Tax News

CCH (cch.taxgroup.com) reports:

  The IRS continues to educate the public on the new Form 990, Return of Organization Exempt From Income Tax, which was significantly redesigned after 25 years because "everyone hates it - the states, the organizations, the users, the public...even we at the IRS don't like our own form," said a top IRS official. The IRS was told that the instructions were not very good either, said Ronald J. Schultz, IRS Senior Technical Advisor, Tax Exempt and Government Entities.

  Schultz, speaking at the ASAE Chicago Association Law Symposium on April 30, said the three goals in changing the Form 990 include: enhancing transparency to the IRS and public of the organization and the sector, promoting tax compliance and minimizing the administrative burden on filing organizations. "We get mocked at, scoffed at, laughed at, for this last one. I'm not trying to be cute here. We intentionally selected "minimize." We did not say reduce. What we were trying to do, in designing the form and the instructions, was to the extent we could, keep the burden to a minimum. I am not complaining about the mocking."

  Schultz said that, while final instructions will not go out in official form until October or November 2008, the IRS will try to release them to the public sooner in another form.

  Much of the enhanced focus of the Form 990 is on activities, and less on financial reporting, he remarked. Schultz emphasized that the IRS wants better reporting on new or discontinued activities or "stuff you change in a big way."

  With respect to program service accomplishments, the IRS is trying to come up with a more uniform method of reporting. He said that the Service is working on lists of factors or indicators for an organization within a subsector (such as nursing homes). The factors will be in the instructions so that an organization can "get a better sense of what we're looking for." There will be approximately a half a dozen program service activities per subsector.

Form 990 Compensation

  In the new core of the Form 990, the compensation section asks for information regarding key employees. Schultz said that some organizations think that they have no key employees. He warned, "Frankly, we don't believe it."

Form 990-EZ

  The use of the Form 990-EZ, Short Form - Return of Organization Exempt From Income Tax, will be expanded for a three-year transition period. The form can be used:

  for 2008, if gross receipts are less than $1.0 million and assets are less than $2.5 million;

  for 2009, if gross receipts are less than $500,000 and total assets are less than $1,250,000; and

  for 2010, if gross receipts are less than $200,000 and total assets are less than $500,000.

  Schultz noted that, in 2007, 40 percent of organizations are eligible to file Form 990-EZ. That number jumps to 70 percent in 2008 and will be at over 60 percent in 2009. However, even during the transition, he said that Form 990 will still apply to over 90 percent of the exempt sector's revenue and assets.