[caption id="attachment_49721" align="alignright" width="360" caption="Richard Croghan, Renie Burbank and Julie Schoepp""][/caption]
The Internal Revenue Service has clarified a handful of provisions related to its form 990 in tax year 2011, the document used in tax filing for nonprofit organizations that was significantly expanded in 2008.
The changes, while small in comparison to the original redesign, represent a furthering of efforts by the IRS to fortify and clarify the disclosures required by nonprofits.
“The objective in doing this was to provide transparency,” said Richard Croghan, a partner at Moss Adams. “It keeps on evolving.”
In a Jan. 11 memo, the IRS outlined its instructions for the form in 2011. Among them was clarification of what could be considered income for executives and highly compensated employees, including certain information from those respective individual’s W-2 forms. Accrual or reductions in the value of benefit plans for employees and executives with income topping $150,000 must also be reported.
“The IRS has fine-tuned a little more of what needs to be reported" for executive compensation, said Renie Burbank, senior tax manager for Moss Adams in the region including Santa Rosa and San Francisco. Ms. Burbank noted that executive pay is an important issue to potential investors and the public.
The memo also clarified how nonprofits should treat partnerships on their balance sheet. Organizations must now share the distributive share of assets in a joint venture as a separate item, showing the ending capital from the partnership.
The agency has also clarified requirements related to foreign activity, as some non-profits have foreign missions. Previously, tax-exempt organizations were required to disclose investments if they resulted in a $10,000 net revenue or expense. Now, those foreign investments can be valued up to $100,000 before disclosure.
“Members of the public rely on the Form 990 or Form 990-EZ as their primary or sole source of information about a particular organization,” said Julie Schoepp, associate managing partner at Santa Rosa’s Dal Poggetto & Company. “How the public perceives an organization in such cases may be determined by information presented on its return. Therefore, the return must be complete, accurate and fully describe the organization’s programs and accomplishments."
The redesigned form 990 has expanded since its initial rollout in 2008, growing to an 11-page, 11-part document as additional schedules were required. Ms. Schoepp said that, overall, she saw an increasing movement on part of the IRS to gather and disclose more information about nonprofits.
That additional disclosure has meant more work for accountants and organizations during tax season. While many firms will offer a reduced rate to those agencies, the extra time required could still result in greater expense for the tax preparation work, she said.
More nonprofits have been required to fill out the full Form 990 since 2008, as the threshold allowed in filing the more simple 990-EZ has gradually decreased to the current $200,000 in gross receipts and $500,000 in assets.
Additionally, disclosures required for non-profit hospitals was expanded in the 2010 Patient Protection and Affordable Care Act, entailing detailed disclosure of facilities and other information in the 2011 tax year. Those requirements will continue to expand, including the so-called community health needs assessments that becomes mandatory after March 23, 2012.
To those reviewing the filings, the addition of dozens of new questions requiring written responses has offered an enhanced window into the function of nonprofit organizations, Ms. Schoepp said.
It has also caused many non-profits to reexamine their practices, according to Ms. Burbank.
“They (the IRS) asked questions within the form to get their governing body to look at their policies and procedures,” she said.
