New form 990: what's confusing filers?

• Author: Smith, Annette B.
• Position: Tax-exempt organizations

The redesigned Form 990, Return of Organization Exempt from Income Tax, has been the subject of much discussion since the IRS released it in 2007. As the exempt sector and practitioners have been adjusting to the new filing requirements, areas of confusion have been identified. Earlier this year, an IRS official reported filing errors in approximately 1% of redesigned Forms 990 filed electronically during 2010. Common errors include failure to file Schedule O, Supplemental Information to Form 990, and failure to complete required lobbying details when a Sec. 501 (h) election has been made.

These examples suggest a narrow definition of error and do not capture many of the issues practitioners and exempt organizations face when completing Form 990. This item highlights issues frequently encountered by practitioners, including many compensation issues. The comprehensive nature of the types of compensation required to be reported, the complicated and unique nature of many compensation packages, and the common practice of sharing employees among affiliated organizations generate numerous questions regarding who must be listed and on which organization's Form 990, what compensation must be reported, and when and where such compensation is to be reported.

Eight Common Reporting Issues on Form 990

Identifying the president as both an officer and a key employee: When identifying an individual's position in Section A, column C of Part VII, Officers, Directors, Trustees, Key Employees, and Highest Compensated Employees, the titles of officer, key employee, highest compensated employee, and former are mutually exclusive; only one of these four should be chosen. The Form 990 instructions indicate that these positions are mutually exclusive. For example, a key employee is defined as "other than an officer, director or trustee"; highest compensated employees are "not also officers, directors, trustees, or key employees" (Form 990 instructions, p. 25). For a former officer, director, trustee, key employee, or highest compensated employee included on Form 990, only the "former" box should be checked, and the individual's previous title should be used in column A with "former" added (e.g., former president).

Reporting only salaries as compensation expense: Reporting compensation of current officers, directors, trustees, and key employees on line 5 of Part IX, Statement of Functional Expenses, should include all forms of salary and benefits, including pension...