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Managing Your Organization’s Future: Strategies and Structures for 21 st Century Nonprofits Part I – The “New” Form 990 May 6, 2010 Robert S. Knychalski, Esq. Three-Part Seminar Series May 6, 2010 - A Review of the “New” IRS Form 990 for Nonprofits

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Managing Your Organization’s Future: Strategies and Structures for 21st Century Nonprofits

Part I – The “New” Form 990

May 6, 2010

Robert S. Knychalski, Esq.

pldw united way 2010 seminar series
Three-Part Seminar Series

May 6, 2010 - A Review of the “New” IRS Form 990 for Nonprofits

August 31, 2010 – “Make Up” of a 2010 Board of Directors

November 30, 2010 - An Overview of Employment Issues

PLDW/United Way – 2010 Seminar Series
the new form 990 background
First redesign in over 30 years

IRS response to the Sarbanes-Oxley Act of 2002

Redesign based on three primary principles:

Enhancing transparency

Promoting tax compliance

Simplifying the filing process and minimizing the burden of filing

Public disclosure document – transparency and accountability for donor public

Effective for the 2008 taxable year (i.e., filing 2009)

The “New” Form 990 - Background
structure of the new form 990
Twelve (12) page core form filed by all

“Summary” page to summarize the organization’s activities, governance, revenue and expenses

Statement of organizations mission and public service accomplishments

New governance, management and disclosures section with additional governance related questions throughout

Description of governing body and management

Disclosure of internal policies

Description of Form 990 review process

Disclosure of officer/employee compensation and financial information

Sixteen (16) supporting schedules as necessary

Structure of the “New” Form 990
major changes
“Major” Changes

1) New “summary” page

2) “Checklist” for required schedules

3) Tax compliance questions

4) New governance section

5) Revised reporting for compensation (i.e., directors, officers and key employees)

6) Financial statements grouped together

7) Old “Schedule A” broken down into 4 schedules

8) New reporting requirements

impact on nonprofit organizations
Impact on Nonprofit Organizations
  • “Themes” to consider – How will the changes impact your organization?
    • Simplification of filing process or administrative burden?
    • Establishment and implementation of new policies
      • Chief executive compensation
      • Conflicts of interest
      • Document retention and destruction
      • Whistleblower protection
    • Increased complexity and cost of doing business
  • Adjust now – decrease burden in future years
phasing in for smaller nonprofits
Phasing In For Smaller Nonprofits
  • IRS is phasing in the new filing requirements to assist smaller organizations in the filing process
    • Also a “phase in” for certain schedules
  • 2009 (Tax Year 2008)
    • Organizations with Gross Revenues < $1,000,000 and Total Assets < $2,500,000 permitted to file Form 990 or 990-EZ
  • 2010 (Tax Year 2009)
    • Organizations with Gross Revenues < $500,000 and Total Assets < $1,250,000 permitted to file Form 990 or 990-EZ
  • 2011 (Tax Year 2010)
    • Permanent filing thresholds of $200,000 in Gross Revenue and$500,000 in Total Assets established as criteria for filing Form 990
    • “E-Postcard” (Form 990-N) for organizations with Gross Receipts < $50,000
      • $25,000 threshold for this year
addressing the new form 990
Addressing the “New” Form 990
  • How to tackle the Form 990?
    • Varies from organization to organization
  • Review the document and supporting schedules early!
  • Create an internal procedure specific to your organization!
form 990 summary or snapshot page
Form 990: “Summary” or “Snapshot” Page

Basic information about the Organization:

1) Schedule R will address information regarding related entities and control

2) Officers, directors, etc. listed later in “core” form.

Mission statement/Organization’s most significant activities

Information regarding the Organization’s governing body, employees, volunteers, etc.

Financial Information: revenues, expenses, assets, liabilities, etc.

Permission to speak with paid preparer

form 990 program service accomplishments
Form 990: Program Service Accomplishments

Organization’s Mission Statement required

Requires a report on the Organizations new and ongoing exempt purpose achieves and revenue and expenses related thereto.

501(c)(3)’s required to report the Organization's 3 largest programs and report: (1) grants and allocations to others, (2) total expenses, and (3) revenue.

* Program should be described to give enough information about he program to the reader

form 990 checklist of required schedules
Form 990: Checklist of Required Schedules
  • Part IV of the core documents includes a checklist of 38 questions to determine whether certain schedules are required to be filed with the Form 990
    • Arranged by subject matter and alphabetically by schedule
  • Many replace old attachments
    • Old Schedule A broken down to four (4) separate schedules
      • New schedules for political campaign and lobbying activities, private schools and related organizations
    • Other new schedules added to disclose compensation issues, transactions with interested parties, foreign activities, foreign activities, etc.
  • Important for Organization’s to review these schedules early to determine identity filing requirements and to determine necessity of filing schedules
form 990 sixteen 16 schedules
Schedule A – Public Charity Status and Public Support

Schedule B – Schedule of Contributors

Schedule C – Political Campaign and Lobbying Activities

Schedule D – Supplemental Financial Statements

Schedule E – Schools

Schedule F – Statement of Activities Outside the US

Schedule G – Supplemental Information Regarding Fundraising or Gaming Activities

Schedule H - Hospitals

Schedule I – Grants and Other Assistance to Organizations, Governments and Individuals in the US

Schedule J – Compensation Information

Schedule K – Supplemental Information on Tax-Exempt Bonds

Schedule L – Transactions with Interested Persons

Schedule M – Noncash Contributions

Schedule N – Liquidation, Termination, Dissolution or Major Disposition of Assets

Schedule O – Supplemental Information to Form 990

Schedule R – Related Organizations and Unrelated Partnerships

Form 990: Sixteen (16) Schedules
form 990 irs compliance
Form 990: IRS Compliance

Reports Organization’s compliance with other IRS reporting requirements

Yes/No?

All Organizations

1) Employment tax returns

2) Unrelated business income

3) Accounts in foreign countries

4) Tax shelters

5) Non-deductible contributions

If Applicable

1) Charitable contributions

2) Donated property

3) Donor advisory funds

4) Support organization

5) Others

form 990 governance and disclosure
Form 990: Governance and Disclosure

Yes/No?

  • 3 Sections
  • Every Organization must complete ALL sections
  • All questions relate to tax year
  • This is the “best practices” section; not all forms and practices are mandated
  • Independent = not offer/employee, no material financial benefits, no material benefits to family members
  • Spouse, sibling, child, etc.
  • Employee, owner, officer, etc.

Questions regarding governance and management – relationships, governance changes (documents and organizational), member approvals, voting, etc.

Internal Governance Policies (if in place at the end of the year) – (1) Conflicts of Interest, (2) Form 990 Review, (3) Whistleblower, (4) Document Retention and Destruction, and (5) Executive and Employee Compensation.

Disclosure of Information to public – Form 990 and other IRS documents, internal governance policies, etc.

form 990 compensation information
Form 990: Compensation Information

Requires list compensation information for:

(i) All current officers, directors, trustees – no minimum compensation

(ii) Current employees with over $150,000 of reportable compensation

(iii) 5 highest current employees other than (i) and (ii) with over $100,000 of reportable compensation

(iv) Former officers, key employees, and highest compensated employees with over $100,000 of reportable compensation

(v) Former directors and trustees with over $10,000 reportable compensation)

* Schedule J for former employees with >$150,000 and accrued compensation

Definitions

1) Director or Trustee

- Member of Organization’s governing body

- Voting Rights

- Tax year based

- No compensation threshold

2) Officer

- Elected/appointed to manage Org’s operations

- Top management official

- Tax year based

- No minimum compensation threshold

3) Key Employee

- Calendar year based

- 3 tests: compensation, responsibility and “top 20”

form 990 financial information
Form 990: Financial Information
  • Part VIII of the core documents requires a detailed statement of revenue
    • Includes new information relating to federated campaigns, revenue from relating organizations, royalties and income from gaming activities
  • Part IX of the core documents requires a detailed statement of functional expenses
    • Includes new expenses for lobbying efforts, investment management fees, advertising, IT, insurance, etc.
  • Part X of the core documents includes a balance sheet
  • Part XI summarizes financial statements and reporting details – i.e., accounting method and independent accountant
form 990 ez overview
Form 990-EZ: Overview
  • Form 990-EZ has also been revised, but not as much as Form 990
  • Four (4) page core form to be completed by all
    • Seven (7) potential schedules – Schedules A, B, C, E, G, L, N
    • Same Form Schedules as Form 990
    • Previously two (2) schedules and additional attachments; now broken down into more schedules and attachments, but highly unlikely Organizations will file all of them
  • Three-year phase in period for smaller organizations – permanent threshold after 2010 tax year
form 990 ez summary page
Form 990-EZ: Summary Page

Similar summary revenue, expenses and assets disclosures to Form 990. More comprehensive relating to revenues to meet Form 990-EZ requirements

Form 990-EZ threshold – whether Organization can file the Form 900-EZ

form 990 ez program accomplishments list of officers and key employees
Form 990-EZ: Program Accomplishments;List of Officers and Key Employees

Primary exempt purpose (Form 990 requires mission statement)

Similar to Part III of Form 990 regarding Statement of Program Service Accomplishments

Similar to Part VIII of Form 990 regarding List of Key Employees and compensation disclosure

form 990 ez other information schedules
Form 990-EZ: Other Information & Schedules

Changes to organizational documents – add appendices

Yes/No?

Additional tax form/compliance information

Additional schedules for interested person transactions and disposition of assets

Disclosure information

Additional Form 990-EZ exemptions

form 990 ez other information
Form 990-EZ: Other Information

501(c)(3)’s -questions regarding campaign, lobbying and other transactions

List highest compensated employees and independent contractors ($100,000 threshold)

Additional schedules for campaign contributions, lobbing and private schools

what should nonprofits do now
What Should Nonprofits Do Now?
  • Review and become familiar with the “New” Form 990 and its reporting requirements
    • Review with internal personnel, auditor, attorneys, etc.
  • Review Organization’s existing policies and procedures
    • Ensure board and committee activity is properly documented
  • Opportunity to review and improve governance and management practices
    • Use the Form 990 for the Organization’s advantage
  • Be prepared for greater transparency and detailed disclosure of Organization’s practices
  • “Draft” Form 990 and have internal review policies and procedures
  • More than just “tax return”  a “best practices” and compliance guide – tell your story!
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questions and discussion

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