New form 990 aims for transparency, accountability, and oversight.

• Author: Spurlock, Rachel

While transparency, accountability, and oversight do not appear to be tax issues per se, recent legislative focus and IRS enforcement in this area have heightened the need for tighter controls within the nonprofit sector. The IRS increased the number of audits in 2006 by 40% in the exempt area and will continue to expend resources with a specific focus on management practices and internal controls.

Both the Tax Increase Prevention and Reconciliation Act of 2005 and the Pension Protection Act of 2006 (PPA '06) have had a significant impact in the nonprofit sector. Additional disclosures on investment activities, such as foreign activities and participation in alternative investments, provide greater insight into the investment activities of nonprofits. In addition, many of the provisions of PPA '06, such as the public disclosure requirement of an organization's unrelated business income tax return (Form 990-T, Exempt Organization Business Income Tax Return) and the more stringent rules governing donor-advised funds and supporting organizations, have created additional complexities in the nonprofit sector.

Much of the overall tone heard in the nonprofit sector resonates from the Sarbanes-Oxley Act of 2004. While many state attorneys general introduced legislation in this area, the U.S. Senate Finance Committee has taken the lead with federal legislation aimed at the nonprofit sector. The Finance Committee also has encouraged the IRS to increase enforcement and Treasury to provide additional guidance.

In May 2007, in a letter to the Treasury Secretary, Senators Charles Grassley (R-IA) and Max Baucus (DMT) proposed continued efforts to provide even greater transparency in nonprofit reporting (www.finance. senate.gov/press/Bpress/2007press/ prb052907.pdf). Legislators are concerned that the current Form 990, Return of Organization Exempt from Income Tax, is not adequate to encompass vital information regarding parts of the nonprofit sector. The IRS and government officials are placing emphasis on large, complex institutions such as hospitals and universities, stating that the current Form 990 may require more detailed questions to provide transparency and accountability.

Both the 2005 and 2006 Forms 990 had significant revisions, but the completely redesigned Form 990, released on June 14, 2007, for public comment, listed transparency as the first of its three guiding principles. The second is the promotion of compliance, and the third is to...