Updated to Serve a Changing SectorFor the first time since 1979, the IRS has completed a significant overhaul of the reporting form tax-exempt organizations are required to file each year. The redesigned Form 990 was officially released on December 20, 2007, approximately six months after the IRS introduced a draft version of the form and solicited comments from the public. Returns filed for the tax year 2007 will still use the current form, with the new form coming into use beginning with returns filed for tax year 2008.
The general purpose of the redesign was to update the Form 990 to reflect the many significant changes that have occurred in the nonprofit sector over the past 28 years, specifically addressing the increased demand for transparency and accountability.
After releasing the Form 990 discussion draft in June 2007, the IRS held a 90-day comment period, during which more than 3,000 pages of suggestions from the public were received in letters and e-mails. These comments were the basis of many of the modifications that were incorporated into the final version of the form.
Although there were some major changes, the final version retains the same basic format as the draft. There is an 11-section core form supplemented with 16 schedules lettered A through O, designed to replace the attachments that are currently used. The entire core form must be completed by all filers, but organizations are not necessarily required to fill out every schedule. The final version of the form features a checklist that will allow preparers to determine quickly which schedules are applicable to their organizations.
Other changes from the current Form 990 include a summary page designed to provide a financial "snapshot" of the organization and a section that requests information concerning the organization's board and governance policies.
Transition Relief for Smaller OrganizationsIn the interest of making the changeover easier for small organizations, the redesigned Form 990 will be phased in over a three-year transition period. The new form will be put into use beginning with tax year 2008 returns filed in 2009, but at the same time the threshold of eligibility for filing a 990-EZ will be adjusted to include more organizations. The Form 990-EZ itself will remain unchanged, although certain schedules from the new Form 990 will replace attachments that are currently used.
Starting with tax year 2008, the financial threshold for 990-EZ filing will be changed to gross receipts of less than $1 million and assets of less than $2.5 million. Over the next two years, however, this threshold will be gradually tightened, requiring more organizations to file the new Form 990. For tax year 2009, it will be adjusted to gross receipts of less than $500,000 and assets of less than $1.25 million, and in 2010 it will be set at gross receipts of less than $200,000 and assets of less than $500,000. Also effective for tax year 2010 will be a change in the threshold for 990-N (e-Postcard) filers, adjusting it from $25,000 to $50,000 in gross receipts.
There will also be a phased-in transition period for Schedules H and K, which were designed for hospitals and reporting on tax-exempt bonds. For tax year 2008, only some basic identifying questions will be mandatory, with the rest of the requested information considered optional. Beginning in tax year 2009, however, all of the information requested on these schedules will be mandatory for the organizations that are required to file them.
Responding to Comments from the PublicThe final version of the new Form 990 features several major differences from the discussion draft. Notable changes include the decision to continue to allow group return filings and the addition of Schedule O, which provides organizations with space to include further explanations and relevant supplemental information.
Security concerns were also addressed. Organizations will no longer be asked to provide the private addresses of employees, officers, and board members. Furthermore, in the interest of protecting individuals in volatile areas of the world, Schedule F no longer requires organizations to list the countries in which they conduct activities—instead they are requested to provide a general region.
GuideStar took part in the public comment process on the discussion draft, offering an eight-page letter outlining our suggestions and concerns. Like many others in the sector, we were particularly concerned with the ratios and percentages that were featured on the summary page of the draft form. In the interest of providing a more complete and relevant picture of the filing organization, we suggested requesting preparers to supply two years of basic financial information that could be compared at a glance. This change was implemented into the final version of the form.
Other suggestions made by GuideStar (and undoubtedly others) that were incorporated into the final version of the Form 990 were: the removal of the request for the Social Security Number of the form's preparer in the Signature Block; moving the statement of program accomplishments to a more prominent position at the front of the form; and raising the thresholds for 990-N and 990-EZ filing.
"My colleagues and I applaud the IRS for listening to the diverse needs of the sector and for fashioning a responsible new Form 990," stated Bob Ottenhoff, GuideStar's president and CEO. "The revised return clearly reflects the service's consideration of the comments it received about the draft version of the revised form. My colleagues and I believe that these changes and the gradual introduction of the new form will increase the accuracy of the returns and mitigate the costs of the transition to the new form."
Learn MoreThe IRS plans on releasing draft instructions for the revised Form 990 sometime in the first quarter of 2008. In the meantime, GuideStar representatives will be speaking at conferences around the country on the changes to the Form 990 and what they mean to nonprofits.
- Take a look at an overview of the changes to the Form 990.
- View the revised Form 990 and new schedules.
© 2008, Philanthropic Research, Inc. (GuideStar)
Patrick Ferraro is a freelance writer in Seoul, Korea, and a former editor of the Newsletter.