IRS to release instructions for new Form 990

This past April the IRS released for public comment draft instructions to the redesigned Form 990, Return of Organization Exempt From Income Tax, to 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, and expects to post the revised instructions on its Web site in the next few weeks.

The upcoming release of revised Form 990 (2008) instructions will be accompanied by background documents which will explain changes made to the draft instructions in response to public comments. These changes 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. A list of foreign countries within each of nine geographic regions to be used for reporting foreign activities on the Form 990, Schedule F, Statement of Activities Outside the United States.
  3. 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.
  4. 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.
  5. For Schedule H, Hospitals, a revised definition of facility for purposes of completing Part V, Facility Information, for 2008 tax years (2009 filing season). Beginning with 2008 tax years, organizations completing Schedule H will be required to list in Part V each hospital or other facility that is licensed, registered, or similarly recognized by a state as a health care facility, including facilities other than licensed hospitals. This does not alter the definition of hospital for purposes of determining whether the organization must complete Schedule H. The revised Schedule H instructions will also clarify that physician clinics and skilled nursing facilities will be eligible for treatment as a subsidized health service in accordance with the generally applicable rules regarding subsidized health services.
  6. For Schedule K, Supplemental Information for Tax-Exempt Bonds, the revised instructions will provide relief for refunding bonds issued after 2002 to refund pre-2003 bonds, by exempting such refunding bonds from having to be reported in Part III, Private Business Use. All other parts of the schedule must be completed with respect to such refunding bonds under the generally applicable rules. This change does not alter the generally applicable transition relief for Schedule K, which requires completion of only Part I, Bond Issues, for 2008 tax years (2009 filing season).

The IRS anticipates the complete revised set of draft instructions for the core form and all schedules will be posted on the IRS web site by August 15, 2008. Because IRS Forms and Publications will not complete its review and formatting of these instructions until later this year, the upcoming release will be in regular text format rather than the standard triple-column format used for official and final forms.

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