Presented by Plante & Moran, PLLCMay 16, 2009

The New Form 990

Board Responsibility

2

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

3

Focus of Redesign

Focus of Redesign to Increase Reporting Related to: Governance

Executive compensation

Related organizations

Fundraising practices

Hospitals’ amount of community benefit

4

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

5

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

6

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

7

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

8

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

9

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

10

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

11

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

12

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

13

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

14

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

15

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

16

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

17

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

18

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

19

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

20

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

21

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

22

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

23

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

24

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

25

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

26

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

27

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

28

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

29

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

30

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

31

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

32

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

33

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

34

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

35

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

36

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

37

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

38

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!