Common Reporting Errors on Form 990

The redesigned Form 990, Return of Organization Exempt From Income Tax, has been the subject of much discussion since the IRS released it in 2007. As the exempt sector and practitioners have been adjusting to the new filing requirements, areas of confusion have been identified. Earlier this year, an IRS official reported filing errors in approximately 1% of redesigned Forms 990 filed electronically during 2010. Common errors include failure to file Schedule O, Supplemental Information to Form 990 or 990-EZ, and failure to complete required lobbying details when a section 501(h) election has been made.

The comprehensive nature of the types of compensation required to be reported, the complicated and unique nature of many compensation packages, and the common practice of sharing employees among affiliated organizations generate numerous questions regarding who must be listed and on which organization’s Form 990, what compensation must be reported, and when and where such compensation is to be reported.

EIGHT COMMON REPORTING ISSUES

Common errors identified on the redesigned Form 990 include:

1. Identifying the president as both an officer and a key employee (Part VII, Section A);
2. Reporting only salaries as compensation expense (Part IX, Line 5);
3. Improperly reporting compensation reported in a prior Form 990 (Schedule J, Part II);
4. Failing to include the annual actuarial increase of defined benefit plans (Part VII and Schedule J);
5. Reporting only unrestricted income;
6. Reporting support payments to a related organization as “other expense”;
7. Misidentifying the proper interested person (Schedule L, Part IV); and
8. Showing details of related transactions with a section 501(c)(3) parent organization (Schedule R, Part V).

OBSERVATIONS

Noticeably absent from this list are governance and insider transaction issues that initially received a great deal of focus in public discussions about the redesigned Form 990. Although these areas receive extensive attention from an organization’s officers, directors and trustees and require complicated coordination among multiple stakeholders, they tend to involve discussions about the formation, maintenance and implementation of policies, and it is relatively straightforward to report whether these policies are in place.

Also absent from the list are items dealing with hospitals and tax-exempt bonds. The relatively small number of completed Schedules H, Hospitals, and Schedules K, Supplemental Information on Tax-Exempt Bonds, and the ongoing development of reporting in these areas make common reporting issues difficult to identify at this point. Each of these schedules contains detailed reporting requirements that present significant information gathering and reporting challenges.

For a detailed discussion of the issues in this area, see “New Form 990: What’s Confusing Filers?” by Michelle Michalowski, CPA, in the July 2011 issue of The Tax Adviser.

—Alistair M. Nevius, editor-in-chief

The Tax Adviser

The Tax Adviser is the AICPA’s monthly journal of tax planning, trends and techniques. AICPA members can subscribe to The Tax Adviser for a discounted price of $85 per year. Tax Section members can subscribe for a discounted price of $30 per year. Call 800-513-3037 or email taxsection@aicpa.org for a subscription to the magazine or to become a member of the Tax Section.

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