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Focus on Not-For-Profits: 2009 Revisions to Form 990

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The 2009 version of Form 990 is not as radically different as the 2008 version (which had been changed significantly from the 2007 version), but there are several important changes; and in many places, the instructions have been revised to clarify how organizations are to complete the Form and Schedules.
May 26, 2010

The 2009 version of Form 990 is not as radically different as the 2008 version (which had been changed significantly from the 2007 version), but there are several important changes; and in many places, the instructions have been revised to clarify how organizations are to complete the Form and Schedules.

In addition to the changes in the Form 990 and its schedules, the IRS has also reduced the thresholds an organization must meet to file Form 990. For years beginning in 2009, an organization with gross receipts of $500,000 or more OR assets of $1,250,000 or more is required to file Form 990.

Form 990 Significant Changes

  • Prior to 2008, organizations that made significant changes to their program service offerings were required to notify the Exempt Organizations Determinations office of the changes. This notification could have been done either separately or with Form 990. The 2009 Form 990 Form and instructions clarify that this is no longer permitted; rather, the organization must describe these changes in Part III of Form 990 and on Schedule O.
  • Several of the questions in Part IV, Checklist of Required Schedules, have been revised to clarify when certain Schedules (or selected Parts of Schedules) are required. These include Schedule D, Balance Sheet details; Schedule F, Foreign Activities; and Schedule L, Transactions with Interested Persons.
  • In Part V, Lines 1a and 2a, an organization is required to report the number of Forms 1099, 1098, 5498, W-2G and W-2 issued by both the organization and its reporting agents.
  • The IRS has made several clarifications regarding the disclosures in Part VI related to governance.
    • If two Officers, Directors or Key Employees hold like positions for more than one tax-exempt entity, a reportable business relationship is not created between them.
    • Organizations are no longer required to report significant changes in governing documents to the Exempt Organizations Determinations office, but those changes should be disclosed in Schedule O.
    • Organizations are required to report if they became aware of a material diversion of their assets during the year. The IRS has clarified that "material" means the lesser of these 3 amounts:
      • 5% of Gross Receipts
      • 5% of Ending Assets, or
      • $250,000
    • Organizations can indicate that a copy of their Form 990 was made available to the Board of Directors if a copy was placed on a password-protected website, the Board Members were emailed a link to the website, and the email states the Form 990 can be viewed at the website.
    • The situations in which a Compensation Committee member has a conflict of interest related to determining compensation of others are explained. These situations include, but are not limited to: if the person for whom compensation is being determined in turn can influence the compensation of the Compensation Committee member, or if the Committee Member or a member of his/her family will benefit from the compensation arrangement.
    • An organization can only indicate that its Form 990 is available on another’s website if the organization provided a complete copy of the Form 990 to the website.
  • Several required disclosures for Part VII related to compensation of Officers, Directors, Key Employees and other highly paid employees have been clarified, including:
    • If an individual meets the Key Employee responsibility test at any time during the year, then that individual needs to be identified as a Key Employee, and all compensation paid during the calendar year needs to be reported, whether or not the employee was a Key Employee at the time of payment.
    • If an employee received compensation from an entity that was considered a related entity for only part of the year, total compensation paid by that related entity during the whole calendar year needs to be disclosed.
    • Employee deferrals into Section 401(k) and Section 403(b) plans must be included in reportable compensation.
    • Compensation paid to leased employees who are treated as common law employees under State law, as well as compensation paid to employees of related management companies, should be reported.
    • How to determine the reported compensation of a foreign employee, who is not subject to U.S. payroll reporting.
    • Officers, Directors and Key Employees are not taken into consideration when determining the 5 highest paid employees with more than $100,000 in reportable compensation.
  • The business codes included in the instructions must be reported for program services and miscellaneous revenues in Part VIII, Statement of Revenues.
  • All technology-related costs (other than payroll costs and depreciation), including software, technology support, website maintenance, website security, etc., should be listed on Line 14 of Part IX, Statement of Functional Expenses.
  • Any Receivables from the 5 highest compensated employees should be included with any receivables from Officers, Directors and Key Employees on Line 5 of Part X, Balance Sheet. In addition, if the organization has more than 5% of its total assets invested in one publicly traded stock, this investment should be listed on Line 12, Investments – Other Securities, not on Line 11, Publicly Traded Securities.
  • If an organization has audited or reviewed financial statements, it must indicate whether the statements were issued on a consolidated basis, a separate entity basis or both.

Form 990 Glossary Changes

  • Audit – Must be performed by an independent certified public accountant.
  • Fair Market Value – Price at which a willing buyer and willing seller would buy/sell property or pay/receive to use property.
  • Principal Officer – The officer who has ultimate responsibility for implementing decisions of the governing board or is responsible for the management, administration and operation of the organization.
  • Control – Generally, one entity controls another if it owns 50% of the stock of a corporation, has a 50% capital or profits interest in a partnership or LLC, or has the power to appoint or remove 50% of the governing body of a not-for-profit entity.
  • Escrow and Custodial accounts do not include split-interest trusts.
  • Fundraising events – Casino nights (where prizes are non-cash items) are considered a fundraising event; however, the following activities are not fundraising events:
    • A regularly carried on trade or business
    • An activity that achieves the organization’s exempt function
    • Solicitations that only generate contributions
    • Gaming
  • Permanent and term endowments are only established by donor restricted gifts.
  • Quasi-endowments are established by the organization and may be temporary or permanent.
  • Related organizations can include governmental units.
  • Reportable compensation includes Form W-2, Box 1 income for individuals, such as some clergy, who are not subject to social security, and the amount reported on Form 1042S and other compensation paid to foreign employees.

Form 990 Schedule Changes

  • Schedule A, Public Charity Status
    • If the organization reports on the accrual basis, pledges and grants receivable should be recorded at their net present value. Accruals of net present value increments should be reported as contributions in future years.
    • An organization can check any of the available reasons for being considered a non-private foundation that apply in Part I (a church, school, hospital, publicly supported organization, etc.); however, the IRS only updates its records (and supplies assurance that it agrees with the status) if the organization applies for a change with the IRS Exempt Organizations Determinations office.
  • Schedule B, Contributions
    • Clarifies that an organization should only indicate a donor is anonymous if the organization does not know the name of the donor (e.g. gift made via a donor’s agent without the donor’s name being disclosed).
  • Schedule D, Balance Sheet Details
    • Part V concerning endowments should include any endowments held by other organizations for the filing organization, as well as endowments held by others to further the filing organization’s exempt purpose.
    • Corresponding to the change in Form 990, Part X above concerning an investment of more than 5% of the organization’s assets in a single publicly traded stock, such an investment should be listed in Part VII of Schedule D.
    • Requires that the organization provide its financial statement footnote disclosure related to uncertain tax positions (often referred to as FIN 48 disclosure) verbatim in Part XIV of Schedule D. If the footnote disclosure is combined for several organizations, the disclosure can be summarized to describe the liability of the filing organization only.
    • Parts X-XIII (reconciliation to financial statement amounts) are only required to be completed if the filing organization issues separate entity audited financial statements (i.e. these Parts are not required if only consolidated financial statements are issued).
  • Schedule F, Foreign Activity
    • An interest in a Foreign Financial Account must be reported in both Part I of Schedule F and Part V of Form 990.
    • Foreign investments must be reported by region; however, only the region and the fact that investments exist need to be disclosed.
    • Clarifies that foreign investments, Board meetings held outside the United States, and sending employees to attend or participate in conferences outside the U.S. represent reportable foreign activities. The reported costs should include travel to and from the region.
    • The grants to individuals reported in Part III should include grants paid to U.S. individuals for a foreign activity, as well as grants to foreign individuals.
  • Schedule G, Fundraising and Gaming Activities
    • Part I, Line 3 requests the names of the States in which the organization has registered to be a fund raiser. In 2008, an entity could respond “all States” if it registered in all States that required registration. This option is not available during 2009, so each State must be listed separately.
    • Part II, which summarizes the income and expenses related to fundraising events has two new lines, “Food and Beverage Expenses” and “Entertainment Expenses”.
    • In Part III, related to gaming activities, Line 16 should only include the portion of the gaming manager’s compensation that is related to gaming management if that person fulfills more than one role.
  • Schedule H, Hospitals
    • In 2008, only selected information needed to be provided. In 2009, the entire schedule must be completed.
    • Indirect interests in joint ventures (e.g., a group practice of staff physicians) must be reported.
  • Schedule J, Compensation
    • If an organization relies on the “initial contract” exception to the excess benefit rules, it must also indicate whether it followed the procedures needed to take advantage of the “rebuttable presumption” rule.
  • Schedule K, Tax Exempt Bonds
    • In 2008, only selected information needed to be provided. In 2009, the entire schedule must be completed.
    • If a bond issue is allocated among related entities, the amounts reported by the individual entities should agree to this allocation (i.e., the liabilities reported by the entities should not exceed the total bond issue).
    • For 2009, Part II, Line 5 related to issue costs paid from bond proceeds, the cumulative amount of issue costs paid for credit enhancement should be reported.
  • Schedule L, Transactions with Interested Persons
    • Tax-Exempt bonds held by an Interested Person do not need to be reported in Part II, Loans to/from Interested Persons.
    • Colleges, universities, primary and secondary schools are not required to disclose scholarships to interested persons. They do need to disclose the types of scholarships (need based, merit, etc.) paid to interested persons and the aggregate amount of these scholarships by type.
    • Business transactions with interested persons include joint ventures in which both the organization and the interested person own a 10% or more interest. Governmental units are not to be considered interested persons.
  • Schedule N, Liquidation, Termination, Dissolution or Significant Disposition of Assets
    • These transactions are to be reported in Schedule N. A separate letter to the Exempt Organizations Determinations office is no longer permitted or required.
  • Schedule O, Supplemental Information
    • Should be used to respond to all questions in the return. The only time a separate attachment should be used is to explain a late filed Form 990. Organizations should not include Social Security Numbers in Schedule O disclosures.
  • Schedule R, Related Organizations
    • Governmental entities, including foreign governments, should be treated as tax-exempt organizations in Part II, related tax-exempt entities.
    • Certain transactions with related controlled entities (payments of interest, dividends, rents, royalties, etc.) must be reported by the entity no matter the amount involved; and transactions in excess of certain thresholds with taxable and tax-exempt organizations other than Section 501(c)(3) organizations need to be disclosed if they aggregate more than $50,000 per year.
    • If the transactions described above consist of services or other assets, the method of determining the value reported must be explained in Schedule O.

The above summary is intended as an overview of the changes to Form 990 for 2009. Please contact RubinBrown with any questions you may have concerning these changes.

 

Under U.S. Treasury Department guidelines, we hereby inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used by you for the purpose of avoiding penalties that may be imposed on you by the Internal Revenue Service, or for the purpose of promoting, marketing or recommending to another party any transaction or matter addressed within this tax advice. Further, RubinBrown LLP imposes no limitation on any recipient of this tax advice on the disclosure of the tax treatment or tax strategies or tax structuring described herein.

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