IR 2007-117

IRS has released for comment and discussion a draft Form 990, Return of Organizations Exempt from Income Tax, the annual return required to be filed by tax-exempt organizations to report information on their operations. IRS expects to have the significantly redesigned form ready for use for 2008 returns filed in 2009.

Background. With some exceptions (e.g., churches), organizations exempt from tax under Code Sec. 501(a) must file annual information returns. ( Code Sec. 6033(a) ) This requirement is generally met by filing Form 990 (or Form 990-PF for private foundations and Form 990-BL for black lung trusts) and complying with the Form's Instructions. ( Reg. § 1.6033-2 ) For the most recent year for which complete data is available (tax year 2004), IRS received 364,601 Forms 990 and 142,269 Forms 990-EZ, for a total of 506,870 returns.

The current Form 990 (2006) consists of a 9-page core and Schedules A and B. It contains 36 possible attachments, most of which request additional financial information by each type of filing organization.

Form 990 is used by IRS as the primary tax compliance tool for tax-exempt organizations. Similarly, most states rely on the Form 990 to perform charitable and other regulatory oversight, and for state income tax filing requirements for organizations claiming a state income tax exemption. IRS notes, however, that the current Form 990—last redesigned in '79—hasn't kept pace with changes in the tax-exempt sector and the law. With its history of ad hoc revisions, the current form fails to adequately describe the filing organization or provide a basis for comparing it to other organizations.

Draft Form 990. The draft Form 990 consists of a core form of 10 pages (including a one page summary) to be completed by each Form 990 filer and a series of 15 schedules designed to require reporting of information only from those organizations that conduct particular activities. IRS says that most tax-exempt organizations will not experience a material change in their filing burden. However, those with complicated compensation arrangements, related entity structures, and activities that raise compliance concerns, may see an increase in the effort required to provide information.
Highlights of the new Form 990 include:

• A summary page that provides the organization's identifying information and a snapshot of the organization's key financial, compensation, governance, and operational information.
• A portion of the form that requires governance information, including the composition of the board, and certain other governance and financial statement practices.
• Schedules that focus reporting on certain areas of interest to the public and IRS: fundraising, compensation, hospitals, tax exempt bonds and non-cash charitable contributions. Certain schedules, such as Schedules A and B, generally will be completed only by public charities, as is the case with the current form. Most of the remaining schedules will be completed by only a small percentage of the organizations filing the core form. Nearly every organization will have to complete at least one portion of Schedule D, Supplemental Financial Statements, similar to what is required presently. IRS estimates that only 3 of the 15 schedules will be completed by more than 25% of the filing organizations, with 8 of the schedules to be completed by less than 10% of all filing organizations.

The redesign of Form 990 is based on three guiding principles: (1) enhancing transparency to give IRS and the public a realistic picture of the organization; (2) promoting compliance by accurately reflecting the organization's operations so that IRS can efficiently assess the risk of noncompliance; and (3) minimizing the organization's filing burden.

Comments sought. IRS invites comments on the draft form, especially in connection with the goals of increased transparency of information and use of the form as a compliance tool. The comment period is open until Sept. 14, 2007.

References: For tax-exempt organization's annual return, Form 990, see FTC 2d/FIN ¶  S-2801 ; United States Tax Reporter ¶  60,334 ; TaxDesk ¶  688,001 ; TG ¶  60703 .