A Brave New World for a New Form 990

A Brave New World for a New Form 990 Presented by: Michael McNee Robert Lyons February 2008

We have come a long way or have we? Simplification is in the mind of the beholder. 2

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Overview December 20, 2007: the IRS released the redesigned Form 990 Return of Organization Exempt from Income Tax Effective for 2008 returns prepared in 2009 Fiscal year filers for the year beginning in 2008 and ending in 2009 Instructions delayed available by early summer 6

Form 990-EZ Retain present form Some of the new schedules will be required and will replace attachments Serves the transition period (discussed later) through 2010 7

Phase-in of Filing Requirements Addresses transition concerns form June draft Three year phase-in using Form 990-EZ (with new schedules) May file 990-EZ for: If gross receipts are: If assets are: 2008 tax year (filed in 2009) > $25,000 and < $1 million < $2.5 million 2009 tax year (filed in 2010) 2010 and later tax years > $25,000 and < $500,000 > $50,000 and < $200,000 < $1.25 million < $500,000 (Note: The IRS also intends to increase the Form 990-N (e-postcard) filing threshold from $25,000 in gross receipts to $50,000 in gross receipts, beginning with the 2010 tax year.) 8

Phase-in of new Schedules H and K Transition relief will be provided for the 2008 tax year for organizations required to complete new schedules for hospitals (Schedule H) and tax exempt bonds (Schedule K) Only portions of those schedules that provide certain identifying information regarding hospitals facilities and bond issues must be completed for 2008 Both will be implemented in the 2009 tax year 9

Rationale for Redesign and Guiding Principles Form 990 has not been revised since 1979 Has not kept pace with the changing world exempt organizations Does not meet the transparency and accountability needs Increased interest in foreign activities Reordering of the forms to emphasize key elements Redesign to include eleven core pages and sixteen schedules 10

The Order of the New Forms Part I Summary Provides the organization s identifying information and a snapshot of key financial, governance and operating information, including a summary of their mission or activities. A two-year comparison of revenues and expenses is reported for the current and prior year. Part II Signature Block Has been moved to the bottom of page one. Part III Statement of Program Service Accomplishments Includes reporting of new, discounted, or altered program services. Part IV Checklist of Required schedules Contains the list, in schedule sequence order, of all questions required to determine which schedules must be completed by an organization. Part V Statements Regarding Other IRS Filings and Tax Compliance Part VI Governance, Management and Disclosure Requires report regarding governing body composition, and certain governance and disclosure policies and practices. Part VII Compensation of Officers, Directors, Trustees, Key Employees, Highest Compensated Employees and Independent Contractors Part VIII Statement of Revenues Part IX Statement of Functional Expenses Part X Balance Sheet Part XI Financial Statements and Reporting Requires reporting of certain information regarding financial statement compilations, reviews or audits 11

Parts I and II Summary and Signature Block Current form does not contain a summary of key information for users. Changes are to increase and enhance transparency. First page summary emphases the organization s key financial, compensation, governance and operational information. This is an addition to the traditional Statement of Functional Expenses (Part IX). Additional transparency information added. Signature block. [Focus] Categories will have to be maintained in addition to the traditional program, M & G, and fundraising for all organizations not just 501(c)(3) and 503(c)(4) organizations. 12

Parts I and II Summary and Signature Block Continued Make sure that your mission statement matches what was reported previously to the IRS. PPA 2006: IRS began a sharing process with the states. 13

Part III Statement of Program Service Accomplishments This is required in the current return except for the additional information requested concerning codes, change, etc. Current analysis of income producing activities (Part VII) and questions about programs from Part VI have been incorporated in the new Part III. Activity codes will not be used until after 2008. For changes in activities, new Schedule O is used. These changes MUST take into consideration the organization s exempt purpose. 14

Part III Statement of Program Service Accomplishments Continued For e-file purposes, condense information where possible to fit Schedule O. 15

Part III Statement of Program Service Accomplishments Continued Codes are not available in 2008. Make sure the mission statement agrees with Part I and make sure that the programs match the mission. 16

Part IV Checklist of Required Schedules Replaced Part VI Additional Information. Driver for most of the other schedules to be included 17

Part IV Checklist of Required Schedules Continued Read the questions carefully! This is the driving force behind the 16 schedules. 18

Part IV Checklist of Required Schedules Continued 19

Part V Statements Regarding Other IRS Filings and Tax Compliance Purpose is to alert the organization to other potential federal tax compliance information. Replaces part of the detail currently being reported on Part VI Other Information. Complexity for the organization will depend on the nature and type of organization. 20

Part V Statements Regarding Other IRS Filings and Tax Compliance Continued This replaces the old Part VI. 21

Part VI Governance, Management and Disclosure Keystone of the new Form 990 IRS believes that the existence of an independent governing body and will-defined governance and management policies and practices increases the likelihood that an organization is operating in compliance with federal tax law. Not all information on this part is open to public inspection. Required additional information from officers, directors and key employees. 22

Part VI Governance, Management and Disclosure Continued These questions need to be reviewed at the beginning, not at the end, of the year. This part is new and represents the most significant area of interest on the part of Senate and Congress. 23

Part VII Compensation of Officers, Directors, Trustees, Key Employees, and Five Highest Compensated Employees Form is more interested in Transparency than accountability Requires the most substantial change in bookkeeping requirements. $100,000 threshold for five highest compensated employees Reporting of HCE compensation by non-charities Address information of listed officers and directors Retirement benefits and other compensation Reduced subjectivity Fiscal year or calendar year reporting calendar year reporting. Highly compensated individuals necessitate Schedule J. 24

Part VII Compensation of Officers, Directors, Trustees, Key Employees, and Five Highest Compensated Employees Continued Information needs to be tracked for the entire year, not just the end. Major expansion of old Part V. 25

Part VII Compensation of Officers, Directors, Trustees, Key Employees, and Five Highest Compensated Employees Continued 26

Part VII Compensation of Officers, Directors, Trustees, Key Employees, and Five Highest Compensated Employees Schedule J Continued This section addresses the entire benefit issue as to compensation methodology and reasonableness. 27

Part VII Compensation of Officers, Directors, Trustees, Key Employees, and Five Highest Compensated Employees Schedule J Continued 28

Part VII Compensation of Officers, Directors, Trustees, Key Employees, and Five Highest Compensated Employees Schedule J Continued 29

Part VIII Statement of Revenue Combination of Part I and Part VII on the current Form 990 Restructuring of the form for greater visibility. New form reduces the number of attachments and eliminates UBI codes. 30

Part VIII Statement of Revenue Continued This combines the old Parts I and VII. 31

Part IX Statement of Functional Expenses Mostly retained Greater detail related to breakout 32

Part IX Statement of Functional Expenses Continued 33

Part X Balance Sheet Substantially retained with modification of ordering. Eliminated need for various unstructured schedules. 34

Part X Balance Sheet Continued 35

Part XI Financial Statements and Reporting Information, in part pulled from current Form 990 Additional questions are concerning financial statement reporting 36

Part XI Financial Statements and Reporting Continued 37

Schedules Schedule A Public Charity Status and Public support Schedule B Schedule of Contributors Schedule C Political Campaign and Lobbying Activities Schedule D Supplemental Financial Statements Schedule E Schools Schedule F Statement of Activities Outside the United States 38

Schedule G Supplemental Information Regarding Fundraising or Gaming Activities With the sharing of information between the IRS and the states, state law should be reviewed before carrying out procedures. 39

Schedule G Supplemental Information Regarding Fundraising or Gaming Activities 40

Schedule G Supplemental Information Regarding Fundraising or Gaming Activities 41

Schedules Schedule H Hospitals Schedule I Grants and Other Assistance to Organizations, Governments and Individuals in the United States. 42

Schedule K Supplemental Information on Tax Exempt Bonds 43

Schedule K Supplemental Information on Tax Exempt Bonds 44

Schedule L Transactions with Interested Persons 45

Schedules Schedule M Non-Cash Contributions Schedule N Liquidation, Termination, Dissolution, or Significant Disposition of Assets Schedule O Supplemental Information to Form 990. 46

Schedule R Related Organizations and Unrelated Partnerships 47

Schedule R Related Organizations and Unrelated Partnerships 48

Schedule R Related Organizations and Unrelated Partnerships 49

Schedule R Related Organizations and Unrelated Partnerships 50

Contact Information Michael M. McNee, CPA Partner-in-Charge Nonprofit Industry Group mmcnee@markspaneth.com 212.503.8954 Robert R. Lyons, CPA Managing Director of Tax Services Nonprofit Industry Group rlyons@markspaneth.com 212.710.1736 Marks Paneth & Shron LLP 622 Third Avenue New York, NY 10017 www.markspaneth.com 51