IRS Issues 2011 Revised Form 990 and Instructions: Stephen Clarke of IRS Adds Additional Clarity
The IRS has released the revised Form 990, which will impact 2011 IRS filings for nonprofit organizations.
The IRS recently released the revised Form 990, Return of Organization Exempt from Income Tax, and associated Instructions and Schedules for the 2011 tax year. The final form includes notable changes for the reporting of hospitals, investment partnerships, interested party transactions, compensation and foreign investments. The changes may also impact certain institutions of higher education.
The Form 990 was redesigned effective for the 2008 tax year and most organizations that are exempt from tax under Section 501(a) of the Internal Revenue Code are required to file the annual form or an abbreviated version (Form 990-EZ or Form 990-N).
Key changes for 2011 include:
Hospitals are required to file Schedule H. The reporting on community health needs assessments (a "Needs Assessment") continues to be optional for 2011; however, for tax years beginning after March 23, 2012, hospitals will be required to conduct a Needs Assessment at least once every three years. Part V of the 2011 Schedule H requires hospitals that do not use federal poverty guidelines to establish eligibility for discounted care to provide a narrative explanation of the criteria used. Schedule H and Part IV of the Form 990 also require hospitals to attach a copy of their most recent audited financial statements to their returns if their tax year began after March 23, 2010.
Joint Ventures and Investment Partnerships
On Form 990, Part X, organizations must report their distributive share of revenues, expenses and assets related to joint ventures or investment partnerships as those amounts were reported on Schedule K-1. Reporting organizations will no longer be permitted to rely on amounts derived from their own records. The change is meant to boost accuracy and uniformity across the Form 990 reporting, and is also a way to capture suspected unreported income, according to Stephen Clarke, project manager for IRS Form 990 redesign, while speaking at the Washington Nonprofit Tax & Legal Conference in Arlington, Virginia, on March 22.
Transactions with Interested Parties
The revised Schedule L provides that a business transaction between the filing organization and an entity more than 35% owned by current or former officers, directors, trustees, or key employees is no longer reportable in Part IV of the Form 990 if the entity is exempt under Section 501(c)(3), is a Section 501(c) organization of the same subsection as the filing organization, or is a governmental unit. In addition, the revised Schedule L eliminates the requirement that a business transaction between the filing organization and another entity be reported simply because a current or former officer, director, trustee, or key employee of the organization was a key employee of the other entity. Clarke also identified these as some of the more significant changes to the form for 2011.
Form 990 Schedule J, Compensation Information, is used by filing organizations to report compensation information for officers, directors and key employees. The 2011 Schedule J requires filing organizations to supply a narrative explanation in Part III if compensation is established by a related organization. The Schedule also requires a narrative description of severance or change–of–control payments and participation in a supplemental nonqualified retirement plan.
Organizations must now complete Schedule F, Statement of Activities Outside the United States, if they had foreign investments during the tax year valued at $100,000 or more. This is a shift from the previous threshold which was based on revenues and expenses attributable to foreign activities.
At the Washington Nonprofit Tax & Legal Conference, Clarke also reported that the incremental Form 990 redesign is nearing its final stages and that interested parties should expect fewer significant changes in 2012.
The IRS posted a notice online to explain the changes in detail. A copy can be found here.
Saul Ewing will continue to monitor changes to the Form 990 and update readers as appropriate.