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Is Your Tax-Exempt Organization
Ready for the New IRS Form 990?
Presented by
Arent Fox LLP and Reznick Group April 3, 2008
Introduction and Welcome
Presented by Joseph Rieser, Arent Fox LLP
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990?
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Overview
• Introduction and Welcome
• Overview of Changes to Form 990
• Corporate Governance Implications of Changes
• Nonprofit Executive Compensation Issues
Coffee Break
• Tax-Exempt Bond Issues
• Fundraising Expense Issues and Non-Cash
Contribution Issues
• Political Activities
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990?
Overview of Changes to Form 990
Presented by John Salbego, Reznick Group
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990? 4
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Reasons for Redesign and Guiding
Principles
• Need for Major Revision
• Enhance Transparency and Public Disclosure
• Promote Tax Compliance
• Minimize Burden on Filing Organization
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990? 5
How Has the Form 990 Changed?
The 2007 Form 990 The Revised 990
Core Form of 9 pps Core Form of 11 pps
Schedules “A” and “B” Schedules: Up to 15
intended to supplement
data where appropriate
Attachments Attachments: 0
(Unstructured), some Provision of schedule
36; e.g., other assets to provide written
explanations
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The Revised 990
• Core 990
To be completed by all (c) organizations
11 parts
Built-in “triggers” (responses) to Schedules
Transparency, Compliance, Governance, Management,
Disclosure and Reporting
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What’s in the Core?
• Part I: Summary
• Part II: Signature Block
• Part III: Statement of Program Accomplishments
• Part IV: Checklist of Required Schedules
• Part V: Statements Regarding Other IRS Filings
and Tax Compliance
• Part VI: Governance, Management and
Disclosure
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990? 8
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What’s in the Core? (Cont’d)
• Part VII: Compensation of Officers, Directors,
Trustees, Key Employees, Highest Compensated
Employees and I/C
• Part VIII: Statement of Revenue
• Part IX: Statement of Functional Expenses
• Part X: Balance Sheet
• Part XI: Financial Statements and
Reporting
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990? 9
Form 990 Schedules
• Schedule A, Public Charity Status and
• Public Support
• Schedule B, Schedule of Contributions
• Schedule C, Political Campaign and Lobbying
Activities
• Schedule D, Supplemental Financial Statements
• Schedule F, Statement of Activities Outside the
United States
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990? 10
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Form 990 Schedules (Cont’d)
• Schedule G, Supplemental Information
Regarding Fundraising or Gaming Activities
• Schedule H, Hospitals
• Schedule J, Compensation Information
• Schedule L, Transactions with Interested
Persons
• Schedule M, Non-Cash Contributions
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Form 990 Schedules (Cont’d)
• Schedule O, Supplemental Information to the
Form 990
• Schedule R, Related Organizations and
Unrelated Partnerships
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990? 12
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Corporate Governance
Implications of Changes
Presented by Deanne Ottaviano, Arent Fox LLP and
Anne Schrantz, Reznick Group
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990? 13
Corporate Governance Implications of
Changes
• The Public Company Accounting Reform and
Investor Protection Act of 2002 (Sarbanes-Oxley)
Requirements for good governance at publicly held
companies have been used as a model for state and federal
reforms
For the most part, SOX reforms are not directly applicable to
nonprofits, but . . .
Set a baseline of recommended or best practices
o Clearly evident in Form 990
Also used as a model for other statutory proposals which do apply to
nonprofits
o The Charity Integrity Act, California Senate Bill 1262 (effective January 1,
2005)
o Legislative proposals in 17 other states
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Feds Seem Convinced Governance Must Be
Regulated
• “Good Governance Principles Discussion Draft”*
Publicized February 2, 2007 by Marvin Friedlander, Chief of
the IRS's EO Technical Branch, Office of Rulings and
Agreements
Not legally binding
Discussion among practitioners as to whether IRS even has
the right to propose governance standards
• May 29, 2007, Letter from Senators Max Baucus
and Chuck Grassley to Treasury Secretary
Paulson
“[T]ime and time again we have seen poor governance at
the core of problems of charities.”
* See http://www.charitygovernance.com/charity_governance/2007/02/irs_jumps_on_th.html#more
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990? 15
Efforts at Self-Regulation
• Panel on the Nonprofit Sector:
Convened in October 2004 at behest of then Senate
Finance Committee Chairman Grassley in evaluating
proposals for nonprofit regulations
Culminated in October 2007 Principles for Good
Governance and Ethical Practice*
33 principles of self-regulation
o Legal compliance and public disclosure
o Effective governance
o Strong financial oversight
o Responsible fundraising
* Available at http://www.nonprofitpanel.org/Report/index.html
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990? 16
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Corporate Governance Implications of
Changes
• Form 990 checklist:
Written conflict of interest policy
Schedule L: business relationships with organization by one
related to officer/director/trustee/key employee
Contemporaneous meeting minutes of board and
committees
Review of Form 990 by board before filing
Compensation committee
Audit committee
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990? 17
Corporate Governance Implications of
Changes (Cont’d)
• Form 990 checklist (Cont’d):
Joint venture policy
Uncertain tax positions taken (FIN 48)
Written whistleblower policy
Written document retention and destruction policy
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990? 18
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Corporate Governance Implications of
Changes (Cont’d)
• Examples of best practices include:
Conflict of interest policy for board/officers/senior staff
Nonprofit Sector Guide Principle 3
Sample 1 in handout
Certification of financial statements by top
management/board
Nonprofit Sector Guide Principle 21
Executive and director compensation/loans/expense
reimbursement
Nonprofit Sector Guide Principles 23, 25 and 26
Audit committees/audit partner/firm rotation
Nonprofit Sector Guide Principle 21
Sample 3 in handout
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990? 19
Corporate Governance Implications of
Changes (Cont’d)
• Examples of best practices include (Cont’d):
Joint venture policy
Must permit the tax-exempt partner to act exclusively in furtherance of
its exempt purpose and only incidentally for the benefit of the for-profit
partners.
Must allow the nonprofit organization to retain “effective control” of the
venture.
Must provide the nonprofit organization with enough authority over
operations to further its charitable purposes.
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990? 20
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Corporate Governance Implications of
Changes (Cont’d)
• Some reforms of the Sarbanes-Oxley do apply to
nonprofits, including:
Whistleblower criminal liability, 18 U.S.C. §1513(e)
Nonprofit Sector Guide Principle 4
Sample 2 in handout
Document destruction criminal liability, 18 U.S.C. §1512(c)
Nonprofit Sector Guide Principle 5
• Additional Disclosure Requirement
Uncertain tax positions taken (FIN 48)
Heightened audit risk
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990? 21
Nonprofit Executive Compensation Issues
Presented by Bill Charyk and Joseph Rieser, Arent Fox LLP
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990? 22
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The Old Form 990
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990? 23
The Old Form 990 (Cont’d)
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990? 24
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The New Form 990: Schedule J
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990? 25
The New Form 990: Schedule J (Cont’d)
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990? 26
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The New Form 990: Schedule J (Cont’d)
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990? 27
Form 990-Executive Compensation
• Overview
Increased focus on executive compensation may increase
the likelihood of exposure of operational defects.
Potential Problem Areas:
Unintended Accelerated Vesting
o In 457(f) program, this will accelerate recognition of taxable income
o In 457(b) program, this could disqualify the entire program
Faulty Distribution Provisions
o In 457(f) program, this results in 409A excise tax
o In 457(b) program, this could disqualify the entire program
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990? 28
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Form 990-Executive Compensation (Cont’d)
• Analysis
Section 457(b)
What is Covered?- elective deferrals, supplemental contributions,
benefit promises
What is Not Covered?
o Qualified retirement plans
o Section 457(f) plans
o “Bona Fide” vacation leave, sick leave, compensatory time, severance pay,
disability plan or death benefit plan
o Warning-Notice 2007-62 restricts scope of “severance pay” plans. Program
must be based upon involuntary severance and amount cannot exceed twice
the Section 401(a)(17) limit-($230,000 for 2008)
Permitted Amount-$15,500 in 2008
o Not aggregated with 401(k) or 403(b) plans
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990? 29
Form 990-Executive Compensation (Cont’d)
• Analysis (Cont’d)
Section 457(b) (Cont’d)
Permitted Distribution Events
o Severance from employment-potential traps
o Minimum required distribution at 70-1/2
o Unforeseeable emergency
o Note special one-time further deferral election IRC Section 457 (e)(9)(B)
Section 457(f)
What is Covered?-Nonqualified programs involving amounts in excess
of the Section 457(b) permitted accrual.
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990? 30
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Form 990-Executive Compensation (Cont’d)
• Analysis (Cont’d)
Section 457(f) (Cont’d)
What is Not Covered?
o Qualified retirement plans
o Property transfers covered by Section 83
Vital Concept - Substantial Risk of Forfeiture
o Covenant not to compete
o “Rolling” vesting
o Quit for good reason
o Offsetting supplemental plan
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990? 31
Tax-Exempt Bond Issues
Presented by Richard Newman, Arent Fox LLP
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990?
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The New Form 990: Schedule K
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990?
The New Form 990: Schedule K (Con’t.)
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990?
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Fundraising Expense Issues and
Non-Cash Contribution Issues
Presented by Richard Newman and Melanie Bartlett, Arent Fox LLP
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990? 35
Non-Cash Contributions
• Recently, the IRS has focused on the
overvaluation of non-cash donations to charities.
• An organization must now disclose specific
items of contributions, including conservation
easements, artworks or treasures they accepted
during the year on new Schedule M.
• The recent substantiation and reporting rules
add complexity to non-cash contributions.
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990? 36
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Non-Cash Contributions (Cont’d)
• Who must file New Schedule M, Non-Cash
Contributions?
Organizations receiving more than $25,000 in non-cash
contributions
Organizations receiving contributions of art, historical
treasures, similar assets or qualified conservation
contributions
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990? 37
Non-Cash Contributions (Cont’d)
• What information must be disclosed?
All non-cash contributions, which includes listed items and
those that are not
Number of contributions in each item category
Revenues from each category of contribution
How the values were determined
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990? 38
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Non-Cash Contributions (Cont’d)
• Contributed items of particular interest to the IRS
Qualified Conservation Contributions
Historical Treasures
Artwork
• Organization must state number of Forms 8283 it
received for which it completed the Donee
Acknowledgement section
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990? 39
Non-Cash Contributions (Cont’d)
• Yes/No Questions
Did the organization receive property it must hold for at least
three years and which is not required to be used for exempt
purposes for that time?
Does the organization have a gift acceptance policy
requiring the review of non-standard contributions?
Does the organization hire or use third parties or related
organizations to solicit, process, or sell non-cash
contributions?
• Supplemental Information, Part II
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990? 40
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Non-Cash Contributions (Cont’d)
• Substantiation and Reporting Rules
All Non-Cash Contributions
§ 170(f)(17) requires the donor to retain a bank record or a
communication from the donee organization
The donee organization must give the donor a receipt showing the
organization’s name, the date and location of the contribution, and a
reasonably detailed description (but not necessarily value) of the
property
Non-Cash Contributions with Values of
$250 or more
contemporaneous written acknowledgement
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990? 41
Non-Cash Contributions (Cont’d)
• Substantiation and Reporting Rules (Cont’d)
$500 or more
Form 8283
$5,000 or more
Obtain a Qualified Appraisal
More than $500,000
Qualified Appraisal must be attached to return
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990? 42
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Political Activities
Presented by Craig Engle, Arent Fox LLP
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990? 43
Political Activities
• General Rule-
Organizations that are exempt under 501(c)(3) may not
participate in, or intervene in, any political campaign on
behalf of (or in opposition to) any candidate for public office.
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990? 44
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Prohibitions
• The general prohibition includes:
Publications
Distribution of Candidate Statements
Broadcasts of support
Internet Communications in support
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990? 45
Lobbying v. Political Activity
• Even if you have made a subchapter (h) election,
it does not allow your group to engage in
political activity.
• There is no de minimis exception to engaging in
political activity.
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990? 46
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Candidates
• Restrictions apply to speech about candidates
for any elective office, not just federal office-
seekers.
• Providing an equal forum for candidates is not a
prohibited political activity.
• Some voter guides are permissible; it is a case-
by-case inquiry.
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990? 47
Voter Education, Registration & GOTV
• 501(c)(3) organizations are permitted to conduct
certain voter education activities:
Public forums
Non-partisan voter-education guides
Non-partisan voter registration
Non-partisan get-out-the-vote drives
• Key Point- You can be involved in elections, you
just can’t take a side.
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990? 48
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Political Activities by Org. Leaders
“The political campaign intervention
prohibition is not intended to restrict free
expression on political matters by
leaders of organizations speaking for
themselves, as individuals.”
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990? 49
Conclusions, Recommendations
and Questions
IS YOUR TAX-EXEMPT ORGANIZATION READY FOR THE NEW IRS FORM 990? 50
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