Changes to the Draft Form 990

A redesigned Form 990, Return of Organization Exempt From Income Tax, will be filed beginning with 2008 tax years (2009 filing season). The IRS has completed its review of the public comments and made revisions to the draft instructions. The revised instructions should be posted at irs.gov by August 15, 2008.

In an effort to make sure the final instructions address the needs of the tax-exempt community, the IRS sought comments from the public on the draft 2008 Form 990 instructions. The comment period closed on June 1, 2008. Changes made to the draft instructions in response to public comments will include the following:

1. A revised definition of key employee for purposes of reporting executive compensation, transactions with interested persons, and other items. In general, the three prong definition will require reporting as a key employee only those persons, other than officers, directors, and trustees, who (a) had reportable compensation exceeding $150,000 for the year (the “$150,000 test”); (b) had or shared organization-wide control or influence similar to that of an officer, director, or trustee, or managed or had authority or control over at least 10 percent of the organization’s activities (the “responsibility test”); and (c) were within that group of the organization’s top 20 highest paid persons for the year who satisfied both the $150,000 test and the responsibility test.

2. Specific reporting requirements for which the reporting organization may rely on reasonable efforts to obtain information required from interested persons or third parties. These will be limited to (a) Part VI, Governance, Management, and Disclosure, line 1b (determining the number of voting members of the governing body that are independent) and line 2 (determining whether an officer, director, trustee, or key employee had a family relationship or a business relationship with any other officer, director, trustee, or key employee); (b) Part VII, Section A, Officers, Directors, Trustees, Key Employees, and Highest Compensated Employees, line 1a (determining compensation paid to such persons by related organizations); and (c) Schedule L, Transactions with Interested Persons, Part III, Grants or Assistance Benefiting Interested Persons, and Part IV, Business Transactions Involving Interested Persons. The revised instructions will provide examples of how the organization may satisfy the reasonable efforts standard with respect to each of these separate reporting requirements.

3. A revised standard for determining independence of a voting member of the organization’s governing body, which replaces the previously proposed “material financial benefit” test by looking to whether the member or a family member was involved in a transaction or relationship that was reportable on the current year’s Schedule L, Transactions with Interested Persons.

For a more complete list of changes, visit the IRS web site at irs.gov or stay tuned for future blogs.