2008 Final Draft Form 990 McGladrey & Pullen, LLP is a member firm of RSM International an affiliation of separate and independent legal entities. Opening Comments IRS expects only two things from an exempt organization: It should be a well run business, and It should be continually delivering mission driven charitable results (or mission driven member results, for membership organizations). 2
Opening Comments Trigger questions throughout the form are intended to address areas of sensitivity to the government and to the general public at large. IRS: the new 990 is a 21st century form, it gives the public what it wants and desires to view in assessing the activities of an exempt organization. 3 Background Core Form, required for all filers (except 990-EZ filers) (11pgs). Schedule A: Public Charity Status and Public Support (4pgs).
Schedule B: Schedule of Contributors (same as old form) as many pages as it takes). Schedule C: Political Campaign and Lobbying Activities (4pgs). Schedule D: Supplemental Financial Statements (5pgs) Schedule E: Schools (1pg) Schedule F: Statement of Activities Outside the United States (4pgs) Schedule F-1: Continuation Sheet for Schedule F (3pgs or more) 4 Background Schedule G: Supplemental Information Regarding Fundraising or Gaming Activities (3pgs). Schedule H: Hospitals (4pgs).
Schedule I: Grants and other Assistance to Organizations, Governments and Individuals in the U.S. (2pgs). Schedule J: Compensation Information (3pgs). Schedule J-1: Continuation Sheet for Schedule J (1pg). Schedule J-2: Continuation sheet for Form 990, part VII, section A, line 1a (1pg)(former parts V et.al and Sch A I, II) 5 Background
Schedule K: Supplemental Information on Tax Exempt Bonds (2pgs). Schedule L: Transactions with Interested Persons (1pg). Schedule M: Non-cash Contributions (2pgs). Schedule N: Liquidation, Termination, Dissolution or Significant Disposition of Assets (3pgs). Schedule N-1: Continuation Sheet for Schedule N (2pgs). Schedule O: Supplemental Information to Form 990 (2pgs). Schedule R: Related Organizations and Unrelated Partnerships
(4pgs) Schedule R-1: Continuation Sheet for Schedule R (6pgs) 6 Background Very, very few, if any, exempt organizations will be filing a Core Form 990 with all the schedules. As a reminder, all exempt organizations will be required to file the Core Form if they are not defined as a small organization during the transition period. The next slide summarizes IRS estimates as to the percentages of exempt organizations that are expected to file the 990 Schedules.
7 Background A - Public Charity Status < 75% (C) B Contributors 30-40% (C) C Political/Lobbying Activity < 10% (N)*****************
D Suppl. Fin. Stmt. Detail 100% (N) E Schools < 5% (C)************ F Foreign Activities < 5% (N)****** G Fundraising and Gaming < 25% (C) H Hospitals < 5% (N)*********
I Grants < 20% (C) J Compensation < 5% (C)******* K Tax Exempt Bonds < 5% (N)***** L Interested Persons < 5% (C)***** M Noncash Contributions < 20% (N) N Termination or Significant Disposition of Assets < 5% (C)***** R Related Organizations < 25% (C) O Supplemental Info = 100% 8
Focus on Two Areas Today Governance Questions Compensation Disclosures McGladrey & Pullen, LLP is a member firm of RSM International an affiliation of separate and independent legal entities. IRS General Comments Form 990 is FINAL, although it says draft on it, and is referred to as the draft revision. IT IS IN STONE. It will continue to say draft as all re-organized forms say draft on them until they are issued for use. So this is it, no more changes to the form. Instructions are forthcoming, timing is a matter of a five tier
priority system that IRS is following. 10 Core Form Part VI (Governance, Management and Disclosure) Sections A, B and C request information about policies not required by the Internal Revenue Code. The IRS believes that the existence of an independent governing body and well-defined governance and management policies and practices increases the likelihood that an organization is operating in compliance with the federal tax law.
Used to identify improper internal controls by management. 11 Core Form Part VI (Governance, Management and Disclosure) The IRS believes that in the event a yes or no answer to certain of the questions could be misconstrued in a negative fashion, it allows in this part for the taxpayer to provide further explanations to users of Form 990, via descriptive narrative on Schedule O. ALL taxpayers are going to have to describe the process that the organization follows in setting compensation for its executives and other officers and key employees.
12 Core Form Part VI (Governance, Management and Disclosure) Based on the varying public comments IRS received regarding board review of the Form 990, it suspects that organizational practices differ greatly by board members and management officials. Therefore, IRS is interested in the process (if any) and requires all organizations to describe the process as to who is provided Form 990, when it is provided and the level of review that is undertaken. 13
Core Form Part VI (Governance, Management and Disclosure) IRS is fishing here for information to assist in developing future regulations. 14 Core Form Part VI (Governance, Management and Disclosure) Except for the question regarding family and business relationships among officers, directors, trustees and key employees (requiring a direct communication to these
individuals), IRS believes all questions can be easily answered by a person who is familiar with the organizations governing instruments and policies without the need to undergo additional due diligence. 15 Core Form Part VI (Governance, Management and Disclosure) Questions 12a 16a have been called behavior modification questions and IRS responds that sure, it would like to see these issues addressed by all exempt organizations (it understands that there is no legal
requirement to do so, however). Its a catch-22, however. 16 Core Form Part VII (Compensation of Officers, Directors, Trustees, Key Employees, and Five highest Compensated) IRS believes that still requiring non 501(c)(3)s to provide compensation information, that it will be better able to monitor prohibition against private inurement that applies to some of these entities. This includes unreasonably high compensation paid to
insiders that receive the privilege and benefits of exemption from income tax (so it is back to a revocation issue). IRC section 4958 only applies to 501(c)(3)s and 501(c) (4)s. Intermediate Sanctionsconcept.NO! 17 Core Form Part VII (Compensation of Officers, Directors, Trustees, Key Employees, and Five highest Compensated) The IRS understands that by requiring the personal addresses of listed officers and directors may be a privacy and security concern, it respects this. Posture on final 990 in this part is to now only require
organizations to provide an alternate address or physical location where these individuals may be contacted if they can not be contacted at the reporting organizations address. 18 Core Form Part VII (Compensation of Officers, Directors, Trustees, Key Employees, and Five highest Compensated) IRS believes that by keeping the compensation reporting requirement to calendar year only reporting from W-2s and 1099s results in a more consistent and comparable reporting and also reduces the burden for taxpayers.
NOTE: fiscal year filers still report on the statement of functional expenses, fiscal year compensation, but in this part VII, must report using W-2s and 1099s. 19 Core Form Part VII (Compensation of Officers, Directors, Trustees, Key Employees, and Five highest Compensated) The government is concerned about how executives are being paid via the use of multiple organizations that may not necessarily be related under prior definitions, yet connected to the reporting organization and thus falling
outside reporting requirements in the past. 20 Core Form Part VII (Compensation of Officers, Directors, Trustees, Key Employees, and Five highest Compensated) Focus on organizations that willingly enter into such arrangements in an effort to circumvent its reporting obligations. Schedule J additional reporting requirements for certain compensated persons.
21 Schedule D-Supplemental Financial Statements IRS still believes it is important to include any FIN 48 disclosures on financial statements with Form 990. 22
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