The new Form 990: draft version of updated reporting document unveiled.

The first major overhaul of Form 990 by the Internal Revenue Service (IRS) in more than a quarter century includes many of the transparency and governance issues raised by Congress and nonprofit leaders in recent years. The new form is expected to be ready next year, in time for the 2009 filing season.

A 10-page core form, including a first page summarizing much of the key information about the organization, and new questions about compensation and boards highlight most of the changes in the new draft.

"The new 990 aims to give both the IRS and the public an improved window into the way tax-exempt organizations go about their vital mission," said Kevin Brown, acting IRS commissioner, which last month released the new draft form.

"Most organizations should not experience a change in burden, said Lois G. Lerner, director of the IRS's Exempt Organizations Division. "However, those with complicated compensation arrangements, related entity structures and activities that raise compliance concerns may have to spend more time providing meaningful information to the public."

The IRS is accepting questions and comments about the draft Form 990 through Sept. 14, by email to [e-mail] or mail to IRS; Form 990 Redesign, SE:T:EO; 1111 Constitution Ave., NW; Washington, D.C.; 20224.

"If government forms could talk, this one would be screaming governance and leadership," said Thomas McLaughlin, senior manager, nonprofit consulting, at Grant Thornton LLP in Boston. "It will be uncomfortable for some organizations, without question, but in the end, I'm sure it will add to the transparency, and therefore the strength, of the sector," said McLaughlin, who is also a contributing editor to The NonProfit Times.

The IRS identified three guiding principles in its redesign: enhancing transparency to provide the IRS and the public with a realistic picture of the organization, along with the basis for comparison to other organizations; promoting compliance by accurately reflecting the organization's operations so the IRS may efficiently assess the risk noncompliance; and, minimizing the burden on filing organizations.

One of the most important changes is having a summary of key information on the first page. "I think there are many people that look at the 990 and they're not going to go beyond the first page," said Suzanne Ross McDowell, chair of the Exempt Organizations Group of the IRS Advisory Committee on Tax Exempt and Government Entities. "The first page then is terribly important and the IRS views it as a snapshot of the organization."

The new form is better organized since the old form had become a hodge podge with changes made to it over the years, she said. The typical nonprofit will start with the 10-page core form and depending on answers to certain trigger questions, could require the completion of any of 15 additional schedules. The IRS expects about 25 percent of nonprofits will need to complete more than three schedules and fewer than 10 percent will need to file more than eight schedules.

The core form provides summary information about the organization's mission, finances and fundraising expenses, and includes sections with new questions on governance, compensation and expenses. A few schedules include questions and information that have been moved or rearranged from the old Form 990, while others are new.

"Increased transparency is critical to maintaining the public trust on which nonprofit organizations depend to do their work in improving people's lives," said DianaAviv, president and CEO of Independent Sector (IS), a Washington, D.C.-based coalition representing nearly 600 nonprofits. "Independent Sector has long pushed for changes to the Form 990 that would more clearly present information about tax-exempt organizations' finances, governance, and accomplishments. We are pleased that the effort is a significant step forward to increasing transparency."

IS will be posting an analysis of the new form on its Web site, www.independentsector.org, and also holding conference calls for members to discuss changes in the form:

* July 9, 2 p.m. EDT: Reporting Financial Information

* July 10, 2 p.m. EDT: Governance and Program Services Information

* July 17, 2 p.m. EDT: Other Concerns and Comments

The IRS has done to the 990 what it did to Form 1023 (Filing for Tax Exemption)--made it longer, more intense, more complex, then claim it will be easier to prepare because it's better organized, said Bruce Hopkins, an author on nonprofit and tax-exempt law and a partner in the Kansas City, Mo., firm of Polsinelli Shalton Flanigan Suelthaus. "The reaction I am hearing from clients is dismay as to the length and focus areas of the questions. One exempt organization executive told me, 'If this form has to be prepared, I don't want to be tax-exempt any more.'"

Overall, Hopkins called the new form an "excellent product," particularly the one-page summary and the concept of the core return, though he had hoped the core would be shorter. He was dismayed with questions about percentages of fundraising costs and compensation amounts, because they "usually do not reflect anything of true importance and often are misleading and unfair."

Daniel Romano, executive director, tax, for Grant Thornton's Northeast Higher Education and Nonprofit Practice in New York City, said the Sarbanes-Oxley Act of 2002 is "coming into play for nonprofits some way or another," with the new form ascertaining whether organizations have formal board minutes, investment committees, and policies for group affiliates. Smaller organizations, once they get used to it, will take about the same amount of time to complete the 990, he said.

"Compensation is the big player in all this," Remane said, with more breakdowns about a variety of compensation issues, including base salary, deferred compensation, and expense reimbursements.

He also pointed to an area on the new form where organizations must list their mission as well as significant accomplishments of the past year. "A lot of organizations don't say enough about them. Significant accomplishments, organizations should devote lots of time to that because that's where they're going to increase support."

McLaughlin said the new 990 now is less a financial report and more of a governance and leadership report. "In the aggregate, greater transparency leads to greater strength. It's going to change implied contract between the public and public charities," he said.

"In a sense, it's going to pass through different hands in the organization or get a little closer to leadership than it did in the past."

New Elements Of The Form 990

The Internal Revenue Service's draft Form 990 reorganizes the tax form that nonprofits with at least $25,000 in revenue must file annually for the first time since 1979 and includes new questions as well:

* A new summary page includes 26 lines that pull information from the other nine parts of the 10-page core form to create a snapshot of the organization.

* In addition to aggregate totals of revenue and expenses, and the usual breakdown by type, the summary page asks to indicate what percentage of the total they represent. Fundraising expenses will clearly be assigned as a percentage of contributions, as well as an aggregate total.

* On the old Form 990, nonprofits had to describe their primary exempt purpose and achievements (Part III: Statement of Program Service Accomplishments). On the new form, organizations will be asked to describe their "most significant program service accomplishment for the year."

* The new form tackles governance like never before, with a new section, "Part III: Statements Regarding Governance, Management, and Financial Reporting." New questions include the number of members of the governing body, number of independent members of the governing body, and total number of employees.

* Also in Part III are questions about how the organization makes available its financial and governance documents, as well as several Sarbanes-Oxley-influenced items, such as whether it has an audit committee and written policies on conflict of interest, whistleblowers and document retention and destruction.

SUMMARY OF SCHEDULES AND FILING PROFILE

Redesign                                      Current/      Filing
Schedule   Topic                              New Item     Estimate

A          Public Charity Status               Current        <75%

B          Contributors                        Current      30-40%

C          Political and Lobbying Activity   New in part      <10%

D          Supplemental Financial            New in part      100%
           Statement Detail

E          Schools                             Current         <5%

F          Foreign Activities                    New           <5%

G          Fundraising and Gaming              Current        <25%

H          Hospitals                             New           <5%

I          Grants                              Current        <20%

J          Compensation                        Current         <5%

K          Tax Exempt Bonds                      New           <5%

L          Loans                               Current         <5%

M          Noncash Contributions                 New          <20%

N          Termination or Significant          Current         <5%
           Disposition of Assets

R          Related Organizations               Current        <25%