Form 990 Instructions Update

Tell me if this scene sounds familiar: surrounded by stacks of papers, hunched over spreadsheets, your calculator shoved to the side, you stare down at the IRS form and suddenly realize that, after reading the same line half a dozen times, you are unquestionably and unequivocally lost. 

The solution, of course, is to reach for the instructions: the IRS is well aware that well-crafted instructions are central to the ability of citizens to finish their tax forms with confidence, in good faith, and on time.

That is why the association community should be paying close attention to the news that the IRS will release a new draft of the Form 990 instructions some time this August.  Although we expect the 2008 Form 990 to change very little between now and the time you next file, amendments to the instructions could have a tremendous impact on the way you track information and choose to answer questions on the annual return.  Some of the changes we expect include:

▪         A revised definition of “key employee” for purposes of reporting executive compensation, transactions with interested persons, and other items. 

▪         A list of foreign countries within each of nine geographic regions to be used for reporting foreign activities on the new Schedule F, Statement of Activities Outside the United States.

▪         Specific reporting requirements for which the reporting organization may rely on reasonable efforts to obtain information required from interested persons or third parties.

▪         A revised standard for determining independence of a voting member of the organization’s governing body, which replaces the previously proposed “material financial benefit” test.

▪         For Schedule H, Hospitals, a revised definition of “facility” for purposes of completing Part V, Facility Information, for 2008 tax years (2009 filing season).

We’ll let you know more about these changes as they are released.  In the meantime, what would you like to see in the revised Form 990 instructions?

Comments

[David M. Patt, CAE]

Tell me why I should worry about this. My accountant files the 990s at the same time the audit is completed.

[Aaron H]

As a matter of fact, the amended instructions could have a significant impact on key decisions facing your organization.

For example, in Part VII of the new Form 990, all organizations — not just 501(c)(3) entities — are now required to disclose the compensation awarded to “key employees.” The instructions will define “key employee,” and will therefore determine which of your employees are subject to public scrutiny in this regard. The IRS has indicated that it will somewhat narrow the scope of the definition of “key employee” in the next draft of the instructions. To be sure, this change may reduce the amount of information your accountant must report — but it may also effect the decisions of your compensation committee the next time it meets to discuss salaries and benefits.