Revised Form 990 E-Book

Jody Blazek

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 482

Veröffentlichungsjahr: 2009

Beschreibung

A line-by-line preparation guide to the completely new and revised Form 990 for nonprofit organizations The accurate and complete preparation of Form 990--the information return that must be filed annually by most types of tax-exempt organizations--is a key factor in maintaining public image and fundraising capabilities. The newly redesigned Form 990 was released in December 2008 with significant revisions to the initial June 2007 draft. Preparation of the new return will require tax-exempt organizations to gather extensive new information about their activities for disclosure on the new form beginning with their 2008 tax year. In Revised Form 990: A Line-by-Line Preparation Guide, authors Jody Blazek--who with other AICPA Task Force members was instrumental in effecting changes to the original IRS draft of the form--and Amanda Adams, provide step-by-step and line-by- ine analysis and preparation guidelines for nonprofit professionals and nonprofessionals alike charged with preparing and submitting the form. This hands-on workbook walks you through the process of producing an annual report to the IRS that demonstrates continued qualification for exempt status for a nonprofit organization, explaining the information requested page by page and part by part. It addresses the issues and challenges for each part, particularly the new schedules. As each part is explained, the authors suggest when certain answers have negative consequences. Guidance is provided for functional expense reporting and generally accepted accounting principles for reporting revenues. A good discussion of the differences between book and tax reporting and records needed to accurately display financials for tax purposes is included. The Form 990-PF and Form 990-T are also examined.

Leseprobe

Table of Contents

Title Page

Copyright Page

Preface

Acknowledgements

About the Authors

CHAPTER ONE - Redesigned Form 990

§ 1.1 HISTORY OF REDESIGN PROJECT

§ 1.2 HIGHLIGHTS OF REVISED FORM 990

§ 1.3 FILING OF NEW FORM DELAYED FOR MANY

§ 1.4 FIND OUT WHY ORGANIZATION QUALIFIES FOR TAX EXEMPTION

§ 1.5 WHO IS REQUIRED TO FILE WHAT

§ 1.6 FILING FOR NEW ORGANIZATIONS

§ 1.7 WHO IS NOT REQUIRED TO FILE

§ 1.8 FILING DEADLINE AND FISCAL YEAR

§ 1.9 NEW FORM 990-N (e-POSTCARD)

§ 1.10 ELECTRONIC FILING OF RETURNS

§ 1.11 GROUP RETURNS AND ANNUAL AFFIDAVIT

§ 1.12 PUBLIC INSPECTION OF FORMS 990 AND 1023/1024

NOTES

CHAPTER TWO - Good Accounting Makes a Good 990

§ 2.1 TAX ACCOUNTING METHODS

§ 2.2 PROFESSIONAL ACCOUNTING STANDARDS

§ 2.3 CHART OF DIFFERENCES BETWEEN GAAP AND IRS RULES

NOTES

CHAPTER THREE - The Core

§ 3.1 2008 FORM 990 CORE

§ 3.2 PART I SUMMARY

§ 3.3 PART II SIGNATURE BLOCK

§ 3.4 PART III STATEMENT OF PROGRAM SERVICE ACCOMPLISHMENTS

§ 3.5 PART IV CHECKLIST OF REQUIRED SCHEDULES

§ 3.6 PART V STATEMENTS REGARDING OTHER IRS FILINGS AND TAX COMPLIANCE

§ 3.7 PART VI GOVERNANCE, MANAGEMENT, AND DISCLOSURE

§ 3.8 PART VII COMPENSATION OF OFFICERS, DIRECTORS, TRUSTEES, KEY EMPLOYEES, ...

§ 3.9 PART VIII STATEMENT OF REVENUE

§ 3.10 PART IX STATEMENT OF FUNCTIONAL EXPENSES

§ 3.11 PART X BALANCE SHEET

§ 3.12 PART XI FINANCIAL STATEMENTS AND REPORTING

NOTES

APPENDIX 3A - Transactions with Interested Parties Questionnaire

CHAPTER FOUR - Form 990, Schedules A through R

§ 4.1 SCHEDULE A

§ 4.2 SCHEDULE B

§ 4.3 SCHEDULE

§ 4.4 SCHEDULE D

§ 4.5 SCHEDULE E

§ 4.6 SCHEDULE F

§ 4.7 SCHEDULE G

§ 4.8 SCHEDULE H

§ 4.9 SCHEDULE I

§ 4.10 SCHEDULE J

§ 4.11 SCHEDULE K

§ 4.12 SCHEDULE L

§ 4.13 SCHEDULE M

§ 4.14 SCHEDULE N

§ 4.15 SCHEDULE O

§ 4.16 SCHEDULE R

NOTES

APPENDIX 4B: INTERESTED PARTY BY PART AND TYPE

CHAPTER FIVE - Form 990-T: Exempt Organization Business Income Tax Return

§ 5.1 WHAT IS UNRELATED BUSINESS INCOME?

§ 5.2 EXCEPTIONS AND MODIFICATIONS FROM TAX

§ 5.3 UNRELATED DEBT-FINANCED INCOME

§ 5.4 WHO FILES FORM 990-T?

§ 5.5 DUE DATES, TAX RATES, AND OTHER FILING ISSUES

§ 5.6 NORMAL INCOME TAX RULES APPLY

§ 5.7 THE UNIQUE DESIGN OF THE 990-T

§ 5.8 CATEGORIES OF DEDUCTIONS

§ 5.9 COST ALLOCATIONS

§ 5.10 IN-KIND DONATIONS

NOTES

APPENDIX 5A: ANALYSIS OF CORPORATION VERSUS TRUST 990-T ISSUES

CHAPTER SIX - The Private Foundation Return

§ 6.1 SUCCESSFUL COMPLETION OF FORM 990-PF

§ 6.2 THE PART I COLUMNS

§ 6.3 LINE-BY-LINE INSTRUCTIONS FOR REVENUES

§ 6.4 LINE-BY-LINE INSTRUCTIONS FOR EXPENDITURES

§ 6.5 PART II: BALANCE SHEETS

§ 6.6 PART III: ANALYSIS OF CHANGES IN NET WORTH OR FUND BALANCES

§ 6.7 PART IV: CAPITAL GAINS AND LOSSES FOR TAX ON INVESTMENT INCOME

§ 6.8 REPORTS UNIQUE TO PRIVATE FOUNDATIONS

§ 6.9 PART V: REDUCING THE TAX RATE

§ 6.10 PART VI: CALCULATING THE EXCISE TAX

§ 6.11 PART VII-A: PROOF OF ONGOING QUALIFICATION FOR EXEMPTION

§ 6.12 PART VII-B: QUESTIONS SEEKING EVIDENCE THAT NO SANCTIONS APPLY

§ 6.13 PART VIII: INFORMATION ABOUT OFFICERS, DIRECTORS, TRUSTEES, FOUNDATION ...

§ 6.14 PART IX-A AND B: SUMMARY OF DIRECT CHARITABLE ACTIVITIES AND ...

§ 6.15 PART X: MINIMUM INVESTMENT RETURN

§ 6.16 PART XI: DISTRIBUTABLE AMOUNT

§ 6.17 PART XII: QUALIFYING DISTRIBUTIONS

§ 6.18 PART XIII: UNDISTRIBUTED INCOME

§ 6.19 PART XIV: PRIVATE OPERATING FOUNDATIONS

§ 6.20 PART XV: SUPPLEMENTARY INFORMATION (LINES 1-2)

§ 6.21 PART XV: GRANTS AND CONTRIBUTIONS PAID DURING THE YEAR OR APPROVED FOR ...

§ 6.22 PART XVI-A: ANALYSIS OF INCOME-PRODUCING ACTIVITY

§ 6.23 PART XVII: INFORMATION REGARDING TRANSFERS TO AND TRANSACTIONS AND ...

NOTES

Index

This book is printed on acid-free paper.

Copyright © 2009 by John Wiley & Sons, Inc. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:

Blazek, Jody.

Revised Form 990: a line-by-line preparation guide/Jody Blazek, Amanda Adams.

p. cm.

Includes bibliographical references and index.

eISBN : 978-0-470-48362-6

1. Nonprofit organizations—Taxation—Law and legislation—United States—Forms. 2. Tax exemption—Law and legislation—United States—Forms. 3. Tax returns—United States. I. Adams, Amanda. II. Title.

KF6449.B567 2009

343-7305’ 26—dc22

2008052083

Preface

Forms 990 have traditionally provided a wealth of financial and programmatic information to enable government regulators, funders, journalists, and anybody else who is interested to measure a nonprofit’s performance. Since 1987, the form must be provided to anyone who is willing to pay a modest fee for a copy of it. Charities, and an increasing number of non-(c)(3) organizations, have their returns posted on the Internet courtesy of Guidestar.org for the public to view. The forms are the most widely used tools for evaluating tax-exempt organizations. Schools, health and welfare organizations, business leagues, civic associations, museums, farmers’ cooperatives, parent groups, garden clubs, private foundations, and the many other nonprofit organizations recognized under §501(c) of the Internal Revenue Code must file this form annually. Information on the return is the basis for IRS scrutiny in meeting its responsibility to allow continued exemption from income tax. Careful preparation of the form is therefore very important. This guide contains the three major forms filed by tax-exempt organizations: (1) Form 990 for §501(c) organizations that are not private foundations, (2) Form 990-T used by all to report taxable unrelated business income; and (3) Form 990-PF, filed by private foundations.

After 30 years of modest annual revisions, the IRS in June 2007 released a draft of an amazing and complex revision of the Form 990 for 2008. Thankfully, they invited input from the exempt sector, giving us a September 2007 deadline for comments. Hundreds of e-mails were posted on the IRS Web site throughout an incredible summer as professionals in firms like ours exchanged ideas and expressed suggestions for revisions. Again in April 2008 when the companion instructions were released, the ABA, AICPA, Independent Sector and many others weighed in. Many of the issues reviewers brought up concerning the form and instructions, were instituted by the IRS as improvements in its product. The final outcome is presented in this book.

The revised Form 990 reflects the IRS’s intention to enhance the transparency of a tax-exempt organization’s financial affairs and governance practices and procedures. The most controversial part of the new Core Form is Part VI, entitled “Governance, Management, and Disclosures.” Readers will note the top of this part says that some sections “request information about policies not required by the Internal Revenue Code.” Steven T. Miller, Commissioner, Tax Exempt and Government Entities, said in November 2005 that “we have seen the migration of the governance problems that surfaced a few years ago in the corporate world. Weak governance and the resulting problems appear in the sector, evidencing themselves in such things as excess compensation and poor Form 990 reporting.” The evolution of the IRS’s focus on governance can be found on its Web site at www.irs.gov/charities at Speeches on Governance.

The fact that the questions on governance in Part VI are answered according to practices in place as of the last day of the filing organization’s fiscal year will be troubling for those who were unaware of the questions before year-end. IRS representatives have said that negative answers on this part will not necessarily result in examinations in the near future. However, those now required to file the return electronically because they file more than 250 W-2 and 1099-type returns otherwise should be careful. The IRS has already engaged programmers to design electronic auditing techniques. There is an Exempt Organizations Compliance Unit (EOCU) in Ogden, Utah, where physical returns are sent to use sampling techniques to identify issues to question.

The second most troublesome aspect of the revised return is the extraordinary increase in information requested throughout the schedules. Schedule M is a good example. Not only must 24 different types of noncash contributions received be quantified and described, but the method of valuation, the acceptance policy for such gifts, who sells such donated items, and the practice of making proper donor disclosures for such gifts are required. Similarly, the return previously made no distinction between domestic activities and those conducted outside the United States. A brief look at new Schedule F reveals the extensive details now to be submitted for off-shore activities, as distinguished from Schedule I, where grants paid to organizations, governments, and individuals located in the United States are reported.

Maybe the most important thought to convey is that the revised return will in most cases require more time and effort to adequately gather information for its completion despite Director of Exempt Organizations Lois Lerner’s hope that the revision would minimize the burden on the filing organizations. For many, the work will fall on not only the accounting or finance department, but also the personnel and development departments and certain executive officials and board members. As the return data is prepared, the process should be evaluated to gather ideas to ease the burden. Questions like “Should the accounting system be improved to allow adequate tracking of details for costs and revenues?,” “Should we identify a team of personnel to gather 990 data for 2009?,” or “How can documentation systems be improved?” should be asked. Fortunately a transition period has been provided that will result in many former 990 filers being allowed to submit Form 990-EZ for 2008 and 2009, as shown on the chart in Chapter 1(§1.3).

What’s good about the new return is the front page that presents an organizational snapshot with a brief description of mission, a bit of governance data, and a comparison of revenues and expenses for the current and past years. Second best may be the “reasonable effort” rule. An organization is only expected to do its best to send questionnaires to its board and staff members to obtain answers regarding relationships for Core Parts VI and Schedule L.

Part IV may be difficult for some as they navigate a long list of questions prompting attachment of one of the 16 new schedules based on an array of varying financial thresholds. Some of the questions don’t mention the issue. One wishes the IRS had settled on $10,000 rather than the range of $5,000 to $25,000 that currently exists for the reporting thresholds. What is a very helpful list of other tax filing requirements is displayed in Part V.

Part VII for reporting compensation for officials has a good display by positions, a much clearer definition of key employees who must be reported, and a higher threshold for reporting. Only experienced 990 preparers, and the National Football League representatives who complained, will realize that this part now combines reporting of the compensation of those officials previously reported by §501(c)(3) charities on now-defunct Schedule A and non-(c)(3) personnel previously not reported unless they were an officer or a director.

Part VIII, “Statement of Revenue,” combines the part that in the past identified revenue according to its character as related to exempt purposes, unrelated to exempt purposes and thereby reportable on Form 990-T, and unrelated revenue that is not taxed due to volunteer conduct, donated goods, irregularity, and other exceptions. Part IX, “Statement of Functional Expenses,” expands categories of fees for services, adding lines for lobbying, investment management fees, advertising and promotion, information technology, payments to affiliates, and royalties. The relatively minor expense accounts previously listed have been combined to report “office expenses,” including supplies, telephone, postage and shipping, and printing and publications. Part X presents the balance sheet in much the same fashion. Organizations with donor-advised funds, conservation easements, collections, endowments, and other types of assets must submit enhanced detailed, information in Schedule D.

The biggest impact of the new form may come to those §501(c)(3) organizations classified as public charities because the revenue to support their activities comes from many donors or participants in exempt function activities. The test for calculation of qualification now includes five rather than four years and can be prepared on either the cash or accrual basis, whichever method is normally followed for the organization’s financial and 990 reporting purposes. Prior year calculations may need to be restated. A regulation change was required to implement the changes. Organizations with a support ratio below the 33% floor for the prior year are instructed to file Form 990-PF if the calculation for the current year is also below 33%. Careful attention to support levels is critical for filers who must meet the test.

As readers go through the book, they will find schedules with significantly enhanced information for lobbying and electioneering activity (Schedule C) and fundraising and gaming (Schedule G). Again, thankfully, full completion of the amazingly detailed Schedule H for hospitals and Schedule K for tax exempt bonds has been delayed until 2009. Last, the form now contains a schedule that is virtually blank entitled Schedule O that undoubtedly will become the most viewed schedule of the form. Chapter 4, §15 lists the 45 different times the form and schedules require a comment in Schedule O either because the organization has to say “No” it has no policy for that issue or instead to explain its existing policies.

Even though they are classified as tax-exempt organizations, some nonprofits receive income through an activity that does not advance the mission and are therefore subject to the normal income tax. Chapter 5 considers the preparation of Form 990-T, which reports such unrelated income, and presents ideas for maximizing deductions and minimizing the resulting tax liability.

Issues that are key to maintaining exempt status are highlighted in this guide to alert readers to questions that deserve close attention. Specifically, the types of transactions that can endanger a nonprofit’s tax-exempt status and/or result in an unexpected tax liability are explained. Footnotes provide references to the tax code and to the fourth edition of Blazek’s Tax Planning and Compliance for Tax-Exempt Organizations, where extensive discussions of the criteria for obtaining and maintaining tax-exempt status can be found. In addition to using this book, return preparers might also find that the new “plain language” publications and training videos available on the IRS web site help explain the rules applicable to tax-exempt nonprofits.

We hope this line-by-line preparation guide will be a useful tool that enhances the quality of public reporting required for nonprofit organizations on Forms 990.

Jody Blazek Amanda Adams

Houston, Texas January 22, 2009

Acknowledgments

First and foremost, we acknowledge and thank the wonderful people who work with us at Blazek & Vetterling and our nonprofit clients who bring challenging tax and financial issues for us to solve. Next, we thank the folks at John Wiley & Sons who make the Wiley Nonprofit Series an invaluable collection of reference books for the nonprofit sector. Finally, Jody treasures all those who have joined her in serving the Texas Accountants and Lawyers for the Arts, the AICPA Tax-Exempt Organizations Resource Panel, the Volunteer Services Committee of the Houston Chapter of CPAs, and the Management Assistance Program of the United Way of Greater Houston over the years. Together, they have enhanced the body of knowledge available to the nonprofit sector and improved the resulting delivery of valuable services to the constituents those nonprofits serve.

This book is dedicated to all the tireless volunteers who serve nonprofit organizations.

About the Authors

Jody Blazek is a partner in Blazek & Vetterling, a Houston, Texas, CPA firm providing tax compliance and auditing services to over 250 nonprofit, tax-exempt organization clients and tax consulting services to other lawyers and accountants who serve nonprofits.

Jody began her professional career at KPMG, then Peat, Marwick, Mitchell & Co. Her concentration on exempt organizations began in 1969, when she studied and advised clients about the Tax Reform Act, which completely revamped the taxation of charities and created private foundations. From 1972 to 1981, she gained nonprofit management experience as the treasurer of the Menil Interests where she worked with John and Dominique de Menil to plan the Menil Collection, The Rothko Chapel, and other projects of the Menil Foundation. She reentered public practice in 1981, to found the firm she now serves.

She is the author or co-author of five other books in the Wiley Nonprofit Series: Tax Planning and Compliance for Tax-Exempt Organizations 4th Edition (2004), Nonprofit Financial Planning Made Easy (2008), IRS Form 1023 Tax Preparation Guide (2005), and Private Foundations: Tax Law and Compliance 3rd Edition (2008) and Private Foundation Legal Answer Book, both co-authored with Bruce R. Hopkins.

Jody is the past chair of the American Institute of Certified Public Accountants’ Tax-Exempt Organizations Resource Panel. She serves on the national editorial board of Tax Analysts’ The Exempt OrganizationTax Review and the AICPA Tax Adviser. She is a founding director of the Texas Accountants and Lawyers for the Arts and Houston Artists Fund. She is a frequent speaker at nonprofit symposia, including AICPA, TSCPA, and NYSSCPA Not-for-Profit Industry Conferences; the University of Texas School of Law Nonprofit Organizations Institute, among others.

Blazek received her BBA from the University of Texas at Austin in 1964, and took selected classes at the South Texas School of Law. She and her husband, David Crossley, nurture two sons, Austin and Jay Blazek Crossley.

Amanda Adams is a tax manager at Blazek & Vetterling, a Houston, Texas CPA firm providing tax compliance and auditing services to over 250 nonprofit, tax-exempt organization clients and tax consulting services to other lawyers and accountants who serve nonprofits.

Amanda joined Blazek & Vetterling in 2003, and currently serves a broad range of nonprofit clients, including social services agencies; civic, business, and cultural organizations; private foundations, and health-care-related organizations. In 2007, she co-authored an article entitled “Transfers Between Private Foundations” that appeared in Trusts & Estates magazine. Amanda received her Bachelor of Arts degree from the University of Texas at Austin in 1999, and is currently pursuing her Master’s of Accountancy degree at the University of Houston, with an expected graduation date in the summer of 2009. She is a member of the American Institute of Certified Public Accountants, the Texas Society of Certified Public Accountants, and the Houston Chapter of CPAs. Amanda is also a member of The Woman’s Club of Houston and serves as co-leader of Girl Scouts of the USA’s Troop 21125. Her two children, Alexis and Major, are a continual source of inspiration and joy.

CHAPTER ONE

Redesigned Form 990

The responsibility of the IRS to grant, or approve, qualification for tax-exempt status for all §501(c) organizations, which includes charities designated as §501(c)(3)s, civic associations (c)(4)s, labor unions (c)(5)s, business leagues (c)(6)s, social clubs (c)(7)s, and more than 30 other types of tax-exempt organizations, is accompanied by the burden to evaluate continued qualification. The 990 series of tax returns serves this purpose. The challenge in designing a form suitable for overseeing and scrutinizing ongoing qualification for the diverse types of organizations qualifying under §501(c) is evidenced by the ever-expanding girth of the form, culminating with the 2008 version, which has a Core Form with 11 pages plus 16 schedules to be completed when applicable. The fact that the form has been available for inspection by anyone that asks to see it since 19871 has made this form the most accessible source of information about a tax-exempt organization. Form 990 for §501(c)(3) organizations (and others) is also available on the Internet at www.guidestar.org. Therefore, its redesign has an impact on all those involved in the nonprofit sector.

The various Forms 990 are designed to accomplish many purposes that go far beyond simply reporting to the Internal Revenue Service (referred to in this book as the IRS). Accurate and complete preparation of the forms should be given top priority by a nonprofit organization. The forms are part of the electronic age; many are accessible to one and all on the Internet. An organization’s public reporting responsibilities are beyond the form’s physical dimension and deserve careful attention. Since March 1997, when the IRS contracted with the Urban Institute of Washington, D.C., to receive and place the forms for the years 1996 through 2001 on CD-ROMs, the Forms 990 have been made available on the Internet. In a coordinated effort, Philanthropic Resources, Inc. began in 1998 to digitize the information so that it could be sorted and searched. Information from prior 990s of some 40,000 public charities was originally entered. The Guidestar site also provides an abstract of the information they glean from the forms, and it also posts the complete form;2 the site can be accessed at http://www.guidestar.org. The IRS has also begun to implement an electronic filing system for 990s to eliminate the paperwork altogether and allow them to more effectively monitor exempts in a statistical and focused fashion. As of December 2008, the IRS has not yet worked out a system to transmit Forms 990 submitted electronically into a format suitable for posting on Guidestar’s website, so organizations filing electronically may not see their returns on Guidestar for some years. Such organizations can voluntarily submit their return and other documents to Guidestar.

In essence, Form 990 is designed to be, and in fact, is a public document. Yet another reason for a tax-exempt organization to pay careful attention to completion of the forms is the requirement that copies of the three most recent year’s returns, now including Forms 990-T of §501(c)(3) entities, must be given upon request to those that pay a modest fee. Between 1984 and 1997, an organization had to allow anyone who knocked on its door a look at its Forms 990 and 1023 or 1024 in its office. Beginning June 8, 1999, a copy of the forms must be furnished for a fee as discussed in §1.12. Forms 990 are also used for a wide variety of state and local purposes. In many states, an exempt organization can satisfy its annual filing requirement by furnishing a copy of Form 990 to the appropriate state authority. Many grant-making foundations request a copy of Form 990 in addition to, or in lieu of, audited financial statements, to verify an organization’s fiscal activity. The open-records standards applicable in many states also require all financial reports and records to be open to the public.

Form 990 provides a wealth of information. An organization’s basic financial information—revenues, expenses, assets, and liabilities—is classified into meaningful categories to allow the IRS to evaluate a nonprofit’s ongoing qualification for federal tax exemption under Internal Revenue Code §501 (hereinafter code section numbers are simply identified with the symbol “§”). The revised 990 contains a wide range of questions and information regarding governance policies, other tax compliance filings, and for those that must file the new schedules, significantly enhanced details about activities and accomplishments. The returns are also used by funders, states, and other persons to evaluate the scope and type of a nonprofit’s activity. Information pertaining to the accomplishment of the organization’s mission is presented—how many persons are served, papers researched, reports completed, students enrolled, and the like. Extensive details are furnished for grants paid to support other organizations and disbursed as aid to the poor, sick, students, and others in need. Details are furnished to reflect overall compensation for services and loans (if any) to or from persons who run and control the organization. The program accomplishment reports should particularly be prepared with a view to presenting the organization to funders and other supporters. Some use the information to compare nonprofit organizations statistically.

A long list of questions and financial details fish for failures to comply with the federal and to some extent, state, requirements for donor and member disclosures, political and lobbying activity, transactions with nonexempt organizations, insider transactions, and more. In sum, the returns are designed to show that a nonprofit organization is entitled to maintain its tax-exempt status and also to provide a wealth of other information of interest to funders, constituents, and regulators. Questions that can be answered with information on the forms follow:

• Do the organization’s activities focus on an exempt purpose as reflected on the first page of the Core Form and as detailed in Part III?

• Do the fundraising costs shown on Part IX, line 25 (with details in column (D)) equal too high a percentage of the total expenses indicating the nonprofit fails the commensurate test?3 Notice input of professional fundraising expenses as a single item on the front page, line 16a.

• Does Part I, line 7 (on the Core front page) and column (c) of Part VIII show a high percentage of unrelated business revenues in relation to the total revenues, indicating the organization is devoted to business interests rather than exempt purposes?4

• Do amounts reported in Part VII and Schedule J reflect significant compensation payments to officials and related parties, particularly in relation to overall expenses?5

• Is the amount a public charity reported on Schedule C, Part II-A or B for lobbying expenditures excessive (private foundations can spend none and some nonprofits exempt in categories other than §501(c)(3) can spend an unlimited amount)?6

• Does the calculation of a public charity’s sources of support shown on Schedule A indicate it receives at least 33percent of its support from the public so it continues to be classified as a public charity under §509(a)(1) or (a)(2)?7

• Are there “No” answers to governance Questions 8, 10, 12, 13, 14, and 15 in Part VI indicating the organization has not adopted policies and procedures recommended by the IRS (though not technically required by the tax code)?

• Are “Yes” answers in Part V (a) questions followed by “Yes” answers for (b) indicating the organization has complied with the tax rule asked in the question? Some (but not all) “No” answers in this part indicate noncompliance).

It is extremely important by way of introduction to remind readers that tax-exempt organizations are taxpayers. Though certain types of revenues they collect may not be subject to income tax under §501(c), they are subject to all of the sections contained in the Internal Revenue Code and the tax rules imposed by the states in which they operate. Many of the problems nonprofits ask the authors to solve stem from lack of awareness of this fact. Matters that deserve attention include federal payroll taxes, gift and estate taxes, donor and dues deductibility rules that impact persons who provide the revenues, and other federal issues, such as labor laws and employee retirement plans (ERISA rules).

Lastly, representatives of federally tax-exempt organizations must also inform themselves of the wide variety of state and local tax collection, compliance, and filing requirements—beyond the scope of this guide—to which the nonprofit may be subject. Due to the increasing globalization of activity fostered by the Internet, readers must pay close attention for developments in this regard. Professional help should be sought; CPA and Bar Association referral services should be able to recommend persons with nonprofit-organization experience. For those organizations that cannot afford to pay, a nonprofit management assistance program can be found. Many civic-minded CPAs, lawyers, and business people volunteer their time through local Bar and CPA societies, United Ways, associations of retired executives, and others.

§ 1.1 HISTORY OF REDESIGN PROJECT

The Form 990 revision project was undertaken by the IRS in response to the changes in the tax-exempt sector over the quarter century since it was last overhauled. “We need a Form 990 that reflects the way this growing sector operates in the twenty-first century. 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.”8

The forms have evolved slowly over the years through cooperative efforts between the IRS, the American Institute of Certified Public Accountants (AICPA), and the American Bar Association (ABA). Congress people, state officials, along with nonprofit organizations such as Independent Sector, have also contributed to the effort to achieve adequate disclosure of the financial and program activities of tax-exempt organizations. The new Form 990 grew from a modest five pages in 1988 that was expanded in 1989 to add, in response to a Congressional mandate, page 6 to identify the related and unrelated nature of an organization’s revenues. In 1995, parts were added to reconcile the numbers reported on the 990 to an organization’s financial statements issued in accordance with reporting methods required by the Financial Accounting Standards Board. The form grew another two pages in 2005 when it first contained governance questions and disclosed compensation of former officials and key employees. In 2007, a page reflecting “information regarding transfers to and from controlled entities” brought the total to nine pages. Now, we have eleven pages resulting from a full page of governance questions (new Part VI) and other questions.

The draft of the revised Form 990 released by the Internal Revenue Service on June 14, 2007, materially expanded the information submitted annually by tax-exempt organizations. The initial draft inspired over 7,000 e-mails and letters, with some 3,000 pages of suggestions during a 90-day comment period. The authors were gratified that the IRS accepted several of our suggestions, particularly showing a synopsis of prior- and current-year financial data on the front page, removing metrics (many called for this change), and reordering of the compliance questions now contained in Parts IV and V.

The redesign has features intended to foster the enhanced transparency requested by Congress, the Independent Sector’s Panel on the Nonprofit Sector, and many others. In order to achieve this goal, however, the job of gathering the information and preparing Form 990 for filing will be much harder for most. Lois G. Lerner, Director of the IRS’s Exempt Organizations division, disagrees and, as the draft was released, said in the announcement of the draft, “Most organizations should not experience a change in burden. 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.”9 The authors and those that submitted the more than 3,000 pages of e-mail comments respectfully disagreed.

The second, and final, draft issued December 20, 2007, reflected some changes in response to public comments. For history buffs, the June 2007, draft of the Core Form is illustrated in Appendix 1A. Our suggestion for redesign of the first page is shown in Appendix 1B. One will notice that the right-hand column reflecting metrics was removed and replaced with a column that displays prior year financial information for comparison purposes. Many objected to the metrics and agreed with the authors’ comments to the IRS that “a comparison of functionally allocated expenses to total expenses without room for an explanation is prejudicial against organizations with special circumstances and should be eliminated. A more informative comparison would be between current year totals and last year’s totals.” Indeed this change was adopted in the final form.

When the final draft of new Form 990 was released, the Commissioner of Tax Exempt/Governmental Entities, said: “When we released the redesigned draft form this past June, we said we needed a Form 990 that reflects the way this growing sector operates in the 21 st century. The public comments we received in response to our draft form helped us develop a final form consistent with our guiding principles of transparency, compliance and burden minimization. Tax-exempt organizations provide tremendous benefits to the people and the communities they serve, but their ability to do good work hinges upon the public’s trust. The new Form 990 will foster this trust by greatly improving transparency and compliance in the tax-exempt sector.”10

§ 1.2 HIGHLIGHTS OF REVISED FORM 990

The new Form 990 has been significantly redesigned and consists of an 11-page Core Form and a series of 16 schedules designed to require reporting of information only from those organizations that conduct particular activities. What the IRS calls the “Core Form” is in some respects similar to its predecessor, except for the new first page, Part IV, “Checklist of Required Schedules,” and Part VI, “Governance, Management and Disclosure.” Significantly, the form no longer asks for attachments that the filer is free to design. Instead, schedules with specific columns and directions must be submitted to provide required additional details. Schedule D, in its five pages as an example, illustrates both the extensive details that are requested in order to reveal an organization’s type of assets and funds, but also the requirement that the information be submitted in the format provided by the IRS.

What may be the most challenging to the IRS in terms of reviewing the forms once they are all electronically filed is the new, unformatted, Schedule O. The form has many questions that require an explanation in Schedule O when the answer is “Yes.” Schedule O may become the first page viewers go to in studying the forms in the future. The other features that will cause some confusion and mistakes are the dollar thresholds for submitting the schedules. Part IV, “Checklist of Required Schedules,” contains an array of thresholds ranging from $5,000 to $100,000. To compound the matter, the attachment of some schedules has no threshold, but is simply prompted by the existence of, for example, donor-advised funds or conservation easements without regard to the associated dollar amounts.

The IRS worked long and hard to redesign the form and also to provide instructions and helpful information to aid in preparing the form. Indeed the Core Form instructions have 40 pages. An amazing 14-page glossary contains detailed definitions of terms used in the instructions and on the form. “TIP” suggestions and “NOTE” ideas appear throughout the instructions. A 19-page appendix rounds out the 75 pages of instructions for the core and contains the following information:

a. Exempt Organizations Reference Chart

b. How to Determine Whether an Organization’s Gross Receipts Are Normally $25,000 (or $5,000) or Less

c. Special Gross Receipts Test for Determining Exempt Status of §501(c)(7) and §501(c)(15) Organizations

d. Public Inspection of Returns

e. Group Returns: Reporting Information on Behalf of the Group

f. Disregarded Entities and Joint Ventures; Inclusion of Activities and Items

g. Section 4958 Excess Benefit Transactions

h. Forms and Publications To File or Use

i. Use of Form 990, or Form 990-EZ, To Satisfy State Reporting Requirements

The distinguishing features and a brief description of the changes to the Core form and the new schedules follow:

Form 990, Part I. The front page of the Core Form presents a snapshot of the organization’s mission and revenues, expenses and net assets for the year compared to the prior year. Boxes were added to list the name and address of the organization’s principal officer, type of organization (corporation, trust, association, or other), year of formation, and state of legal domicile. With seven lines, what the IRS considers to be key organizational indicators are presented:

Line 1. First, a brief description of its mission or most significant activities (preparers will notice that essentially the same space is provided for this line and the opening description of the mission in Part III)

Line 2. A check box if operations were discontinued or >25 percent of assets disposed of

Line 3. Number of voting board members

Line 4. Number of independent voting members

Line 5. Number of employees

Line 6. Number of volunteers

Line 7a. Amount of gross unrelated business revenue

Line 7b. Amount of net unrelated business taxable income

Form 990, Part II. The signature block now appears at the bottom of the first page rather than the last page. A check box that practitioners will welcome was added to authorize the IRS to discuss the return with the preparer signing the return.

Form 990, Part III, “Statement of Program Service Accomplishments,” essentially follows the format of the existing Part III with significant additions:

• Expanded space for input of mission description (may duplicate lines on front page)

• Check box to say “Yes” or “No” that there are (or are not) new program services

• Check box to say activities and program services have changed or been discontinued

• Blank to input revenue derived from conduct of each program service

• Blank for what will probably be NTEE (National Taxonomy of Exempt Entities) codes developed by the National Center for Charitable Statistics (input not required for 2008 as the IRS has not finalized what set of codes should be used)

Form 990, Part IV, “Checklist of Required Schedules,” has 37 questions with thresholds that prompt completion of one of the 16 schedules.

Form 990, Part V, “Statements Regarding Other IRS Filings and Tax Compliance,” has a very useful list of other federal tax filings that might be required and requests numbers of certain forms actually filed.

Form 990, Part VI, “Governance, Management and Disclosure,” requests nonfinancial information about the filer’s policies and procedures. It has been widely criticized since the draft was released because the information requested goes beyond what is required by the tax code and regulations setting forth standards for maintaining tax-exempt status.

Form 990, Part VII, “Compensation of Officers, Directors, Trustees, Key Employees, Highest Compensated Employees,” presents organizational officials, highly compensated employees, and five top independent contractors receiving more than $100,000. For those reported, the amount shown on Form W-2 or 1099 for the calendar year corresponding with the filing year is presented, plus amounts paid by related organizations to any listed person. Thus for fiscal year filers, the amounts reported on Part VII will not agree with Part IX.

Form 990, Part VIII, “Statement of Revenue,” combines the former front-page categories of revenue combined with columns from former Part VII, “Analysis of Income-Producing Activities.” The revenue report now displays revenues in three categories: related or exempt function, unrelated business revenue, or unrelated revenue excluded from tax.

Form 990, Part IX, “Statement of Functional Expenses,” retains the display of program service, management, and general and fundraising expenses in three columns. The expense categories have been expanded with new lines for six types of professional services, information technology, payments to affiliates, insurance, and royalties and combination of office-type expenses, such as telephone, supplies, repairs, and the like into one line.

Form 990, Part X, “Balance Sheet,” has been streamlined to reflect receivables as net numbers and only one line for land, buildings, and equipment. Prior attachments are now replaced with Schedule D.

Form 990, Part XI, “Financial Statements and Reporting,” asks three questions: What is the accounting method used? Were the organization’s financial statements compiled, reviewed, or audited by an independent accountant, and if so, is there an audit committee? If the entity received a federal award, did it have the required A-133 single audit? Surprisngly, a filer included in consolidated audited statement is instructed to say they receive no audit.

Schedule A, “Public Charity Status and Public Support,” is to be completed by organizations described in §501(c)(3) and §4947(a)(1) to provide information relevant to their status as public charities, including satisfaction of applicable public support tests on an ongoing five-year basis.

Schedule B, “Schedule of Contributors,” is to be completed by organizations to provide information regarding contributions they report as revenues.

Schedule C, “Political Campaign and Lobbying Activities,” is to be completed by organizations that conduct political campaign activities, organizations described in §501(c)(3) and §4947(a)(1) that conduct lobbying activities, and organizations subject to §6033(e) notice and reporting requirements and potential proxy tax on certain membership dues, assessments and similar amounts.

Schedule D, “Supplemental Financial Statements,” is to be completed by organizations to supplement certain balance sheet information, as well as conservation organizations, museums, and other organizations maintaining collections, credit counseling organizations, and others holding funds in escrow or custodial arrangements, and organizations maintaining endowments or donor-advised funds and similar funds or accounts;

Schedule E, “Schools,” is the private school questionnaire previously contained in former Schedule A.

Schedule F, “Statement of Activities Outside the United States,” reports the organization’s activities conducted outside the United States.

Schedule G, “Supplemental Information Regarding Fundraising or Gaming Activities,” requires that details be provided by organizations that reported certain amounts of professional fundraising expenses, revenue from special events, and revenue from gaming activities.

Schedule H, “Hospitals,” is to be completed by organizations that operate one or more facilities licensed or registered as a hospital under state law.

Schedule I, “Grants and Other Assistance to Organizations, Governments and Individuals in the U.S.,” reports grants and other assistance provided by the organization to others within the United States.

Schedule J, “Compensation Information,” is to be completed by organizations to provide detailed compensation information for certain current or former officers, directors, trustees, key employees, and highest compensated employees, and certain information regarding the organization’s compensation practices and arrangements.

Schedule K, “Supplemental Information for Tax Exempt Bonds,” is to be completed by organizations with outstanding tax-exempt bond liabilities.

Schedule L, “Transactions with Interested Persons,” is to be completed by organizations that engage in certain types of relationships or transactions with interested persons, including excess benefit transactions, loans, grants or other financial assistance, and other financial or business transactions or arrangements.

Schedule M, “Non-Cash Contributions,” reports contributions other than cash received by the organization.

Schedule N, “Liquidation, Termination, Dissolution or Significant Disposition of Assets,” reports major financial contractions of the organization.

Schedule O, “Supplemental Information to Form 990,” is to be used by organizations to provide supplemental information to describe or explain the organization’s responses to questions contained in the Core Form or Schedules.

Schedule R, “Related Organizations and Unrelated Partnerships,” is to provide information regarding the organization’s relationships with other exempt and taxable organizations.

Another big change is elimination of the former 6-page Schedule A, which has grown in one leap for 2008 to 16 schedules, existing Schedule B plus 15 new ones devoted to specific topics. Little did author Blazek anticipate in 1989, when she suggested redesign of Schedule A to contain a summary page to prompt attachment of detailed attachments only by those public charities to which they apply, the resulting form and schedules and broad expanse of information that are now required of all 990 filers, not just public charities.

This significant change is troubling for business leagues and other non-(c)(3) organizations that have never been required to disclose the compensation of certain employees. New Schedule J provides names and details of compensation in excess of $150,000 for officials, key, and highly paid employees. Some business leagues and the American Society of Association Executives have requested a change in this requirement.11 Many non-c3s are troubled to be required, for the first time, to disclose detailed information about lobbying and political activities (Schedule C), programs conducted in foreign countries (Schedule F), transactions with interested persons (Schedule L), and much more, which readers will see as they review the new schedules.

§ 1.3 FILING OF NEW FORM DELAYED FOR MANY

The IRS has provided for the phase-in of certain portions of the new form as described below. What will be most welcomed by some is a delay in filing the new Form 990. A new four-page Form 990-EZ was released with filing thresholds as follows:

For 2008 returns, a large number of Form 990 filers will thereby have the option of filing a much simpler Form 990-EZ in which, for example, expenses are not reported in a functional fashion. The balance sheet will have 6, rather than 30, lines. There is no reconciliation to audited financials, no analysis of income-producing activities, and a reduced number of compliance questions.

It is important to study line L of the Form 990-EZ that addresses the calculation of gross receipts that determines eligibility to file the 990-EZ. The three items of cost (tax basis of assets sold, fundraising expense, and cost of inventory items sold) that reduce total revenue on the front page must be added back. In other words, the total proceeds from sale of investments (such as stock), special events, and inventory sales are counted as gross receipts.

See Appendix 1-C for Form 990-EZ. The basic format of Form 990-EZ was not redesigned for 2008. It did grow from three to four pages when the following were added:

• Prompt in bold on the front page that §501(c)(3) and §4947(a)(1) nonexempt charitable trusts must attach a completed Schedule A.

• 14 additional lines for reporting names, titles, and compensation of officials.

• New Question 36 prompts completion of Schedule N if the organization was liquidated, dissolved, terminated, or substantially contracted during the year.

• New Questions 38a and 40b ask whether the organization had any transactions with interested parties and requires completion of Schedule L if so.

• New Question 44 informs an organization that maintains donor-advised funds that it must file Form 990.

• New Question 45 similarly prompts filing of Form 990 if the filer has a §512(b) (13) related entity.

• New page 4 “For §501(c)(3) organizations only” requires filing of the following schedules:

Schedule C if the organization has any political campaign activity

Schedule C if the organization engaged in lobbying activity

Schedule E if the organization is a school

Organizations that file Form 990-EZ (2008) must review the instructions for Schedules A, B, C, E, G, L, and N to determine whether they must report any of their activities or information on those Schedules. Form 990-EZ filers will not be required to complete any of the other 2008 Form 990 Schedules.

§ 1.4 FIND OUT WHY ORGANIZATION QUALIFIES FOR TAX EXEMPTION

The world of tax-exempt organizations includes a broad range of nonprofit institutions: churches, schools, charities, business leagues, political parties, schools, country clubs, and united giving campaigns conducting a wide variety of pursuits intended to serve the public good. For purposes of federal tax exemption, each category has its own distinct set of criteria for qualification.12 It is also important to keep their nonprofit nature in mind in preparing the Form 990. All exempt organizations share the common attribute of being organized for the advancement of a group of persons, rather than particular individuals or businesses. Most exempt organizations are afforded special tax and legal status precisely because of the unselfish motivation behind their formation. The common thread running through the various types of exempt organizations is the lack of private ownership and profit motive. A broad definition of an exempt organization is a nonprofit entity operated without self-interest to serve a societal or group mission that pays none of the income or profit to private individuals.

Federal and state governments view nonprofits as relieving their burdens and performing certain functions of government. Thus, many nonprofits are exempted from the levies that finance government, including income, sales, ad valorem, and other local property taxes. This special status recognizes the work they perform essentially on behalf of the government. In addition, for charitable nonprofits, labor unions, business leagues, and other types of exempt organizations, the tax deductibility of dues and donations paid to them further evidences the government’s willingness to forego money in their favor. At the same time, deductibility provides a major fund-raising tool. For complex reasons, some of which are not readily apparent, all nonprofits are not equal for tax deduction purposes, and not all “donations” are deductible.13

Form 990 return preparers should always familiarize themselves with the organization’s proper exemption category and its past and current mission and activities conducted to accomplish its goals. To correctly answer the questions in Part III that ask if there are changes and to properly describe the organization, it is important that the preparer review, if available, the original IRS Application for Recognition of Exemption, Form 1023 or 1024, and any IRS correspondence pertaining to the organization’s qualification to understand why the IRS originally approved exemption for the organization. For many reasons, it is important to know why the IRS granted exempt status. To identify revenues as related or unrelated to the nonprofit’s mission necessitates an understanding of an entity’s exempt functions. The starting point for evaluating whether a proposed program might in any way endanger the organization’s exempt status is the rationale for their original qualification.

Scrutiny of the IRS determination letter is particularly important for §501(c)(3) organizations qualifying for public charity status under §509. Whether Form 990 or 990-EZ is filed, Schedule A must be completed to disclose the designated §509 category and to calculate satisfaction of the public support test, if applicable. The authors too often find that the returns disagree with the determination letter. As a result of enhanced rules placed on §509(a)(3) Supporting Organizations by the 2006 Pension Protection Act, it may be necessary for the organization to seek reclassification of its public status.14

§ 1.5 WHO IS REQUIRED TO FILE WHAT

The numerous categories of organizations exempt from income tax are reflected in the different types of returns to be filed. Not all organizations are required to file annual reports with the Internal Revenue Service. Churches, their affiliated organizations, and divisions of states or municipalities, in a manner similar to the Form 1023 rules, do not file Form 990, except churches must file 990-T. Modest-sized organizations may also be excused from filing. The different types of exempt organization annual reports and their basic requirements are as follows:

No Form Filed. Churches and certain of their affiliates, and other types of organizations listed below in §1.7 need not file.

Form 990-N. Organizations with gross annual receipts “normally” under $25,000 must now electronically file this brief report that contains only six items. A list of those that need not file appears in §1.7.

Form 990-EZ. All exempt organizations, except for private foundations, whose gross annual receipts equal between $25,000 and $1,000,000 and whose total assets are less than $2,500,000 (for 2008) file Form 990-EZ.15

Form 990. All exempt organizations, except private foundations, whose gross annual receipts are more than $1,000,000 or who have assets of more than $2,500,000 must file Form 990 (see Chapter 3). §501(c)(3) organizations that are public charities also file new Schedule A to reflect information about qualification as a public charity.

Form 990-PF. All private foundations (PFs) file Form 990-PF annually, regardless of annual receipts or asset levels (yes, even if the PF has no gross receipts). See Chapter 6.

Form 990-T. Any organization exempt under §501(a), including churches, state colleges, and universities,16 and §401 pension plans (including individual retirement accounts) with $1,000 or more gross income from an unrelated trade or business must file Form 990-T. See Chapter 5.

Form 990-BL. Black lung trusts, §501(c)(21), file an annual Information and Initial Excise Tax Return for Black Lung Benefit Trusts and Certain Related Persons.

Form 4720. Form 4720 is filed to report excise taxes and to claim abatement of such taxes imposed on §501(c)(3) charities and their insiders for conducting prohibited activities.

Form 5500. One of several Forms 5500 may be due to be filed annually by pension, profit-sharing, and other employee welfare plans. Form 5500-EZ is filed for one-participant pension benefit plans.

Form 5768. The form is filed to elect or revoke an election by a public charity to measure its permissible lobbying expenditures under §501(h).17

Forms 941, 1099, W-2, W-3 and other federal and state compensation reporting forms are filed to report payments to workers that perform personal services for tax-exempt organizations.18

§ 1.6 FILING FOR NEW ORGANIZATIONS

An organization qualified for, and claiming exempt status under, §501(a) is entitled to file a Form 990 prior to receipt of formal IRS approval for its qualification. Even though Heading B on the front page of the Core Form contains a check box for “Application Pending,” the revised instructions acknowledge that an exempt organization return, rather than Form 1120 or 1041, can be filed whether or not Form 1023 or 1024 seeking recognition of its qualification has been filed and whether or not, if filed, approval is still pending.19

This procedure stems from the fact that a properly organized §501(c) organization is recognized as exempt retroactively to date of its formation. 20 As a practical matter, the revenue of new organizations is often comprised of voluntary contributions that are gifts excluded from taxable income by §103 so that income tax returns may not technically be due to be filed. It is, therefore, reasonable for the IRS to accept Forms 990 filed by those organizations. If subsequently, exempt status is denied, normal income tax returns can be requested when denial is issued.

§ 1.7 WHO IS NOT REQUIRED TO FILE

The list of organizations not required to file is reproduced each year in the instructions to Form 990. The most recent version should be consulted if there is any question about filing requirements. The instructions for 2008 list the following organizations as being excused from filing:

• Churches and their affiliates, a convention or association of churches, an integrated auxiliary of a church (such as a men’s or women’s society, religious school, mission society, or youth group) or an internally supported, church-controlled organization.21

• Church-affiliated organizations that are exclusively engaged in managing funds or maintaining retirement programs. 22

• Schools below college level affiliated with a church or operated by a religious order.

• Mission societies sponsored by or affiliated with one or more churches or church denominations, if more than half of the societies’ activities are conducted in or directed at persons in foreign countries.

• Exclusively religious activities of any religious order.

• State institutions whose income is excluded from gross income under §115.

• §501(c)(1) organizations that are instrumentalities of the United States and organized under an act of Congress.23

• Governmental units and their affiliates granted exemption under §501(a).24

• Religious and apostolic organizations described in §501(d) that file Form 1065.

• An LLC or LLP that elects to be treated as a disregarded entity and the transactions of which are reported as the parent’s information.25

§ 1.8 FILING DEADLINE AND FISCAL YEAR

The due date for Forms 990 gives tax practitioners and exempt organizations a reprieve. The forms are due to be filed within 4months after the end of the organization’s fiscal year, rather than the 2allowed for Form 1120 (for-profit corporations) and the 3months for Form 1041 (trusts). Thus, the filing due date for an organization reporting for a calendar year organization is May 15, and the return for an entity reporting on a July-June fiscal year period would be due November 15. An extension of time can be requested if the organization has not completed its year-end accounting soon enough to timely file. For Forms 990-T and 990-PF, an extension of time to file does not extend the time to pay the tax.

An automatic procedure for changing an organization’s tax reporting year is available for an entity that has not made a change within the 10 years prior to the desired year of change. Advance IRS approval is not required. Assume a calendar year reporting entity wishes to change from a calendar year reporting cycle to a June 30 fiscal year ending. It has filed a full year return for the year 2007. A short-period 2008 return26 reporting financial activity and information for the six months January through June 2008 would be filed in a timely manner by November 15 or the extended time frame for a June year end filer. For the period July 2008 through June 2009, it would file another 2008 return reporting on its new fiscal year. If permission is required, Form 1128 is filed.

The penalty for late filing is $20 a day (up from $10) for organizations with gross receipts under $1 million a year, not to exceed the greater of $10,000 or 5 percent of the annual gross receipts for the year of late filing.27 The penalty can also be imposed if the form is incomplete as filed. The penalty for a large organization (>$1 million of annual gross receipts) is $100 a day up to a maximum penalty of $50,000. IRS officials have suggested an increase in penalties to encourage timely filing.

The annual Forms 990 are submitted, since 1997, to a processing center devoted exclusively to exempt return filings for Forms 990, 990-EZ, 990-PF, 990-T, 1041-A, 4720, 5227, 5578, and 5768 in the Ogden, Utah, Service Center. The centralization was planned to improve the speed and accuracy of return processing through a consolidation of expertise on exempt organization matters. In a similar fashion, the applications for recognition of initial qualification for tax-exempt status, Forms 1023 and 1024, are all filed with the Cincinnati, Ohio, Key District Office.28 Examination of exempt organizations is the responsibility of the Dallas, Texas, Key District; technical advice and rulings continue to be issued by the Washington, D.C., office.

§ 1.9 NEW FORM 990-N (e-POSTCARD)