April 17, 2008 | Read Time: 3 minutes
The Internal Revenue Service last week released the draft instructions for the new Form 990, the primary tax document that charities file each year with the federal government.
Many charity leaders, lawyers, and accountants have been anticipating the new instructions, which are the key to understanding how to fill out the updated Form 990 — especially the instructions’ definitions of key terms and its portions on executive compensation and charity governance.
The instructions, available on the tax agency’s Web site, correspond with the redesigned Form 990, which takes effect for the 2008 tax year. The redesign is the first major overhaul of the form in 25 years.
Glossary of Terms
The main part of the redesigned Form 990 consists of an 11-page document — what the IRS calls the “core form” — that all nonprofit organizations would complete.
The form is accompanied by 16 supporting schedules, one or more of which charities would be required to fill out, depending on their activities.
The IRS says most nonprofit organizations probably would have to fill out only three of the schedules.
By comparison, the current Form 990 has a nine-page main section, two schedules, and 36 possible attachments.
The proposed instructions offer new tools to make the form easier to understand, including a glossary of terms and a checklist to help organizations determine the order in which to fill out parts of the form.
As it did with the release of the draft version of the Form 990, the IRS is inviting public comment on the instructions.
And it expects to incorporate a number of comments and suggestions into the final version of the instructions this fall, says Ronald J. Schultz, a senior adviser to the commissioner of the IRS’s Tax Exempt and Government Entities Division. “We rolled them out with the expectations that we’ll get significant comments,” he says. He adds that the most difficult parts to craft were instructions on governance, compensation, and filing a group return, and the section that includes definitions of terms like “key employee” and “officer.”
Executive Compensation
Jack Siegel, a lawyer in Chicago who advises charities and has followed the redesign closely, praised the instructions. “They’re very good. They’re lengthy but very good,” he says, adding that he had to reload his printer a few times while printing that out.
Mr. Siegel says he was especially impressed with the section about executive compensation. The new form uses a more elaborate grid and makes clear where to put each type of compensation, which should help avoid the confusion that plagued the old form.
“That’s going to be very helpful and make compliance easier for charities,” he says, adding, “It’s going to make the information the public gets more accurate, and you can draw comparisons more easily between charities.”
Bruce R. Hopkins, a lawyer who has written several books on nonprofit law, echoed Mr. Siegel’s praise, calling both the form and the instructions “extraordinary.”
He was concerned, however, that the form was surreptitiously creating new regulations without the scrutiny they would receive if pursued through, say, legislative means.
“The form itself is creating a lot of new ‘law,’” Mr. Hopkins says. “The IRS doesn’t like to think of it that way, but it’s the truth. And the instructions reflect that effort.”
Over all, he says, “I’ve never seen a project quite like [the Form 990 revision], one that got so much attention.”
People who want to offer suggested changes have until June 1 to submit them. Comments should be sent by e-mail to the IRS at Form990revision@irs.gov.
