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The New IRS Form 990What Does It MeanFor
Your Organization? George E. ConstantineThora
A. JohnsonSerena G. SimonsJeffrey S.
Tenenbaum September 22, 2008 Association of
Corporate Counselwww.acc.com
3

• Overview
• Introduction to the new Form 990, Jeffrey S.
  Tenenbaum
• The core Form 990, Thora A. Johnson
• Compensation reporting, Serena G. Simons
• Schedule highlights, George E. Constantine
• Next steps Jeffrey S. Tenenbaum

4
Introduction to Redesigned Form 990 Jeffrey S.
TenenbaumVenable LLPJSTenenbaum_at_venable.comTh
e New IRS Form 990What Does It Mean For Your
Organization?September 22, 2008
5
Background on Form 990 Redesign

• Reasons for redesign
• first redesign since 1979
• more up-to-date reporting
• Purpose of Form 990
• primary tax compliance tool for tax-exempt
  organizations
• IRS and State tax enforcement
• source of information for the public, media,
  researchers, and policymakers about the
  tax-exempt sector generally and individual
  organizations specifically

6
IRS guiding principles"

• Enhance transparency to provide the IRS and the
  public with a realistic picture of the
  organization, along with the basis for comparison
  to other organizations
• Promote compliance by accurately reflecting the
  organizations operations so the IRS may
  efficiently assess the risk of noncompliance
• Minimize the burden on filing organizations

7
Timing of Redesigned Form

• Final form issued December 20, 2007
• Draft instructions and glossary issued April 7,
  2008, with comment period until June 1
• Final instructions released on August 19
• Implementation for 2008 required
• Phased-in Schedules H (Hospital) and K (Bonds)

8
Format of Redesigned Form

• Core form, including summary page
• 16 schedules with applicability based on
  organizations specific indicators
• For complete set of Form 990 and final
  instructions, go to www.irs.gov/charities/article/
  0,,id185561,00.html

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The Core Form 990Thora A. JohnsonVenable
LLPTAJohnson_at_venable.comThe New IRS Form
990What Does it Mean for Your
Organization?September 22, 2008
10
Overview of the Core Form

• Summary page with signature block
• Statement of program services
• Checklist of required schedules
• Checklist of other IRS filings and tax compliance
• Governance, management, and disclosure questions
• Compensation reporting
• Financial reporting revenue, expenses, balance
  sheet, and financial statements

11
The Summary

• New to the Form 990
• A snapshot of the organization
• Highlights
• most significant activities
• key financial, compensation, governance, and
  operational information
• Signature block

12
Statement of Program Services

• Mission, program services, programmatic changes,
  and accomplishments in narrative format
• reformatted
• upfront so that organization can tell story
  early
• Must describe three largest programs
• if a Section 501(c)(3), must include
• amount of grants to others
• total expenses
• revenue

13
Checklist of Required Schedules

• Compensation Detail
• Bonds
• Transactions with Interested Persons
• Non-Cash Contributions
• Terminations and Major Dispositions
• Supplemental Information
• Related Organizations and Certain Joint Ventures

1. Public Charity Status
2. Schedule of Contributors
3. Political and Lobbying
4. Supplemental Financial
5. Private School
6. Foreign Activity
7. Professional Fundraising and Gaming
8. Hospitals
9. Grants

14
Other IRS Filings and Tax Compliance

• Alerts both filer and IRS to other potential
  federal tax compliance and filing obligations
• For example,
• UBIT and Form 990-T
• substantiation and disclosure requirements
• applicable to charitable contributions

15
Governance, Management, and Disclosure

• Rationale independent boards and well-defined
  governance and management policies increase
  likelihood of tax compliance, safeguarding of
  charitable assets, and serving of charitable
  interests
• Self-regulation and internal controls
• Transparency and accountability

16
Questions Regarding Board and Management

• Independence of board members
• total number of voting board members
• number of voting board members that are
  independent
• relationships between officers, directors, and
  key employees

17
More Questions Regarding Board and Management

• Any delegation to a management company
• Any material diversion of assets
• Minutes taken at board and board committee
  meetings

18
and More Questions Regarding Board and Management

• Board receives a copy of Form 990 before filed
• What process to review Form 990

19
Questions Regarding Policies

• A written conflict of interest policy
• officers, directors, and key employees required
  to disclose each year interests that could give
  rise to conflicts
• monitor and enforce its conflict of interest
  policy

20
More Questions Regarding Policies

• Maintain a written whistleblower policy
• Maintain a written document retention and
  destruction policy
• Note broader than SOX requirement

21
More Questions Regarding Policies

• Follow the procedures for the rebuttable
  presumption
• Invest in a joint venture with taxable entity

22
Questions About Disclosure

• Make its Form 1023 available
• Make its governing documents, policies, and
  financials available

23
Legally Required?

• Not all policies legally required
• This point clarified on Form 990 itself
• Presumption of wrongdoing, however, if not in
  place?

24
Remaining Sections of Core Form

• Compensation
• Revenue, expenses, and balance sheet
• Financial statement and reporting
• audits?
• audit committee?

25
Compensation Reporting on the Form 990Serena
G. SimonsVenable LLPSGSimons_at_venable.comThe
New IRS Form 990What Does It Mean for Your
Organization?September 22, 2008
26
Form 990 focus

• Who gets how much, and who decides?
• Compensation information
• core form, Part VII
• Schedule J
• Process of setting compensation
• governance and policies
• core form, Part VI, Section B, item 15

27
Setting Compensation

• General requirements
• knowledge in compensation matters
• no financial interest
• IRS safe harbor process
• independent body
• comparability data
• documentation of decision

28
General Structure For Compensation Reporting

• Basic reporting on core form with more detail on
  Schedule J
• New thresholds for reporting on key employees,
  highest paid non-key employees, and formers and
  for more detailed reporting
• Same structure for all organizations

29
Core Form Reporting - Who

• Current officers, directors, trustees, and key
  employees
• Current 5 highest paid non-key employees
  reportable compensation over 100,000
• Former officers, key employees reportable
  compensation over 100,000
• Former 5 highest paid (different test)
• Former directors or trustees reportable
  compensation over 10,000

30
Core Form Reporting Who

• Key employee definition
• 150,000 test
• Employee had reportable compensation of more than
  150,000
• Responsibility test
• Employee had or shared organization-wide control
  or influence similar to an officer, director, or
  trustee
• or
• Employee managed or had authority or control over
  at least 10 of the organizations activities
• Top 20 test
• Employee one of top 20 highest paid

31
Core Form Reporting - Who

• Former status applies only to individuals
  reported as current on any Form 990 from five
  previous years
• Also
• 5 highest paid independent contractors - over
  100,000 of reportable compensation
• Includes organizations as well as individuals

32
Core Form Reporting - What

• Reportable compensation from organization
• Reportable compensation from related
  organizations
• Other compensation from organization and related
  organizations

33
Core Form Reporting Reportable Compensation
Definition

• For employee, compensation reported on Form W-2,
  Box 5, i.e., Medicare wages (includes vested
  nonqualified deferred compensation and 401(k) and
  403(b) deferrals)
• For non-employee, compensation reported on Form
  1099-MISC
• Other taxable compensation
• For calendar year ending with or within
  organizations fiscal year

34
Core Form Reporting other Compensation

• Includes nontaxable deferred compensation
  (qualified and nonqualified, vested and
  nonvested) and most nontaxable benefits
• Reporting exclusion for items under 10,000, but
  with various exceptions
• IRS requested comments on whether nonvested,
  nonqualified deferred compensation should be
  excepted

35
Schedule J Compensation Questions

• Fringe benefits (expanded from discussion draft)
• first-class or charter travel, companion travel,
  tax indemnifications and gross-ups, discretionary
  accounts, housing, payments for business use of
  personal residence, club dues, personal services
• Severance or change in control payments
• Supplemental nonqualified deferred compensation
• Equity-based compensation

36
Schedule J Compensation Questions for Charities

• Compensation based on revenues or net earnings
• Other non-fixed payments
• Payments under the initial contract exception

37
Schedule J Thresholds for Chart Reporting

• All Currents listed in Form 990, Part VII,
  Section A total compensation over 150,000
  (reportable other)
• All Formers listed in Form 990, Part VII,
  Section A
• Any person listed in Form 990, Part VII, Section
  A (line 5) who receives compensation from
  unrelated organization for services to filing
  organization

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Schedule J Chart Compensation Breakout

• Base compensation
• Bonus and incentive compensation
• Other reportable (W-2/1099) compensation
• Deferred compensation
• Nontaxable benefits
• Previously reported deferred compensation
  (intended to address double-reporting issue)

39
Schedule HighlightsGeorge E. Constantine
Venable LLPgeconstantine_at_venable.comThe New
IRS Form 990What Does It Mean For Your
Organization?September 22, 2008
40
Overview of The Schedules

• 16 separate schedules
• Reflects IRS approach of segmenting out unique
  types of entities and issues (e.g., hospitals,
  fundraising, bonds)
• Checklist of required schedules (Part IV of core
  form)

41
Checklist of Required Schedules

• Compensation Detail
• Bonds
• Transactions with Interested Persons
• Non-Cash Contributions
• Terminations and Major Dispositions
• Supplemental Information
• Related Organizations and Certain Joint Ventures

1. Public Charity Status
2. Schedule of Contributors
3. Political and Lobbying
4. Supplemental Financial
5. Private School
6. Foreign Activity
7. Professional Fundraising and Gaming
8. Hospitals
9. Grants

42
Schedule A

• Removes questions unrelated to public charity
  status no more questions about school
  non-discrimination policies, lobbying activities,
  compensation of employees and contractors,
  related party and other red flag transactions
• Moves public support testing period from four to
  five years (including the current tax year)
• IRS doing away with advance rulings process

43
Schedule A (contd)

• Change now allows accrual accounting
  organizations to use accrual method for
  calculating public support test (used to required
  use of cash method for Schedule A)
• Supporting organization questions included

44
Schedule A

• Other changes
• Form 990-EZ filers will be required to complete
  this Schedule A
• Space added to make the case under the 10 facts
  and circumstances test
• Membership dues section included in support
  schedules
• Separates 509(a)(1) and 509(a)(2) support tests

45
Schedule B

• No changes requires listing of all contributors
  who gave 5,000 or more for the year
• Note that new Schedule M captures information on
  non-cash contributions
• Generally not required to be disclosed publicly
  (except 990-PF and 527s that file Form 990 or
  990EZ)

46
Schedule C

• Specific form for disclosing lobbying and
  political activities
• Some new disclosure requirements compared to what
  used to be collected on the Form 990 and Schedule
  A
• description of direct and indirect political
  campaign activities
• estimate of volunteer hours spent on political
  activities

47
Schedule D

• Supplemental financial statements
• Disclosures regarding donor advised funds,
  conservation easements, art collections, other
  investments, trust and escrow arrangements,
  endowment funds
• FIN 48 disclosure uncertain tax positions under
  SFAS 109

48
Schedule E

• Only to be completed by schools
• Same information as had been collected under
  Schedule A, Part V

49
Schedule F

• Activities outside the U.S.
• Recent increased scrutiny on foreign activities
• Not limited to 501(c)(3)

50
Schedule F (contd)

• Significant new disclosures required for entities
  engaging in non-U.S. activities
• for aggregate revenue or expenses that exceed
  10,000
• disclosure of region, offices, employees,
  activities, expenditures

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Schedule F (contd)

• Requires grantmakers to describe procedures for
  monitoring use of grant funds
• name of recipient organization
• EIN, IRS code section
• region
• purpose of grant
• amount of grant, manner of disbursement
• amount, description of non-cash assistance
• method of valuation

52
Schedule G

• Fundraising or gaming activities
• Significant new disclosures required,
  particularly for fundraising activities
• Service reports continuing noncompliance in
  these areas
• Fundraising questions designed to facilitate
  quick look reviews by state attorneys general,
  charity officials

53
Schedule G (contd)

• Describe relationships with fundraisers
• List states in which the organization is
  registered to solicit
• List fundraising events
• List gaming activities

54
Schedule H

• Hospitals controversial new schedule
• Hospital defined by state licensure
• For 2008, only Part V (Facility Information)
  required
• For 2009, entire schedule must be completed

55
Schedule H (contd)

• Significant inquiry regarding charity care and
  community benefit
• Charity care policy? If yes, in writing?
• not bad debt expenses
• not the difference between cost of care provided
  under Medicaid/Medicare and revenue derived
  therefrom
• worksheets provide the methodology for
  calculating
• cost reporting
• Annual written report on charity care? If yes,
  available to public?

56
Schedule H (contd)

• Description of community building activities and
  how these activities provide community benefit
  and promote health
• How much bad debt, if any, is attributable to
  persons who qualify for financial assistance
  under charity care policy?
• Disclosure of management companies and joint
  ventures

57
Schedule I

• Grants and other assistance to organizations,
  governments, and individuals in the U.S.
• Very similar questions regarding grant recipients
  as asked in Schedule F
• 5,000 threshold

58
Schedule J

• Compensation Information (covered already)

59
Schedule K

• Supplemental information on tax-exempt bonds
• Significant new information being requested IRS
  is aware of significant non-compliance with
  recordkeeping and record retention requirements
  for tax-exempt bonds
• Only Part I required for 2008 Parts II-IV
  required for 2009
• Davis Sherman will discuss in next session

60
Schedule L

• Transactions with interested persons
• One-pager
• listing of excess benefit transactions (c)(3) and
  (c)(4)
• loans to and from interested persons
• grants or assistance benefitting interested
  persons
• business transactions involving interested
  persons.
• Reasonable efforts provisions in instructions

61
Schedule M

• Non-cash contributions
• IRS reports significant tax compliance problems
  exist with non-cash contributions
• Donations of art, books, clothing, cars, boats,
  intellectual property, securities, qualified
  conservation easements, real estate,
  collectibles, food inventory, drugs and medical
  supplies, taxidermy, historical artifacts,
  scientific specimens, archeological artifacts

62
Schedule M (contd)

• 25,000 threshold
• Question regarding gift acceptance policy
• Question regarding use of third parties to
  solicit, etc.

63
Schedule N

• Liquidation, termination, dissolution or
  significant disposition of assets
• focus on significant transactions liquidation,
  termination, dissolution, sale, exchange,
  disposition or other transfer of more than 25
  percent
• not just (c)(3)s
• seeking information that might suggest private
  inurement

64
Schedule O

• Supplemental information to Form 990
• Additional space for filers to submit narrative
  responses
• Designed to assist with simplifying the e-filing
  process

65
Schedule R

• Related organizations and unrelated partnerships
• Expanded questions regarding the identification
  of
• disregarded entities
• related tax-exempt organizations
• related organizations taxable as a partnership
• related organizations taxable as a corporation or
  trust

66
Schedule R (contd)

• Questions regarding transactions with related
  organizations
• Significant information regarding transactions
  that are often commonplace among related entities
• Part V, Line 2 limited to entities that would be
  described in 512(b)(13)

67
next stepsJeffrey S. TenenbaumVenable
LLPJSTenenbaum_at_venable.comThe New IRS Form
990What Does It Mean For Your
Organization?September 22, 2008
68
Next Steps

• Dry run of new Form 990
• Perform gap analysis regarding policies
• Establish compensation approval procedures
• Determine if new bookkeeping required
• Select Form 990 team

69
Questions

• Serena G. Simons
• 575 7th Street NW
• Washington, DC 20004
• [phone]
• sgsimons_at_venable.com
• Jeffrey S. Tenenbaum
• 575 7th Street NW
• Washington, DC 20004
• [phone]
• jstenenbaum_at_venable.com

• George E. Constantine
• 575 7th Street NW
• Washington, DC 20004
• [phone]
• geconstantine_at_venable.com
• Thora A. Johnson
• 750 E. Pratt Street
• Suite 900
• Baltimore, MD 21202
• [phone]
• tajohnson_at_venable.com

70

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