Following Up on Form 990 Schedule O

It seems that there has been some confusion regarding last week’s article on IRS Form 990, particularly Schedule O.  In this short article, I want to expand a bit on that discussion and clear up some misconceptions.

We had a caller last week take us to task for hyping Schedule O as some kind of monster.  His comments (paraphrased) were along the lines of,

“You guys have some nerve.  You are intentionally trying to create confusion to increase your business.  I looked at Schedule O and it’s no big deal.  It’s a blank form!”

Point taken..sort of.  Yes, it is true that Schedule O is a mostly blank form with a bunch on lines on it.  But no, we are not hyping anything at all.  First of all, that would be a disservice to our clients.  It would also be a very short-sighted business plan.  The truth is that, like everything related to 501(c)(3), things are more complex than they appear.

To reiterate what was said last week, Schedule O is meant to catch information not disclosed on other parts of the form.  A major part (that we did not discuss last week) is the need to include information regarding internal governance procedures.  For example, what is the specific procedure for making sure all of your board members have thoroughly reviewed your Form 990 and are aware of what it contains prior to filing?  Explain the way your board members ensure conflict of interest avoidance.  As we detailed last week, another big issue is to detail any changes to your programs or purpose. The list goes on…

The point is, don’t let a blank form fool you.  The big deal is not the blank form, it’s what you are supposed to put there.  Make no mistake, the IRS is making big changes to the way they oversee tax-exempt organizations.  We have conversations with IRS agents on a daily basis.  We have had extensive discussions regarding the changes to the way the IRS will deal with “re-determinations” using Schedule O.  We expect many Schedule Os to be forwarded to the Cincinnati office for direct agent follow up and active re-determination analysis.

A couple of questions we’ve been asked:  What should Form 990-EZ filers do with program/purpose changes since Schedule O is not required of them?  The same information is required…just not on a Schedule O.  990-EZ filers will simply attach an explanation.  Don’t ask us why the IRS doesn’t just incorporate Schedule O as an option to 990-EZ.  That would make too much sense.  The next question has resulted in conflicting advice from the IRS itself…that is, what about Form 990-N filers?  How do they handle this problem?  Good question!  The first answer relayed to us was that manual re-determinations were being done away with…period.  Subsequent discussions have indicated that, short of another solution, the IRS will still deal with manual re-determinations for those organizations that only have to file Form 990-N.

We welcome the opportunity to clarify things.  In the limited amount of space available in these articles, it’s often difficult to express everything that needs to be said about complex issues.

As always, we are committed to your organization’s long term success and will continue to bring you information that you need to know.