New IRS Form 990 Requires More Information and Planning

Estate Planning and Tax Advisor & Alert

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PUBLISHED ON: October 3, 2008

Effective for the 2008 tax year, the Internal Revenue Service (“IRS”) has issued a new Form 990 (Return of Organization Exempt From Income Tax), the reporting form filed annually by more than 200,000 large not-for-profits, including publicly supported charities, social welfare organizations and professional associations. The new Form 990 is the first redesign since 1979, and requires much more information than its predecessor. It consists of an 11-page core form, having 11 parts, which must be completed by all organizations filing the Form 990, and additional schedules that may be required, depending upon the answers to a checklist that is part of the core form.

Some areas of major changes include new sections asking about the organization’s governance structure, policies and disclosure practices. There are also new definitions of “officer” and “key employee” applicable to all organizations. Indeed, the instructions to the new Form 990 include a 19-page “Glossary to Instructions.” In addition, the requirement to report the compensation paid to the five highest compensated employees is made applicable not only to publicly supported organizations and certain charitable trusts, as was previously the case, but to all organizations required to file the new Form 990, such as social welfare organizations, business leagues, trade associations and social clubs.

The revised Form 990 contains new reporting requirements for museums and other organizations maintaining collections of works of art and other items, credit counseling organizations and others holding funds in escrow or in custodial arrangements, and organizations maintaining endowments. One of the new schedules seeks information regarding special events, gaming activities and arrangements with professional fundraisers. Special reporting schedules are required of schools, hospitals and those having transactions with interested persons.

In order to allow organizations time to adjust to the new Form 990 (and the less complex Forms 990-EZ and 990-N), the IRS is using a three-year transition period. For tax year 2008, the new Form 990 will be required from organizations having gross receipts of $1,000,000 or more or total assets of $2,500,000 or more. For tax year 2009, the filing threshold will be gross receipts of at least $500,000 or total assets of at least $1,250,000. For tax year 2010, the Form 990 must be filed by organizations with gross receipts of at least $200,000 or total assets of at least $500,000.