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Radical Changes to Form 990

For the first time since 1979, the IRS has completely overhauled the Form 990 – Return of Organization Exempt From Income Tax.  And boy, is it a doozy!  This time, they weren’t fooling around.

“So what’s new?,” you ask.  Literally everything…from the filing requirement thresholds to the information they are seeking…it’s all different.

Filing Requirements

First, let’s take a look at the changes in the filing requirements.  Tax year 2007 ushered in the Form 990-N for 501(c)(3)s that have under $25,000 in gross revenue.  Prior to 2007, organizations with less than $25,000 in revenue did not have to file any return, though they could if they chose to.  Form 990-N is what the IRS calls an e-postcard, requiring only minor information to be reported.  It can only be filed online.  If you are unsure of what to do, or would just prefer to have it done for your organization, our staff can assist you.

The next tier is Form 990EZ.  Here is where the changes start in earnest.  In the past, Form 990EZ was for organizations with gross revenue more than $25,000, but less than $100,000.  For tax year 2008, the revenue threshold has been bumped all the way up to $1,000,000.  Don’t get too excited yet…we’ll explain why a bit further down.

The top filing tier is Form 990.  This is now for organizations with gross revenue exceeding $1 million.  These thresholds are moving targets for the next two tax years, however.  The Form 990 threshold will be adjusted downward to $200,000 by tax year 2010.  Sound confusing?  The IRS insists there is a method to the madness…and it does make some sense.  They are phasing-in the requirement for the new 990 long form by allowing many organizations that would ordinarily have file it work their way up to it by temporarily extending the 990EZ threshold to $1 million.  The IRS estimates that approximately 230,000 501(c)(3)s will be eligible for the Form 990EZ that had to file the long version last year.  At the same time, the IRS is encouraging those organizations with revenue over $200,000 to consider sticking with the long form through the transition.

Let’s talk about that term “long form”.  It takes on a whole new meaning now.

What Different About the Form 990

For starters, forget any pretense that 990EZ means easy.  It doesn’t.  In fact, the new Form 990EZ is significantly more detailed than what the full Form 990 used to be.  The core 990 form has grown from 9 pages to 11.  Where both the EZ version and the long form had 2 sub-schedules before, there are now 16 (with multiple pages each).  Yikes!

What is important to understand is the psychology of what the IRS is up to.  Prior to these changes, there was a distinct disconnect between the filing of Form 1023 for determination as a 501(c)(3) and the subsequent reporting requirements via Form 990.  The IRS grills a new 501(c)(3) applicant on issues related to program, purpose, governance, conflict of interest, etc. .  Those of you who have recently gone through this process can attest to that.  As for the Form 990, however, 90% of it dealt with accounting and numbers.  There was very little follow-up on the issues that were harped on in the original approval process.  That’s completely different now.

Approximately 80% of the new Form 990/990EZ deals with questions concerning compliance, governance, structure, procedure, activities…in excruciating detail.  The IRS released a video “webinar” in December that was a panel discussion of the new form.  In that webinar, one of the IRS representatives stated that the intent of the changes was to push compliance and transparency in a way that hasn’t been done before.  She went on to say that the IRS was attempting to “influence the behavior” of 501(c)(3)s through these new reporting requirements.  Gone forever are the days of operating over the line, or even flirting with it…unless you’re prepared to lie under penalty of perjury on your Form 990!

The Bottom Line

The IRS means business with this overhaul.  They want to know what your organization is doing and how it is doing it.  Proper structure and governance, along with tight controls on procedure and recordkeeping are simply a must.

Our advice:  don’t even think about attempting the new Form 990 yourself unless you have a staff member or volunteer with experience in these areas.  Even after we dropped Form 990 preparation from our service offerings in 2004, we consistently discouraged self-prep.  That advice is doubled now.

GOOD NEWS!  After much discussion and non-stop client demand, The Foundation Group is again providing Form 990 preparation services. Given the seriousness of the new requirements, and the relative difficulty in finding affordable, competent help, it just made sense.  Who better to do it than us?

If your organization desires to have our professional staff assist you with your Form 990 filing requirements, just give our office a call at (888) 361-9445.  Or, visit our website and click on “Form 990 Prep” for more details.

Greg McRay, EA

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 4 Comments
  1. Signature block ask for signature of an Officer, is that an elected Board Officer or can it be the CEO who is an employee?

    Can a CEO sign a 990 without giving it to the Board and claim on schedule O it was reviewed with the following language.
    "The 990 is reviewed by the CEO and CFO (non-board member) and signed by the CEO
    Is this in the grey area.

    1. It is not a grey area at all. Neither a CEO nor a CFO is considered an officer. They are staff. It is certainly possible that a CEO/CFO also doubles as a board member or officer, but they are very separate roles. The board is responsible for the contents of Form 990, so it is ill-advised to file one without board review and consent.

    1. Form 990 is only to be filed by US nonprofit corporations that are recognized by the Internal Revenue Service as tax exempt. If that describes your organization, Form 990 can be downloaded from http://www.irs.gov . If your organization is required to file Form 990, I highly recommend using a professional preparer familiar with this form. It is not for do-it-yourselfers.

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