Revised Form 990: the evolution of governance and the nonprofit world.

• Author: Green, Julius

The revised Form 990, Return of Organization Exempt from Income Tax, incorporates many of the same governance principles and transparency best practices introduced to the for-profit world through the Sarbanes-Oxley Act, P.L. 107-204, in the aftermath of the Enron scandal. This is the latest attempt by the federal government to restore public confidence in the governance of the exempt organization sector, particularly charities. Practitioners must ask their exempt organization clients if they are ready for changes in how they govern themselves from the board level down.

Overview of Redesigned Form 990

In an effort to recognize the growing size, diversity, and complexity of tax-exempt organizations, the Service has revised the Form 990 for the first time since 1979. This newly revised form is required for all organizations whose tax year began during 2008 and whose gross receipts and assets were over $1 million and $2.5 million, respectively. The thresholds are lowered for organizations whose tax year began in 2009 to $500,000 and $1.25 million, respectively. For tax years beginning in 2010 or later, these thresholds will again be lowered, and filing will be required if receipts and assets are over $200,000 and $500,000, respectively.

Organizations that are below the thresholds generally may file Form 990-EZ, Short Form Return of Organization Exempt from Income Tax. Small nonprofits will be required to file an electronic postcard, Form 990-N, Electronic Notice (e-Postcard). The e-postcard is required for organizations with gross receipts under $25,000 for tax years 2008 and 2009 and $50,000 for 2010 and later. The low threshold shows that the IRS is determined to have a large majority of nonprofit organizations filing the new Form 990.

The IRS's "Background Paper: Redesigned Draft Form 990" (www.irs.gov/ pub/irs-tege/form_990_cover_sheet.pdf) highlights the Service's reasons for developing the new form: "The Form 990 is a public document that is made available by filing organizations, the IRS, and others. It is the key transparency tool relied on by the public, state regulators, the media, researchers, and policymakers to obtain information about the tax exempt sector and individual organizations."

One section of the form drawing much scrutiny from tax advisers, management, and board members alike is Part VI, "Governance, Management, and Disclosure." To increase transparency, the new Form 990 is asking new questions and requiring schedules that were never required in the past. These new questions and schedules are forcing all organizations to examine their practices and policies and in some cases to make drastic cultural changes in order to comply:

Because the reporting requirements of Form 990 have increased substantially, organizations such as ours are focused on enhancing accounting systems and practices to gather the necessary information. Increased scrutiny by the IRS in the interest of creating more transparency has led to the need for more detailed information in a variety of areas, including compensation and governance, and also comprehensive explanations of existing plans and...