The Internal Revenue Service (IRS) is
in the process of redesigning the
Form 990 — Return of Organization Exempt from Income Tax.
The redesign of Form 990 is based upon
three principles: to enhance transparency, which will in turn provide the IRS and
the general public with a more realistic
picture of the organization; to promote
compliance by accurately reflecting
operations in order for the IRS to efficiently assess the risk of noncompliance;
and to minimize the burden on filing
organizations.
“In addition, organizations that were
not required to report in the past to the
IRS — those with gross receipts of less
that $25,000 — are now required to file
Form 990-N, Electronic Notice (e-Postcard for Tax-Exempt Organizations
not required to File Form 990 or 990-EZ),” says Victoria Milana Odom, a certified public accountant and tax manager
at Briggs & Veselka Co.
Smart Business spoke with Odom
about Form 990 and why organizations
need to be aware of it in today’s tax world.
Why is the Form 990 so important?
The benefits of the redesigned Form
990 are for the end users of the return,
donors and the IRS. The information on
the first page of the new form is a summary of the information presented
throughout the return, in a format that
will be standard for all filing organizations. End users will now be able to
determine the organization’s mission and
significant accomplishments, as well as
major categories of income and expense
with comparisons for both the current
and prior year at a single glance. The new
form is also presented in such a way that
all required supplemental schedules will
now be reported by completing a checklist of required schedules. This checklist
will provide a view of whether the filing
organization is conducting activities that
raise tax compliance concerns, such as
lobbying or political activities, transactions with interested persons and major
dispositions of assets.
What problems or issues can arise from it?
The problems that can arise from the
redesigned Form 990 are as follows:
- An organization will be required to
report its revenue in greater detail. There
will be more time spent providing revenue generated from federated campaigns, membership dues, fund-raising
events and government grants as well as
receipts from related organizations.
Program revenue will need to be reported
by specific program area and not in total. - An organization will now be required
to report on new expense categories that
have not been required to be itemized in
the past, such as costs for information
technology, fees for various services, and
grants or assistance from both inside and
outside the United States. - The definition of related organizations takes on a whole new meaning. The
IRS has defined a related organization as
either a tax-exempt or taxable organization related to the tax-exempt organization in one or more of the following
ways: one organization owns or controls
the other; the same person(s) owns or controls both organizations; the organizations have a relationship as a supporting and supported organization; the
organizations use a common paymaster;
the other organization pays part of the
compensation that the organizations
would otherwise be contractually obligated to pay; and the organizations conduct joint programs or share facilities or
employees. The key problem with related
organizations is now the ‘control’ issue.
For example, one organization may have
a board member who is employed by one
of the organization’s vendors. If this were
the case, the organization would be required to report on the Form 990 not only
the salaries and/or payments made to the
related organization but also any income
received by the ‘shared member’ from
the related organization.
How can the problems be solved?
The organization can review its accounting systems now to determine
what changes will need to be made to its
chart of accounts to deliver the more
detailed reporting. In addition, an organization should download a copy of the
Dec. 19, 2007, draft Form 990 to start collecting the additional information it will
need to provide to its outside accountants. By being proactive on this, the
organization can hold down the costs
that will be involved in the preparation
of the 2008 Form 990. The new Form 990
can be downloaded from the IRS Web
site at www.irs.gov/charities/index.html.
The organization can also begin working
with board members and key employees
to determine if there are any related
party issues. Foremost, the tax-exempt
organization should contact its outside
accountants to determine what will be
required of it for the 2008 reporting year.
It should be prepared for all of the additional reporting that will be required and
start gathering the information that will
be necessary to file a complete and accurate Form 990.
VICTORIA MILANA ODOM is a certified public accountant and tax manager at Briggs & Veselka Co. Reach her at (713) 667-9147 or
[email protected].