chc finance: using the new irs 990 form
DESCRIPTION
The Form 990 Redesign is Based on Three Guiding Principles...TRANSCRIPT
Presented by Plante & Moran, PLLCMay 16, 2009
The New Form 990
Board Responsibility
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Form 990 Redesign
Overview of Redesign Old Form 990 included 9 pages, 2 schedules
and 36 potential attachments
Redesigned version includes Core Form (11 pages) and 16 Schedules
New Schedules include officer/key employee compensation, foreign activities, hospitals, tax-exempt bonds, non-cash contributions
Instructions include a 26-page Glossary with definitions, and an Appendix with 26 pages of special instructions
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Focus of Redesign
Focus of Redesign to Increase Reporting Related to: Governance
Executive compensation
Related organizations
Fundraising practices
Hospitals’ amount of community benefit
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The Form 990 Redesign is Based on Three Guiding Principles
Enhancing transparency to provide the IRS and the public with a realistic picture of the organization.
Promoting compliance by accurately reflecting the organization's operations so the IRS may efficiently assess the risk of noncompliance.
Minimizing the burden of filing organizations.
Guiding Principles
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Part I - Summary Mission or significant activity
Snapshot of the numbers:
Number of board members, employees & volunteers
Revenue and expense totals, current & prior year
Asset and liability totals, current & prior year
Executive compensation and fundraising ratios removed from final draft
Form 990 Core Overview
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Part IV – Checklist of Required Schedules Review these items carefully to determine which
schedules must be completed
Some questions will require referring to other parts of the form, or to the glossary for definitions
Form 990 Core Overview
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Part V – Other IRS Filings Alerts organizations to other potential tax
compliance and filing obligations
Tax shelters
Electronic filing requirement
Gambling winnings
UBI
Proper substantiation of donations
Foreign bank accounts
Form 990 Core Overview
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Part VI – Governance, Policies and Disclosure Added to identify potential compliance issues resulting
from governance and management practices; IRS has informally indicated that “no” answers could lead to compliance checks or possibly audits
Inquires about number of “independent” members of governing body; final instructions provide detailed definition of “independent”
Includes the question on family/business relationships between officers, directors, trustees, key employees; “reasonable effort” must be made to obtain this information – for example, an annual questionnaire
Form 990 Core Overview
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Part VI – Governance, Policies and Disclosure Questions whether a copy of the Form 990 was
provided to the governing body before it was filed, and requires description of review process
More detail about conflict of interest policy
Questions regarding process for determining executive compensation
Questions regarding transparency and disclosure
Final instructions indicate that a “reasonable effort” must be made to obtain information for lines 1b and 2
Policies should be adopted by year-end to answer “yes”
Form 990 Core Overview
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Part VII - Executive Compensation Moves reporting of compensation of highly compensated
employees and independent contractors from Schedule A to core form, which extends reporting requirement to all NFP organizations; threshold raised to $100,000
Final instructions indicate that a “reasonable effort” must be made to obtain compensation data from related organizations
Adopts concept of “reportable compensation” as shown on Form W-2 or 1099, resulting in better comparability of data; includes compensation from related organizations if more than $10,000
Form 990 Core Overview
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Part VII - Executive Compensation Instructions provide a chart of where to report items of
compensation Indicates for whom additional information must be
provided on Schedule J Key employees should not be listed unless they:
Receive compensation of more than $150,000; Have organization-wide control or responsibility for at
least 10% of the organization’s activities; and Are within the top 20 persons who meet the first two
tests.
Form 990 Core Overview
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Part VIII - Revenue Statement Combined Revenue section with Analysis of Income
Producing Activities to eliminate redundancy Eliminated use of Exclusion Codes for revenue
excluded from tax under sections 512,513 or 514 Membership dues are now classified either as
contributions or program service revenue Eliminated schedules for Other Investment Income,
Sales of Inventory, and Sales of Assets Other than Inventory
More detail on several items – investment of tax-exempt bond proceeds, gaming revenue, fundraising events
Form 990 Core Overview
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Part IX – Functional Expense Statement Revised lines to reflect most frequently incurred
expenses
Added Payments to Affiliates which was previously included in Part I Expenses
Compensation is to be reported using the organization’s accounting method and period rather than conforming to W-2 reporting
Some expense line items more prominent: travel expense for government officials, breakdown of grant amounts, etc.
Eliminated some schedules: depreciation (including Form 4562) – keep records to substantiate amounts
Form 990 Core Overview
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Part X - Balance Sheet Eliminated schedule for Other Notes and Loans
Receivable and Other Mortgages and Notes Payable
Created Schedule L to provide detail on receivables from and payables to insiders
Created Schedule D to consolidate schedules for other items
Form 990 Core Overview
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Part XI – Financial Statements and Reporting Accounting method
Audit and oversight, e.g. audit of financial statements, existence of audit committee
Existence of A-133 audit requirement
Form 990 Core Overview
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Schedule A - Public Charity Status Schedule B – Contributors Schedule C – Political Campaign and Lobbying
Activities
Enhanced to gather more information on these types of activities Combines questions by type of entity in one Schedule
Schedule D – Supplemental Financial Statements Schedule E – Schools
Form 990 Schedules
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Form 990 Schedule B – Contributors No significant changes Additional clarifying information on reporting
contributions from governmental units, and contributions of securities
Form 990 Schedule C – Political Campaign and Lobbying Activities Enhanced to gather more information on
these types of activities Combines questions by type of entity in one
Schedule
Form 990 Schedules B & C
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Supplemental Financial Statements Details for Balance Sheet line items
Conservation Easements
Donor Advised Funds
Museum Collections
Endowment Funds
FIN 48 disclosures – include verbatim
Reconciliation of Net Assets
Reconciliation of Revenue & Expenses to Financial Statements
Form 990 Schedule D
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Form 990 Schedule F – Foreign Activities Enhanced reporting – revenue/expense from
foreign activities > $10,000, or foreign grants > $5,000
Report activities by region rather than country to protect organization’s employees and volunteers
Grants to foreign organizations and individuals – IRS is interested in whether records are maintained to substantiate amounts, eligibility, selection criteria, diversion of assets
Be sure to consider due diligence requirements
Form 990 Schedule F
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Fundraising Threshold of $15,000 gross receipts
Concern over how much fundraising actually benefits organization
More detail regarding use of professional fundraisers, relationships with professional fundraisers, and financial information for special events
More detailed financial information for gaming, as well as questions to determine compliance with gaming rules
Form 990 Schedule G
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Hospitals New and includes charity care and community
benefit, billing, operations, related entities, locations, etc.
For 2008, only Part V, Facilities Information, must be completed
For 2009, all parts must be completed
Form 990 Schedule H
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Grants to Organizations, Governments, and Individuals New threshold of $5,000 for grants to
organizations and governments
Need to report more information including EIN and type of NFP organization
Reporting for assistance to individuals includes number of recipients and non-cash assistance, but not names
Form 990 Schedule I
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Executive Compensation Reporting thresholds:
$10,000 paid to former trustee
$100,000 paid to former officer or highly compensated employee
$150,000 paid to current officer, trustee, highly compensated employee
Any person listed in Part VII, Section A received compensation from an unrelated organization for services rendered to the organization
Form 990 Schedule J
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Executive Compensation
Key employees should not be listed unless they: Receive compensation of more than
$150,000; Have organization-wide control or
responsibility for at least 10% of the organization’s activities; and
Are within the top 20 persons who meet the first two tests.
Form 990 Schedule J
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Executive Compensation Questions regarding compensation
First class travel, club dues, housing allowance, personal services, etc.
Determination of reasonable compensation
Severance payments & non-fixed compensation
Policies regarding establishing compensation, expense reimbursement
Form 990 Schedule J
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Executive Compensation More detailed reporting
Breakdown of Form W-2 and 1099
Nontaxable benefits
Deferred compensation
Reporting for prior year amounts also
Based on calendar year rather than fiscal year
Amounts paid by reporting organization and related organizations
Form 990 Schedule J
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Tax Exempt Bonds Resulting from results of IRS Tax Exempt Bond
Compliance Initiative
More detailed reporting
Issuance of greater than $100,000
Use of proceeds
Private use
Arbitrage
Transitional relief: Only Part I required for 2008
Form 990 Schedule K
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Transactions with Interested Persons New term “Interested Persons” – different
definition for each Part
Part II, Loans to/from Interested Persons: Current or former officers, directors,
trustees, key employees, top five compensated employees (new three-prong test for “key employees”)
Disqualified persons – substantial contributors or their family
Form 990 Schedule L
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Transactions with Interested Persons Part III, Grants/Assistance Benefiting Interested
Persons: Current or former officer, director, trustee,
or key employee listed in Form 990, Part VII, Section A
Substantial contributor Related person (includes members of
grant selection committee and employees of substantial contributors)
Defines reasonable effort to obtain information
Form 990 Schedule L
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Transactions with Interested Persons Part IV, Business Transactions Involving
Interested Persons: Current or former officer, director, trustee,
or key employee listed in Form 990, Part VII, Section A
Family members or 35% owned entities Defines reasonable effort to obtain information
Form 990 Schedule L
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Noncash Contributions Organizations with more than $25,000 of noncash
contributions or organizations receiving art, historical treasures, or conservation contributions
IRS is concerned about overvalued charitable deductions for noncash contributions
Final instructions clarify that donation of the use of facilities or services are not included
Form asks for quantity of items
Excludes quantity of books and clothing and household items
Form 990 Schedule M
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Termination or Significant Disposition of Assets Organizations that cease operations or dispose of
more than 25% of its assets
Can include sales to another exempt organization or a taxable entity, sales of assets by a partnership or joint venture in which the organization has an ownership interest, transfer of assets pursuant to a reorganization, or grant or charitable contribution of assets to another 501(c)(3) organization
Form 990 Schedule N
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Supplemental Information Form to report additional information
Up to 2 pages to respond to each question or item
Up to 2 pages to provide other information not required by the form
Allows electronic filers the ability to provide supplemental explanations using a single attachment
Can be used to provide a statement explaining a late filing
Form 990 Schedule O
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Related Organizations and Unrelated Partnerships Report disregarded entities and controlled taxable
entities more than 50% owned
Report related tax-exempt organizations
Report unrelated partnerships with activity greater than 5% of the organization’s revenue or assets
Form 990 Schedule R
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Related Organizations and Unrelated Partnerships Consolidates the reporting for the various
relationships and complies with changes from the Pension Protection Act to report transfers with controlled entities
Threshold for reporting certain transactions with non-charitable organizations $50,000
Form 990 Schedule R
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What Steps Should Your Organization Take Now?
Become familiar with the new form and its application to your organization
Review governance policies and procedures so that you can answer “yes” to important questions
Conflict of interest policy, whistleblower policy, document retention/destruction
Independence standard for reporting of independent directors
Contemporaneous meeting minutes
Board review of Form 990 prior to filing
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What Steps Should Your Organization Take Now?
Review compensation procedures relative to Schedule J
Develop written policies regarding “perks” listed on question 1a
Affirm that proper substantiation procedures are followed for expense reimbursements
Procedures for review and approval of compensation – rebuttable presumption standard
Track former officer/director/key employee status and compensation for future reporting
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Now for the Fine Print…
Absence of Federal Tax Penalty Protection
The Internal Revenue Service recently issued regulations that require written advice regarding tax matters to meet very detailed and comprehensive requirements before it can be relied upon by a taxpayer to avoid penalties that might apply if the tax benefits or results discussed in the document are disallowed. Compliance with these rigorous standards and requirements exceeds the scope of this engagement. Consequently, the analysis and advice contained in this document regarding federal tax matters is not intended to be used, and may not be relied upon by you, for the purpose of avoiding any federal tax penalty.
Carol LaLonde, CPA750 Trade Center Way, Portage MIPhone #269-567-4587
Thank You!