IRS Form 990 The Next Generation October 30

IRS Form 990: The Next Generation October 30, 2008 Public Interest Clearinghouse Jenny Chung, Program Manager Randall Gaines, Controller www. insightcced. org

Insight Center Overview The Insight Center for Community Economic Development (formerly NEDLC) is a national research, consulting, and legal organization that develops and promotes innovative solutions that help people and communities become, and remain, economically secure. Ø Insight Center is a legal services support center that provides technical assistance to CA legal services organizations on legal issues arising in CED projects or related to tax-exempt organizations. IRS Form 990: The Next Generation October 30, 2008 Page No. 2

Overview • Background: Increasing Scrutiny of Tax-Exempt Organizations • IRS goals for revising Form 990 • New: Form 990 -N • Overview of Changes to Form 990 - major changes affecting legal services organizations - changes to reporting of exempt activities - reporting about business and family relationships - additional information about director & officer compensation - extensive reporting of transactions with related organizations IRS Form 990: The Next Generation October 30, 2008 Page No. 3

Increasing Scrutiny of Tax-Exempt Organizations Federal - 1996 – IRC Section 4958 (excise tax penalties) - excessive compensation or ‘excess benefit transactions’ with insiders - also, penalties on managers that approve such arrangements - 2002 – Sarbanes-Oxley Act (governance standards for public companies) - 2004 – Ways & Means Cmte hearings on NPs; IRS adopts new 1023 - 2006 – Pension Protection Act (addtl reporting req’s) - 2007 – Form 990 revision State - 2004 – CA Nonprofit Integrity Act IRS Form 990: The Next Generation October 30, 2008 Page No. 4

Goals of Revised Form 990 • IRS goals include: - increased oversight & transparency, - greater tax law compliance, and - minimizing burden on taxpayer • Major changes - reporting of transactions with controlled entities - increased reporting on transactions with directors, officers, and key employees • Result: heightened state and federal focus on nonprofits IRS Form 990: The Next Generation October 30, 2008 Page No. 5

New: Form 990 -N (e-Postcard)

Smaller Organizations - Form 990 -N (e-Postcard) • Pre-2007 tax year: tax-exempt organizations with gross annual revenues under $25, 000 generally were not required to file Forms 990 or 990 -EZ. • Aug 2006: The Pension Protection Act added a filing requirement to ensure that the IRS and potential donors have current information about all organizations. • 2007 tax year and beyond: Tax-exempt organizations with annual gross receipts of $25, 000 or less must file electronic Form 990 -N, (unless otherwise exempt from filing) "Electronic Notice (e-Postcard) for Tax-Exempt Organizations not Required to File Form 990 - or 990 -EZ" IRS Form 990: The Next Generation October 30, 2008 Page No. 7

Smaller Organizations - Form 990 -N (e-Postcard) • Form 990 -N must be filed electronically (http: //epostcard. form 990. org/) • Form 990 -N is due the 15 th of the 5 th month after end of taxable year • e. g. if tax year ends Dec 31, 990 -N due May 15 of the following year • If not filed for three consecutive years, org loses tax-exempt status • What must be reported: - EIN, tax year, legal name and mailing address - Any name the organization uses - Name and address of principal officer - Organization’s website address - Statement confirming gross receipts normally under $25, 000 - Statement if org has terminated or is in the process of terminating operations Note: IRS intends to increase the Form 990 -N filing threshold from $25, 000 in gross receipts to $50, 000 in gross receipts, beginning with the 2010 tax year. IRS Form 990: The Next Generation October 30, 2008 Page No. 8

Revised Form 990

Revised Form 990 • First significant revision since 1979 • Phased in for 2008 – 2010 tax years - Based on organizational income and assets • 11 -page Core Form; 16 Schedules - http: //www. irs. gov/charities/article/0, , id=181091, 00. html IRS Form 990: The Next Generation October 30, 2008 Page No. 10

Revised Form 990 – Phase-In Thresholds Organizations exceeding either threshold must file the new Form 990. Those below both required amounts may file the Form 990 -EZ. Tax year Gross Receipts Total Assets 2008 (filed in 2009) > $25, 000 & < $1, 000 < $2, 500, 000 2009 (filed in 2010) > $25, 000 & < $500, 000 < $1, 250, 000 2010+ (filed in 2011 > $50, 000 & < $200, 000 and beyond) < $500, 000 IRS Form 990: The Next Generation October 30, 2008 Page No. 11

Revised Form 990 – Core Form • Changes Affecting Reporting of Exempt Activities - Organizations must now describe the exempt purpose achievements for each of their 3 largest program areas, measured by expenses. (Part III) - If the organization performed any significant program services not listed on the prior year’s Form 990, it must describe the new program service. The organization must also describe if it ceased or made significant changes to a program. (Part III) IRS Form 990: The Next Generation October 30, 2008 Page No. 12

Revised Form 990 – Core Form Questions about board composition, governance and policies, documentation of meetings and recording of actions of the board (Part VI) include: • Number of voting members, independent voting members • Delegation of control or management duties • Significant changes to organizational documents since last 990 filed • Documentation of board and committee meetings • Conflict of interest policy • Annual disclosure of potential conflicts • Monitoring and enforcement of policy • Whistleblower policies • Document retention/destruction policies • Decisions on CEO and other key employee compensation include independent person or reference to outside data • Joint ventures with a taxable entities • Policies for safeguarding tax-exempt status IRS Form 990: The Next Generation October 30, 2008 Page No. 13

Revised Form 990 – Core Form • Increased reporting about Directors and Officers - Must report family and business relationships among current and former officers, directors, trustees, and key employees (Part VI, Schedule L) - family relationship: spouse, ancestors, siblings (whole or half blood), children (natural or adopted), grandchildren, spouses of siblings, children, and grandchildren - business relationship: - (1) one person is employed by another through a sole proprietorship or entity in which he/she is a trustee, director, officer, key employee, or > 35% owner), - (2) transactions > $10 K during tax year (with person or organization in which he she is trustee, director, officer, key employee, or > 35% owner), - (3) persons are each directors, trustees, officers, or >10% owners in same business or investment entity - former: reported on any of org’s prior five Form 990 or 990 E-Z - not former if: person was an officer, director, trustee, or key employee at any time during the organization’s tax year IRS Form 990: The Next Generation October 30, 2008 Page No. 14

Revised Form 990 – Core Form • Increased reporting about Directors and Officers - Reporting business relationships between the organization and current and former officers, directors, trustees, key employees, and their family members (Part IV, Schedule L) - direct and indirect business relationships - Direct: person is an officer, director, trustee, key employee, partner, or member of an entity (or a shareholder of a professional corporation) doing business with the organization - Indirect: person owns more than 35% interest in an entity doing business with the organization, individually or collectively with other officers, directors, etc. IRS Form 990: The Next Generation October 30, 2008 Page No. 15

Revised Form 990 – Core Form • Reporting about Director and Officer Compensation (Part VII) - Names, hours per week, and compensation of: - Current officers, directors, trustees (no min. threshold), and key employees (over $150, 000) - Current and former 5 highest compensated employees receiving over $100, 000 - Former officers and key employees over $100, 000 - Former directors and trustees who received, in that capacity, over $10, 000 - Reported compensation includes compensation from organization and any related organization, which includes one or more of the following: - Parent: an organization that controls the filing organization - Subsidiary: an organization controlled by the filing organization - Brother/Sister: an organization controlled by the person or persons that control the filing organization - Supporting/Supported organizations under 509(a)(3) supported to/by the organization and any related organizations - Volunteer exception: does not include compensation from a related org paid to a volunteer officer, director, or trustee if the related org is a for-profit entity. IRS Form 990: The Next Generation October 30, 2008 Page No. 16

Revised Form 990 – Core Form • Addtl information about Revenue and Expenditures - More detail about revenue (Part VIII) - Total - Related/exempt function - Unrelated business income - Excluded from unrelated business income under IRC Sec. 512 -514 - Additional reporting (Part IX) - Insurance; Advertising and promotion; Joint costs from combined educational campaigns/fund solicitation - Additional descriptions of expenditures (Part IX) - Miscellaneous expenses cannot exceed 5% of total expenses IRS Form 990: The Next Generation October 30, 2008 Page No. 17

Revised Form 990 - Schedules • There are now 16 schedules • Schedules most applicable to legal services organizations include: - Schedule A: Public Charity Status and Public Support - Required for all 501(c)(3) orgs - Organizations can now use their own method of accounting; cash accting not required - IRS no longer to issue advance rulings; orgs no longer file Form 8734 - IRS will now issue determination letter of public charity status if organization can “reasonably be expected to be publicly supported”; - organization has 5 tax years to establish public support (current year + 4 prior), based on 990 IRS Form 990: The Next Generation October 30, 2008 Page No. 18

Revised Form 990 - Schedules - Schedule C: Political Campaign and Lobbying Activities - Political activities are a basis for revocation of an organization’s 501(c)(3) status, lobbying is OK if not a substantial part of organization’s total activities - Lobbying reporting requirements differ for orgs that have made the Section 501(h) election by filing Form 5768 - Must report volunteer hours for political activity (and for lobbying by orgs that did not make the 501(h) election) - Schedule J: Supplemental Compensation Information - For any org where current officer, director, trustee, or employee received over $150, 000, former officer, key employee, highest compensated employee received over $100, 000, and/or former director or trustee received over $10, 000 in compensation - Breakdown of base, bonus/incentive, other pay, deferred compensation, nontaxable benefits and other non-fixed payments - Procedures used to establish compensation for CEO IRS Form 990: The Next Generation October 30, 2008 Page No. 19

Revised Form 990 - Schedules - Schedule L: Transactions with Interested Persons (IPs) - Current and former officers, directors, key employees of org or controlled entities - Requires reporting of: - Excess benefit transactions - Loans to and from IPs - Grants or assistance benefiting IPs (includes relatives of IP) - Business transactions with IPs (includes relatives of IP) - Review the instructions and other materials on IRC section 4958 before responding to the excess benefit questions - Schedule M: Non-Cash Contributions - Organizations that received more than $25, 000 in non-cash contributions - Information about the donation of property - Gift acceptance policy - Use of related or unrelated persons to help raise funds through non-cash contributions IRS Form 990: The Next Generation October 30, 2008 Page No. 20

Revised Form 990 - Schedules Schedule R: Related Organizations and Unrelated Partnerships 6 major parts: - Part I: Disregarded Entities - total income and end-of-year assets of the disregarded entity - Part II: Related Tax-Exempt orgs - exempt code section, public charity status, and direct controlling entity - Part III: Related Organizations Taxable as Partnerships - direct controlling entity, predominant income, share of total income and end-of-year assets, unrelated business income IRS Form 990: The Next Generation October 30, 2008 Page No. 21

Revised Form 990 - Schedules Schedule R (continued): - Part IV: Related Organizations Taxable as Corporation/Trust - direct controlling entity, type of entity, percentage ownership - Part V: Transactions with Related Organizations - gifts, grants, contributions; loans, sales, purchase/exchange of assets - Part VI: Unrelated Organizations Taxable as Partnerships - partnership (unrelated organization) through which organization conducted more than 5% of its activities IRS Form 990: The Next Generation October 30, 2008 Page No. 22

Revised Form 990 Prepare your organization • Policies • Establish processes for collecting information on: - business relationships between directors, officers, key employees, etc. and organization, and business and family relationships among directors, officers, key employees, etc - e. g. annual and as-needed disclosures from directors, officers, key employees, etc. - volunteer hours spent on lobbying activities (for non-501(h) filers) - non-cash donations (e. g. silent auctions) - transactions with related organizations IRS Form 990: The Next Generation October 30, 2008 Page No. 23

Revised Form 990 Helpful Resources • IRS online mini-courses on Redesigned Form 990 - www. stayexempt. org • November 4 from 2 -3 EST, IRS will host a free webinar, “Preparing for the new Form 990” - http: //www. taxtalktoday. tv/ • December 3, Alliance for Justice will be presenting an all-day workshop in San Francisco for Form 990 preparers - www. afj. org IRS Form 990: The Next Generation October 30, 2008 Page No. 24

Questions Contact Information Jenny Chung (jchung@insightcced. org) Randall Gaines (rgaines@insightcced. org) 510 -251 -2600 IRS Form 990: The Next Generation October 30, 2008 Page No. 25