Form 990 Redesign for Tax Year 2008
The IRS currently requires every charitable organization, and every similar tax-exempt organization, with gross receipts of at least $100,000 or assets of at least $250,000 to file an annual return on Form 990. On December 20, 2007, the IRS published major changes to its Form 990. Certain of the changes are intended to encourage charities and other tax-exempt organizations to improve their internal governance. Because of these changes, tax-exempt organizations should review their written internal governance procedures and make changes where necessary.
Perhaps the most significant change made by the IRS to Form 990 is the addition of an entirely new section entitled "Governance Management and Disclosure". The new section contains questions about the internal governance of the organization. The IRS added these questions to encourage tax-exempt organizations to re-examine their internal governance structure. Also, since the Form 990 is a publicly available document, the IRS hopes to use public pressure to improve the corporate governance of tax-exempt organizations. Many tax-exempt organizations obtain much of their funds from the public. Unlike personal tax returns, a charity’s annual return on Form 990 is normally available to the public. Any hint that a public charity does not have adequate internal governance could hurt its ability to obtain contributions.
Here is a summary of the most important questions included in the new "Governance Management and Disclosure" section of the new Form 990:
- Does the organization have a written conflict-of-interest policy? Does it monitor the policy by soliciting information from officers and directors annually?
- Does the organization have a whistleblower policy?
- Does it have a document retention and destruction policy?
- Does the process for review of officers’ compensation involve an independent director or directors? Is there a set procedure for reviewing and approving officers’ compensation?
- Does the organization make its financial statements, conflict of interest policy and governing documents available to the public?
- How many members of the organization’s board of directors are independent?
- Does any director or officer have a family or business relationship with any other officer or director?
- Does the organization have members? If so, what appointments and decisions must the members approve?
- Does the organization keep minutes of its board meetings and its committee meetings?
- If the organization has local chapters, does it have written policies governing its local chapters?
In order to answer these questions, each organization must make a thorough review of its internal governance documents and procedures, and make changes where appropriate. The answers to the Form 990 questions must be precise. An authorized officer signing a Form 990 states that all of the information on the return is accurate, under penalties of perjury.
Our attorneys can help you evaluate your internal documents and make the necessary changes to assure that your answers to the above questions put your organization in the best possible public light.
The revised form must be used by large tax-exempt organizations (with gross receipts over $1,000,000 or total assets over $2,500,000) for the 2008 year and beyond. It must be used by tax-exempt organizations with gross receipts over $500,000 or total assets over $1,250,000 for the 2009 tax year and beyond. All organizations having at least $200,000 in gross receipts or $500,000 in assets must file the new From 990 for years beginning in 2010.
Following is a link to the IRS website "Form 990 Redesign for Tax Year 2008" containing much of the IRS Guidance in this issue: