IRS Draft Form 990 teleconference

Today's IRS teleconference on the new Form 990 was interesting. Here are the highlights:

Reasons for change & approach
The form is outdated... it was last updated in 1979. Since then there have been an explosion in the number and sophistication of tax exempt organizations. The current form has been "jury rigged" to deal with changes, and that has not been effective. The form can't be renumbered in the current system, so the form often makes no sense. This leads to incomplete and incorrect filings.

The new form is designed to increase transparency, improve compliance and reduce burden on filers. One of the ways to deal with this was to reduce the number of schedules and restructure the whole form so that it makes more sense and is more consistent, especially for smaller organizations.

Overview of the redesign

• A summary or snapshot of the organization... the information all comes from other places on the form
• New calculation of efficiency and effectiveness indicators (seeking comments on this)
• Five highest compensated individuals (not just officers, etc.) - must use W2 or 1099 reporting and it expands beyond just 501(c)(3)s
• City and state of residence for individuals added (currently allows address of the organization)
• Page 4 - mostly new questions on governance (seeking comments)
• More breakdown on types of support and some forms of expenses
• Part VII - trigger questions for filing schedules (seeking comments)
• Part VIII - trigger questions for filing other IRS forms (seeking comments)
• Trimmed to 15 Schedules... some highlights:
• Schedule A is still for (c)(3)s only but it has been streamlined. It includes a public support test section with a five year period instead of four. Lobbying information has moved to Schedule C.
• Schedule B is largely unchanged (lists donors).
• Schedule C includes lobbying and inter-organization transfers with 527s.
• Schedule D has a mix of old and new, including Donor Advised Funds
• Schedule F has new information on foreign activities
• Schedule G has new information on third party fundraising (not internal development officer information, however)
  
• Schedule I still covers grants, but there are some changes
  
• Schedule J is new and targets information on highly compensated individuals
  

More information on the draft Form 990 is here. As far as the Form 990 goes, it looks like this new form may be simpler to handle, but as with any change, people who are used to the old form may be puzzled by the proposed changes. It seems like the IRS has put a lot of effort into this redesign, but it remains to be seen the degree to which this helps smaller nonprofits. There may be some threshold changes to the Form 990-EZ to help with that, but those changes are unclear right now (the IRS is seeking comment on that). The very smallest of organizations will be filling out a new Form 990-N beginning in 2008... basically a postcard that includes very limited information for filing.

Comments are due by September 14th (details here) in order to get this new form ready for fiscal 2008 (filed in 2009). The IRS rep says that if the new form is not finalized by December of this year it could not be implemented until 2012. That seems odd, but it apparently has something to do with the IRS technology division... and you don't want to argue with them, I suppose.