Federal case: changes are coming to Form 990.
The Internal Revenue Service (IRS) recently released draft copies of the 2005 version of some of the forms in the 990 series. While there are not drastic changes in the draft forms, there are a number of new requirements. And, the IRS is working on a complete revision of Form 990 that we are likely to see in the next few years.
This article will discuss the changes that are known for 2005 and will also provide the latest information available about the IRS revision project.
If you work for a large organization, you might have to file your 2005 Form 990 electronically. Last January, the IRS issued proposed regulations imposing this requirement on certain organizations. You will have to file electronically if you have total assets in excess of $100 million and you file 250 or more documents with the IRS in 2005. These documents include your Form 990, Forms W-2 and W-3, Forms 1099 and 1096, quarterly payroll tax returns on Form 941 and any other forms you file with the IRS.
If you meet both parts of this test you will have to file electronically for calendar year 2005 or a fiscal year that begins in 2005. If you prepare and file your own return, you will have to obtain access to appropriate computer software to allow you to comply with this rule. Software used by most certified public accountants and other commercial preparers should contain this capability.
The asset level drops to $10 million for required electronic filing for years ending on or after December 31,2006. The 250 document test remains in effect. Also, any private foundation that meets the document test will have to file electronically, regardless of asset size.
New Form 990 questions and schedules
At press time, the IRS had not issued a draft of Form 990. However, it did issue drafts of Form 990-EZ, as well as Schedule A that is filed by all organizations exempt under IRC Section 501(c)(3). These draft forms provide an indication of some items that may be on Form 990, as well.
The IRS is very interested in any foreign activities you might have. The 2005 draft returns have several new questions and request new information. In Part III of Form 990-EZ and in Part III of Form 990 you are required to list your program service accomplishments by description and amount spent.
Previously, you were asked to indicate the amount of any grants that were included in the total expenses. Now, in addition to the total amount of grants, there is a new checkbox on Form 990-EZ (and presumably on Form 990 as well) to indicate if the amount includes any foreign grants.
There are two new questions on Form 990-EZ as well. The first asks if you had an interest in or signature or other authority over a financial account in a foreign country at any time during the calendar year.
If you did, you are required to indicate the name of the foreign country, and the Form refers you to Form TD 90.22.1, which you may have to file with the Treasury Department by next June 30.
The second question asks if you had an office outside of the United States at any time during the calendar year. If you did, you are again required to indicate the name of the foreign country. It is obvious that the IRS is interested in finding out which and how many tax-exempt entities have foreign operations. How they will use this information remains to be seen.
If you are exempt under Section 501 (c)(3), you are required to file Schedule A along with Form 990. This schedule has various sections designed to elicit information showing potential inurement or other self-dealing type transactions, to show how you satisfy the public support requirements and to accomplish other disclosure purposes.
There are two significant changes reflected in the draft forms for 2005. The first change will require disclosure of payments to independent contractors for services other than professional services.
For many years, Part II of Schedule A required you to list payments to independent contractors for professional services, if you paid them at least $ 50,000. You also had to provide the number of additional such contractors if you had more than five.
In many instances organizations list contractors other than those providing professional services in this section. The draft form for 2005 will split Part II into parts--Part II-A for professional services and Part II-B for other services.
As before, you only have to list the five highest paid in each category who received more than $50,O00. You also have to provide the number of other contractors paid more than $50,000 in each category.
The second change to Schedule A is a new question in Part III. New question 3c asks, "During the year, did the organization receive a contribution of qualified real property interest under Section 170(h)?" The referenced section allows a deduction for a donation of real estate to a qualified charity for conservation purposes.
These purposes include preservation of land areas for public use, protection of wildlife habitats, preservation of open space and preservation of historically important land or a certified historic structure.
Potential law changes in this area has previously been a topic for this column. However, the IRS is concerned that there are current abuses occurring, such as overvaluations and insider transactions.
Therefore, they apparently want to know which organizations are receiving these donations so that they can focus on evaluating whether the treatment is proper. Based on the draft form, it does not appear that you will have to attach any information if you answer this question affirmatively.
Possible future changes
So far, expected changes on 2005 returns have been described in this column. The IRS has established a team that is working on a potential overhaul of Form 990. Based on information available to date, you should expect the form might look quite different in the future. One possibility is that the basic Form 990 will ask a series of questions, with supporting schedules required if your organization answers affirmatively.
For example, rather than a part of the form reconciling figures to audited financial statements, Form 990 could ask whether your financial statements are audited. If they are, you would then complete the reconciliation information on a supporting form. Most of the information currently on Schedule A could be incorporated in this manner. It is also possible that the order of the form could be changed.
A number of commentators and others would like to see the program information (current Part III) moved to the front page, so that the public could readily see what your organization has accomplished. It is also possible that you will have to attach your audited or reviewed financial statements to your Form 990.
They will then become public information. This requirement was suggested by the Senate Finance Committee and endorsed by the Panel on the Nonprofit Sector, convened by Independent Sector.
The Senate Finance Committee's white paper proposed numerous other changes and additions to Form 990. It is problematic at the time this article is written to determine whether any of the proposals will be included in proposed legislation and ultimately become law.
If you are affected by any of the proposed new disclosures, you should think about the information you will need to provide to your tax advisor. If you have to file electronically, you will need to make sure you or your tax advisor will have access to the appropriate software. In any case, you should get ready for increased disclosures as part of Form 990 in the future and remember, you are subject to substantial penalties (up to $100 per day) for filing an incomplete or inaccurate Form 990.
Harvey Berger, CPA, is a partner and national director of not-for-profit tax services in Vienna, Va., for the accounting and management consulting firm Grant Thornton LLP. His email address is: email@example.com. D. Greg Goller, CPA, is the partner-in-charge, Not-For-Profit Solutions Group in Grant Thornton LLP's Washington, D.C. office. His email is firstname.lastname@example.org
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|Title Annotation:||Taxing Issues|
|Author:||Goller, D. Greg|
|Publication:||The Non-profit Times|
|Date:||Oct 1, 2005|
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