Changes to Form 990 reflect IRS policy goals.

• Author: Temkin, Lior

The IRS recently issued major changes to Form 990, Return of Organization Exempt from Income Tax. This is the first major overhaul of Form 990 since 1979. The IRS focused on three primary areas in the redesign:

* Enhancing transparency;

* Promoting tax compliance; and

* Minimizing the burden on the filing organization.

The old Form 990 had only eight pages in the core form and included two schedules. The new form has 11 pages in the core form and 15 schedules. Not all organizations will have to file all the schedules. Based on IRS analysis, only 5% of nonprofit organizations will have to file more than 10 schedules.

Transitional Use of Form 990-EZ

For the 2008 filing tax year, some exempt organizations may choose to file form 990-EZ, Short Form Return of Organization Exempt from Income Tax, instead of the new Form 990 if their gross receipts are greater than $25,000 and less than $1 million and if they have total assets of less than $2.5 million. In 2009, an organization with gross receipts greater than $25,000 and less than $500,000 and with total assets of less than $1.25 million will qualify to file form 990-EZ. In 2010, an organization with gross receipts greater than $50,000 and less than $200,000 and with total assets less than $500,000 will qualify to file that form. Organizations with gross receipts of $25,000 or less must file Form 990-N, Electronic Notice (e-Postcard) for Tax-Exempt Organizations Not Required to File Form 990 or 990-EZ.

Goals of the New Form 990

The redesigned Form 990 addresses several complaints the IRS has received about the old Form 990:

* The questions and instructions were often unclear and very confusing. The best feature of the redesigned form is that the questions are less vague and offer more information about the organization's activities.

* The arrangement of schedules was confusing and did not flow properly; the flow of the new form is more logical.

* The old form did not represent the organization's activities during the year. Part III of the new form requires the organization to specify what it accomplished during the year; a blanket statement covering every year will not suffice.

Enhancing Transparency

The old form was missing some important items that reflect how the organization used its assets. On the new form, it will be easier to follow how the organization used its assets to accomplish its exempt purpose. The new form will also compare some of the more important financial data from the prior...