US nonprofits of a certain size have had to file a standard form — called Form 990 — with the Internal Revenue Service every year. Until 2006, the design of the 990 and the requirements for filing it changed slowly, if at all, from year to year.
Now, suddenly, nearly everything is new! Only a very few organizations will be able to go ahead and file a 990 covering operations in 2008 without making changes in the way they collect and report the information required. Nearly every organization needs to start preparing now to make sure that the information to meet these new requirements will be ready when the time comes.
The first impact of all this change in the way nonprofits report to the IRS will be in the accounting department. But the impact will quickly spread throughout the field. The accountants will need to ask their colleagues to keep track of everyday information in new ways. Managers will have to get used to new formats for measuring progress and summarizing operations. Outsiders with an interest in the financial operations of nonprofits — whether it’s the one just down the street or statistical profiles of entire industries — will have to learn how to work with the new forms. Journalists and watchdogs, policy makers and researchers, will have lots of new information available to them, and a big chore in connecting the information from 2008 and beyond to what’s already in the history books about America’s nonprofits over time.
During the time the IRS was collecting comments on the proposed changes there was pretty broad agreement that the previous version of From 990 had become unwieldy and disorganized. The new approach streamlines and structures the form in a much more logical way. Making the required changes, though, is going to be a struggle for nearly everyone who prepares, or uses, financial information on America’s nonprofits.
So who gets the easy ride this year? Organizations that normally receive between $25,000 and $100,000 in revenues will file the shorter Form 990-EZ, using a version of the form that is fundamentally unchanged from the recent past. (Private foundations that use Form 990-PF are also going to be using the same familiar document.)
And who gets the hard row to hoe? Organizations with more than $1 million in total revenues or more than $2.5 million in total assets will have to use the new — completely revised — version of the Form 990, which was published on December 20, 2007.
And what about everyone else?
Organizations (with the exception of some churches and church associations) with less than $25,000 in total revenue, no matter how small, are required to file a new form — the 990-N — by the 15th day of the fifth month after the end of their most recent fiscal year. For many organizations, that day will be May 15, 2008. There is no paper version of Form 990-N. It has to be filed electronically using the Internet. The IRS has posted an explanation of this new requirement here. The gotcha here is that an organization that is supposed to file a 990-N and doesn’t do it for three years running will lose its tax-exempt status and have to start over again seeking recognition from the IRS — a complicated and expensive process.
Organizations with more than $100,000 (but less than $1 million) in total revenue will be allowed to use the existing Form 990-EZ this year, instead of the new long-form 990. The 990-EZ may be unfamiliar but it represents a smaller change from previous years than the new full 990 requires.
For those organizations that have to use it, what does the new “big” Form 990 look like?
There is a new “core form” that every filing organization will complete. It includes items that ask for basic information about every aspect of the organization’s work. Along the way, the core form highlights thresholds that, if crossed, require completion of supplemental “schedules” on everything from investment income to proceeds from gambling operations. The idea is that most organizations will need to use only a few of these schedules, and that will cut down on unnecessary paperwork, focus attention on the parts of their operations that are important in understanding their work, and help assure continued eligibility for tax-exempt status. The IRS has said that it will delay implementation of a couple of the schedules because of the complexity of the new record-keeping that is necessary for completing them.
A discussion of the filing rules plus a general outline of the new Form 990 is on the IRS website at on this page.
One other change in the rules about nonprofits’ reporting to the IRS will be important to some organizations. Form 990-T — the form that is used to report unrelated business income and for calculating whether any taxes are due — is now a public document. Filing organizations must make their 990-T returns available for inspection by anyone who asks. (This disclosure requirement applies to returns filed after August 17, 2006, and affects every organization that files a 990-T, even churches, whether or not they file a Form 990 that is subject to public inspection.)
[This blog entry appeared on an older version of Idealist; any broken links are a result of having re-launched our site in Fall 2010.]