Comments on Selected Parts of the New Form 990 and Schedules

BY BONNIE M. WYLLIE
March 1, 2009

Editor's note: This is a sidebar to "The Redesigned Form 990: Advising Nonprofit Organizations," March 09.

 Part I provides a snapshot of the entire organization because it summarizes the income statement and balance sheet on the first page. It also asks for a description of the organization’s mission. Since this is the first thing that a donor will see, it provides a great opportunity to make the case why this organization deserves to be funded. The organization’s development staff could be very helpful in drafting this mission statement.

 In Part III, Statement of Program Service Accomplishments, the organization is asked to describe its exempt purpose achievements for the three most expensive services. This gives the organization another opportunity to tell its donors what a great job it is doing and how it is affecting the community.

 In Part IV, Checklist of Required Schedules, the answers to this checklist help determine which of the 16 schedules need to be completed.

 Part V, Statements Regarding Other IRS Filings and Tax Compliance, provides a checklist for the nonprofits to report their tax filing practices. Information provided in the attached schedules will allow the IRS to double-check this section to determine that the filings and tax compliance are in fact correct. An organization that is not meeting its tax compliance requirements is probably not being managed very well.

 Part VI, Governance, Management, and Disclosure, is a dramatic addition to the Form 990 because it focuses on the board: whether it is independent and information about how it provides oversight. Part VI asks for specific information such as whether the board reviews the Form 990 before it is filed. It also asks if there is a written conflict-of-interest policy that requires annual disclosure of conflicts. It asks for a description of how this policy is monitored and enforced. It also asks if the organization has a written whistleblower policy and a written document retention and destruction policy.

If an organization does not have these policies, there is a sample conflict-of-interest policy in the instructions to Form 1023 posted at www.irs.gov. Samples of the conflict-of-interest, whistleblower and document retention and destruction policies can be found in The Nonprofit Policy Sampler, by Barbara Lawrence and Outi Flynn, which is published by BoardSource (2006). Another helpful resource is the book Managing Conflicts of Interest—A Primer for Nonprofit Boards, 2nd edition, by Daniel L. Kurtz and Sarah E. Paul, which is also published by BoardSource (2006).

Another resource designed to help organizations understand what is expected of them in terms of their ethical conduct, accountability and transparency is the Principles for Good Governance and Ethical Practice: A Guide for Charities and Foundations, by the Panel on the Nonprofit Sector, which was convened by the Independent Sector. It can be found at www.nonprofitpanel.org.

 Part IX, Statement of Functional Expenses, while not new, provides a more detailed breakdown of how money is spent. Anyone with a calculator can determine what percentages of revenue are actually paid for program services as opposed to management and fundraising expenses.

Comments About the Schedules
 Schedule A, formerly Organizations Exempt Under Section 501(c)(3)—Supplementary Information, has been renamed and much of its contents moved elsewhere. It is now titled Public Charity Status and Public Support and has been revised to focus on how affected organizations meet their public support test. An organization must report as a private foundation if it does not meet the 331⁄3% test or the 10% facts-and-circumstances test described in Treas. Reg. § 1.170A-9(f)(3). Moreover, it reflects changes in the support schedule to include the current tax year plus four previous years, rather than just the previous four years, and requires accrual accounting, rather than cash accounting as it formerly did.

 Schedule C, Political Campaign and Lobbying Activities, needs to be carefully and accurately prepared. Certain organizations can have their tax-exempt status revoked or sanctions imposed for these activities.

 Schedule F, Statement of Activities Outside the United States, is designed to obtain specific information about an organization’s foreign activities. It requires reporting for geographic regions of the organization’s activities, its grants to foreign organizations or entities, and its grants or assistance to foreign individuals.

 Schedule G, Supplemental Information Regarding Fundraising or Gaming Activities, asks for information regarding an organization’s fundraising activities, events and gaming. It also asks for information to determine if the organization has properly registered for charitable solicitation. (If an organization needs information regarding registration for charitable solicitation, it can be found at www.multistatefiling.org.) It asks for the identification and payment arrangements for professional solicitors.

 Schedule H, Hospitals, will dramatically affect tax-exempt hospitals. For a hospital to maintain its tax-exempt status, it must demonstrate that it operates for a charitable purpose. The intent of Schedule H is to make tax-exempt hospitals report uniformly and to measure their charitable purpose. In 2009 hospitals will be required to calculate their charity care, community benefits and community building activities. For 2008 they will only be required to list the locations of their facilities.

 Schedule I, Grants and Other Assistance to Organizations, Governments, and Individuals in the U.S., asks about an organization’s records to substantiate its grants, the grantee’s eligibility, its selection criteria and its methods for monitoring the use of the grant funds. For grants to organizations, it asks for information about the organization, including its IRC section. This will provide an in-depth look at the organization’s grants administration program and how it dispenses money.

 Schedule M, Non-Cash Contributions, has a detailed list of various types of property that an organization could receive as contributions. It also asks for the amount of revenue that resulted from each type of contribution and the method used for determining revenue.

 Schedule N, Liquidation, Termination, Dissolution or Significant Disposition of Assets, asks to whom the organization distributed its assets, whether it went through the appropriate procedure with the IRS, and whether it filed with the appropriate state official.

 Schedule R, Related Organizations and Unrelated Partnerships, asks for information regarding transactions and significant activities with related organizations. The intent is to put together all the fragments of the organizational structure and look at it in its entirety. This sum may provide a very different picture than each part separately.

(Download Form 990 and related schedules from the IRS Web site.)

PROFESSIONAL DEVELOPMENT: EARLY CAREER

Making manager: The key to accelerating your career

Being promoted to manager is a key development in a young public accountant’s career. Here’s what CPAs need to learn to land that promotion.

PROFESSIONAL DEVELOPMENT: MIDDLE CAREER

Motivation and preparation can pave the path to CFO

CPAs in business and industry face intense competition to land a coveted CFO job. Learn how to best prepare yourself for the role.

PROFESSIONAL DEVELOPMENT: LATE CAREER

Second act: Consulting

CPAs are using experience to carve out late-career niches. Learn how to successfully make a late-career transition to consulting, from CPAs who have done it.