IRS Seeks Comment on Form 990 Changes

By Elizabeth Schwinn

The IRS is seeking comment on a number of changes it has recently made or proposes to make to Form 990, the informational tax return that nonprofit groups file each year with the revenue service.

The proposed changes would require many groups to provide more information about fund raising and about their contacts or dealings with people outside the organizations.

The IRS proposed the changes in light of financial-disclosure scandals in the for-profit world, new laws to tighten accounting rules for corporations and some political organizations, and concerns about charitable funds’ being transferred to supporters of suspected terrorist activities.

Among changes it has already made to the forms, the IRS has clarified that charities that pay outside fund raisers must report those payments as fund-raising expenses. In addition, the IRS says nonprofit groups may not report fund-raising expenses as “program costs” even if part of their mission involves soliciting money for other groups.

In response to a recent law requiring political organizations created under Section 527 of the Internal Revenue Code to report their finances, the IRS has adapted the Form 990 for use by such groups. The service also proposes to require all tax-exempt groups to provide information about their financial relationships with other exempt groups. Currently, only groups classified under Section 501(c)(3) of the Internal Revenue Code are required to report such ties.

Because of concerns that some charities may be sending money overseas to support terrorist groups, the IRS is soliciting comment on whether to expand reporting requirements for grants made to foreign groups or individuals.

In addition, the IRS proposes to impose on charities accounting standards similar to those required of publicly traded companies in the wake of the Enron and WorldCom financial scandals. The IRS would ask charities to state whether they have conflict-of-interest policies and independent audit committees. It also is considering asking all types of nonprofit groups to file information, currently required only of charities, on financial transactions and relationships with major donors, officials, and others.

The IRS also is considering expanding the amount of financial information required of charities and other nonprofit groups.

The announcement is available online at: http://www.irs.gov/pub/irs-drop/a-02-87.pdf. It will be published in the September 30 issue of the Internal Revenue Bulletin. Comments are due January 28, 2003, and can mailed to the Internal Revenue Service, 1111 Constitution Ave., N.W., Washington, D.C. 20224, Attn: David W. Jones, T:EO:RA, or e-mailed to TE/GE-EO-1@irs.gov.