The Internal Revenue Service has been working for a couple of years on revisions to Form 990 (Return of Organization Exempt From Tax), which has not had a major update in 30 years. With the recent release of revised draft instructions, the IRS is close to finalizing the process. The new Form 990 will generally be required for 2008 returns.Although issued as draft instructions, the IRS has indicated that the Form 990 instructions should be thought of as final instructions. They were hurried out to try to get the information in the hands of tax professionals and tax-exempt organizations as soon as possible to prepare for the new requirements. The final instructions are only expected to differ from these draft instructions if there has been a significant error or omission.

Due to the large number of changes to the new form and reporting requirements hereunder, tax professionals should make sure that their tax-exempt clients are aware of the new requirements and are updating their systems to capture the information necessary to complete the 2008 returns.


The IRS's goal with the new Form 990 has been to collect a lot of additional information with respect to the various activities that tax-exempt organizations are involved in, while minimizing the overall additional burden on those organizations. The IRS tried to accomplish this goal primarily by moving a great deal of required information to supporting schedules that only need to be filed by organizations to which they are directly applicable. While the basic form has grown from nine to 11 pages, the number of supporting schedules has grown from two to 16.

Aside from the growth in size of the basic form, it has been totally restructured. The reporting of revenues and expenses has been moved from pages one and two to pages nine and 10. Page one is now a summary and signature page. Other basic sections of the old form that survive on other pages of the new form are program service accomplishments; balance sheet; officers, directors, trustees and key employees; and personal benefit contracts. The old Other Information section has been deleted, with the content expanded into other sections of the form or schedules.

The old sections on Reconciliation of Revenues and Expenses to Audited Financial Statements, Taxable Subsidiaries and Disregarded Entities, and Controlled Entities have been moved to separate schedules. The section on Analysis of Income-Producing Activities has been merged into the new Revenue section. One old reporting requirement has actually been deleted - the Relationship of Activities to Accomplishment of Exempt Purposes.

The new form also includes sections not found on the old form. In addition to the page one summary, the new Form 990 includes sections on governance, management and disclosure, other IRS filings and tax compliance, and a checklist of required schedules, to be used to determine which of the schedules are required to be attached.

The section on governance, management and disclosure has caused particular concern among many directors who volunteer their services only to see that the IRS is holding them to what may seem like an overly technical set of rules that carry penalties for transgressing. New information required in new sections of the form also is of concern to other well-intentioned individuals who only realize now in reading the Form 990 instructions that they have been remiss from the start of 2008 in conforming to all the technicalities of the new rules, only to have those shortcomings more easily red-flagged to the IRS through more detailed reporting.


Most of the schedules required to be attached to the new Form 990 will be new to tax-exempt organizations and the tax professionals who prepare their returns. Some of the schedules replace attachments that tax-exempt entities were required to create and add to the old Form 990. However, many of the schedules also will not apply to the majority of tax-exempt organizations and will not add to their filing burdens.

The schedules that might apply are as follows:

* Public Charity Status or Public Support;

* Schedule of Contributors;

* Political Campaign and Lobbying Activities;

* Supplemental Financial Statements;

* Schools;

* Statement of Activities Outside the United States;

* Supplemental Information Regarding Fundraising or Gaming Activities;

* Hospitals;

* Grants and Other Assistance to Organizations, Governments and Individuals in the U.S.;

* Compensation Information;

* Supplemental Information on Tax-Exempt Bonds;

* Transactions with Interested Persons;

* Non-Cash Contributions;

* Liquidation, Termination, Dissolution or Significant Disposition of Assets;

* Supplemental Information to Form 990; and,

* Related Organizations and Unrelated Partnerships.

Many of these new schedules focus on problem areas that the IRS has identified in recent years involving tax-exempt organizations. Like the new expanded Schedule M-3 for corporations, S corporations, partnerships and life insurance companies, this additional information is designed to help the IRS auditors determine where their resources are best expended in doing follow-up inquiries.


As part of its efforts to increase the amount of reporting that is being required, while minimizing the additional burden on any one tax-exempt organization, the IRS has also put a great deal of effort into expanded instructions.

Features of the new instructions include a sequencing list to help organizations determine the order for completing the return, expanded instructions for the parts of the new form and the schedules, a glossary of key terms, and a compensation table to assist in the reporting of types of compensation.

Appendices are also included in the instructions focused on group returns, joint ventures and disregarded entities. The IRS has also included a number of examples to further assist in the understanding of the requirements.


An IRS employee explaining the new Form 990 got a laugh when he explained that the new Form 990 was designed to minimize the reporting burden, not to reduce it. Yet that is a very good description of what has been done. The IRS has added greatly to the information required to be reported, which overall will add to the reporting burden of tax-exempt organizations. The IRS has also, however, through the use of separate schedules and improved instructions, tried to isolate the need to focus on many of the additional reporting burdens to the organizations to which they apply and to make as clear as possible the information that they are seeking.

The new Form 990 is generally required to be used in the 2009 tax filing season for 2008 returns, although there is some transitional relief for smaller organizations.

Many are predicting that the expanded compensation reporting requirements will be a particular burden for many tax-exempt organizations, with some feeling that there is still unnecessary complexity in areas such as the three separate definitions of "interested persons" in each of three different categories of transactions. Still, most commentators are giving the IRS praise for its efforts to make the overall additional reporting burden as minimal as possible.

Tax professionals should take full advantage of the next couple of months before the 2008 tax return season gets into full swing to make sure that their exempt clients are familiar with these new requirements, and that they are collecting the information necessary to complete these returns as expeditiously and efficiently as possible.

George G. Jones, JD, LL.M, is managing editor, and Mark A. Luscombe, JD, LL.M, CPA, is principal analyst, at CCH Tax and Accounting, a Wolters Kluwer business.

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