disclosed on Part I–Activities outside the US. Investments are listed by region based on the domicile of the entity directly owned by the organization. Thus, foreign partnerships are identified based upon their legal domicile. There is no requirement to list the legal domicile of all the partnership’s investments. Likewise, investment in a domestic US partnership that invests in foreign countries will not be subject to disclosure. Organizations are instructed to list the organization’s activity in this context as “investment” unless it serves a specific exempt-function activity. This might be the case for certain types of foreign aid organizations such as those involved in microfinance or other forms of economic development.

IRS Procedural Clarifications

The 2009 instructions make it clear that Form 990 is now the primary method for documenting changes in an organization’s activities, structures, and operations.  Previously, many changes were reported to the IRS Exempt Organization’s Determinations Office (EODO). The change is evident in three instances. First, organizations are instructed to show changes in activities on Part III in lieu of any reporting to EODO. Second, organizations are told (Part VI, line 4) that significant changes to their organizational documents (articles of incorporation and by-laws) should be reported on Schedule O rather than reported to the EO DOe. Third, the filer is directed to report its liquidation, termination, or dissolution on Schedule N rather than via a letter to the EODO office, since EODO no longer issues letters confirming that an organization’s tax-exempt status was terminated. One exception to this trend is that Schedule A instructions do suggest documenting any change in private foundation status with EODO.

There are many other clarifications of issues from the instructions. We have touched upon the highlights. All in all, the 2009 filing season should be far smoother than the 2008 filing season. There are changes, but it seems like there are always changes. After all, at least this year the form itself is similar to that from the prior year.

Questions about the changes to Form 990? Please contact David Lowenthal at 312-980-2954 or dlowenthal@BlackmanKallick.com or your Blackman Kallick representative.

 

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.