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“O” No! The IRS Has A Few Questions For You

I can already hear some of your sarcasm…

“Tell me something I don’t know!”

“You’re kidding!  The IRS?  Really?”

Point taken.  It seems like the IRS always wants to know a thing or two about you.  Whether it is your personal tax situation, your business or your nonprofit organization, the Internal Revenue Service seems to always be there.  We’ve spent a great deal of time educating you about the seriousness of the 2008 changes to IRS Form 990 and what they mean to your nonprofit.  Well, the screws are getting tighter with the recent release of additional changes for the 2009 return.  Specifically, it is the changes to the Schedule O that have the potential to shake things up pretty dramatically.

What is Schedule O? The name of the schedule, Supplemental Information to Form 990, sounds harmless enough.  It was introduced in 2008 as part of the overhaul to Form 990 that added Schedules C – R to what had previously been just Schedules A & B.  The purpose of the schedule is to provide the IRS with…wait for it…supplemental information about the activities of nonprofit organizations that is not captured elsewhere on the return.  What is new for the 2009 tax year is that Schedule O is required of all Form 990 filers.  This is where the game begins to change…

What is the IRS looking for? Simply put, changes to your approved purpose and programs.  While Schedule O is designed to capture a variety of information, it is these changes that the IRS is really interested in.  It is helpful here to briefly mention the way it used to be.

Prior to now, if a 501(c)(3) or other IRS approved tax-exempt organization had significant changes to its purpose or programs, it was supposed to request a formal IRS “re-determination”.  Significant means things that change the nature of your nonprofit.  For example, if the IRS approved your nonprofit to be an after-school tutoring program, you could not just change course and start running a homeless shelter without getting IRS approval for the new program.  For more minor changes, such as adding an in-home tutoring service, the organization could simply inform the IRS by checking a box on Form 990 and attaching an explanation.  No big deal…or so it seemed.  The problem was that relatively few nonprofits were bothering to keep the IRS informed of major or minor changes.  In fact, many tax-exempt organizations are operating programs that don’t even resemble the plans approved by the IRS.  Congress, watch-dog groups and the IRS itself has had enough of that.  Enter Schedule O.

Schedule O’s introduction last year ratcheted up the level of detail the IRS is looking for, but the filer was left to determine whether or not it needed to be filed and the “re-determination” process stayed intact for major changes.  Not anymore!  For the 2009 return, Schedule O is required.  The re-determination process has essentially been replaced by Schedule O .  Why is that a game changer?

They seriously want to know what you are doing. The IRS means business.  They intend to ensure that tax-exempt organizations operate in compliance with the law and that they (the IRS) knows exactly what your nonprofit is doing.

Your signature under penalty of perjury. Every time you sign an IRS form, you do so under penalty of perjury.  What that means for nonprofits is that failure to disclose material changes to your nonprofit’s purpose, programs and structure is a willful act of perjury.  In other words, it now constitutes a crime.  Nonprofit leaders would be wise to understand the ramifications.  The old days of “forgiveness is easier than permission” no longer applies.

For those who continue to believe that Form 990 is no big deal, they do so at their own risk.  The IRS is playing for keeps!

Greg McRay is the founder and CEO of The Foundation Group. He is registered with the IRS as an Enrolled Agent and specializes in 501(c)(3) and other tax exemption issues.

This Post Has 3 Comments

  1. I'm a new ED at a new non-profit who just finished submitting the 1023 application. Along with the application we attached a request for expedition. All of this was done with the help of a lawyer.

    Our non-profit somewhat fits one of the potential reasons the IRS might expedite which relates to disaster situations. Our mission is to: Strengthen the lifesaving skills of tactical medical providers worldwide.They enter austere situations, including disaster situations.

    I waited to receive word about whether they might expedite our application and then finally called.

    customer rep. #1 Your letter was lost, fax it to us again
    customer rep. #2 Your check was dishonered and another one had to be requested that was certified (we had plenty of money in the bank)
    customer rep. #3 I don't know where they saw that your check was dishonered. Your check was received just fine.
    customer rep. #4 We can't tell you if we received your letter you faxed because they're the correspondence department and they're in Ohio. Call back in two weeks.

    My response-Is there anyone I might give feedback to about my experience? No we don't work like that.

    Wish me luck.

  2. Greg,

    Great article that I am sure will enlighten a lot of nonprofit leaders who knew nothing about this new requirement and how it could impact thier nonprofit status.

    I know that many of the clients I serve at Here-4-You Christian Grant Consulting are from smaller organizations and ministries that do not have the financial savvy to keep up with the growing and changing requirements.

    I plan to report your article on my site (giving full credit of course) so that my clients are educated about this issue.


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