The IRS has released a major revision to the annual 990 form filed by nonprofit organizations (NPOs). This article is an overall introduction to some of the changes involved. A full discussion would fill a small book. Please understand this is an overview!
Policies
There are a number of new questions on the revised 990 dealing with various policies. Why are these important? These questions may essentially create ‘best practices’ for all nonprofit organizations. If that happens, there will be pressure on organizations to adopt them. Over time, it may develop that all NPOs will likely be expected to answer ‘yes’ to all of these questions. In the future, there might even be pressure for churches, who do not have to file a 990, to adopt these best practices.
Here are some of the questions on the new 990:
- Has organization become aware of any material diversion of organization assets?
- Does the organization prepare board minutes on a contemporaneous basis? In other words, are the minutes ready by the next board meeting? This will include the board and any committees that have authority to act on behalf of the board. Think in terms of the investment, audit, development, or executive committees.
· Is there an annual review of the compensation of the top officer and other key officers, to include review by independent persons, comparability data, and contemporaneous approval? This is known as the “safe harbor” review process.
o If yes, describe the process.
· Does the organization have a conflict of interest policy?
o If yes, are officers and key employees required to disclose on an annual basis any possible conflicts?
o If yes, describe how the policy is monitored.
· Does the organization have a written whistleblower policy?
· Does the organization have a document retention and destruction policy?
· Does the organization have a gift acceptance policy for non-standard gifts? This would address issues such as land, stock, automobiles, and works-of-art.
· Does the board of directors review the 990 prior to it being filed with the IRS?
If your nonprofit has not already addressed these issues, I suggest you start working on the following written policies:
· Procedure to review and approve salary of senior staff
· Conflict of interest policy
· Whistleblower policy
· Document retention and destruction policy
· Gift acceptance policy for non-standard gifts
Phase-in over time
Smaller NPOs get a delay in using the revised form. Organizations under a certain size may use the 990-EZ form for a while. Here is the transition schedule:
- For 2008 tax year (which will be filed in 2009), NPOs with gross receipts under $1,000,000 and assets under $2,500,000 may use the 990-EZ.
- For 2009 tax year (filed in 2010), if gross receipts are under $500,000 and assets are under $1,250,000, use the 990-EZ.
- For 2010 tax year (filed in 2010) and later, if gross receipts are under $200,000 and assets are under $500,000, use the 990-EZ.
You may have a little time before your organization hits the deadline, but it would be wise to get started on those policies now.
Reporting of overseas activities
NPOs will have expanded reporting of their activity outside the U.S. This may be of concern to some types of mission organizations.
If there is over $10,000 of either revenue or expenses outside the U.S., then the organization must list the following information accumulated by region: number of offices, number of employees, and if program services, then specific nature of program services and amount of expenses.
There are also disclosure requirements if there are grants to overseas organizations or individuals over $5,000 each.
Several types of fees paid by NPOs will need to be listed separately.
Currently, the only fees that must be listed separately are legal, accounting, and professional fundraising. On the new form, separate lines are also listed for management fees, lobbying, investment management, and other. Information on technology costs is now on a separate line. Previously, these would have been combined with other items.
Organizations may need to modify their chart of accounts to accumulate this information. Going through the general ledger and manually accumulating that information will take a lot of time.
Increased time to prepare return
As may be obvious by now, it will take more time to prepare the new forms. I have asked a lot of people what they think will happen to the time needed to complete the revised 990 and attached pages. The consensus I am hearing from many sources is to expect the time to double. Ouch! It might be wise to look at the revised forms before you have to start preparing them.
Brief survey
Again, please understand this is a brief overview of the revised forms. The IRS has more information on their web site.
