The Internal Revenue Service is asking for public comments on its redesigned Form 990, which requires tax-exempt organizations to answer questions about executive compensation and other matters.
Form 990, “Return of Organization Exempt from Income Tax,” was extensively redesigned for tax year 2008 to promote tax compliance and increase transparency. The IRS said it continues to refine the form in response to questions and comments from the public.
As the second filing season for the redesigned form nears completion, the IRS has issued Announcement 2011-36, which invites public comments on transitional issues and frequently asked questions involving the redesigned Form 990.
For example, the IRS said it is considering removing the space for reporting activity codes, which are supposed to characterize certain program service activities. Filers were asked in the instructions for tax year 2010 to leave the space blank because the IRS had not decided which coding system to use. The IRS wants to know if it should remove the activity code space altogether, or if it should use a system like the National Taxonomy of Exempt Entity Codes or the North American Industry Classification System.
The IRS said it is also considering changes in the requirements for reporting compensation to management companies and leasing companies owned or controlled by directors, officers, trustees or key employees. The IRS admitted that the new requirements “generated controversy and much commentary. Some argued that these reporting requirements were burdensome, requiring the organization to obtain detailed information from third-party contractors; others argued that the requirements invaded the privacy of individuals who were not employees of the filing organization."
In Announcement 2001-33, the IRS said it would not penalize an organization if it reported in the compensation section of its Form 990 the name of a management company it paid for services rather than the person who provided services to the organization on behalf of that management company. The redesigned 2008 Form 990 expanded upon that announcement.
However, the IRS acknowledged that some have expressed concern that this type of reporting allows organizations to shield compensation to highly-paid executives from disclosure by paying those executives indirectly through management companies. Others have explained the difficulty of determining whether a person is a common-law employee under state law.
The IRS is asking for comments on these and other thorny matters, including the thresholds for reporting compensation to key employees, highest compensated employees, independent contractors, and former officers, directors, trustees and key employees.
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