Association Leadership - January/February 2008 - (Page 37) feature Prepare for990: change Redesigned Form a new tool to ensure compliance The IRS issued a discussion draft in June of a redesigned Form 990, the annual information return filed by tax-exempt organizations. In a background paper accompanying the redesigned form, the IRS described the Form 990 as the “primary tax compliance tool for tax-exempt organizations.” The IRS noted that states rely on the Form 990 for oversight and tax-filing purposes. Moreover, the public, media, researchers and policymakers rely on it to obtain information about the taxexempt sector generally and individual organizations specifically. Therefore, according to the IRS, the redesigned Form 990 is intended to: • Enhance transparency to provide the IRS and the public with a realistic picture of the organization; • Promote compliance by accurately reflecting the organization’s operations, enabling the IRS to efficiently assess the risk of noncompliance; and Minimize the burden on filing • organizations by requiring additional information based only on specified indicators. The redesigned Form 990 consists of a 10-page “core” form, including an initial summary page and 15 possible schedules. The schedules required for each particular organization depend on the organization’s characteristics and activities. The redesigned form is proposed for use in reporting for the 2008 taxable year – filings made in 2009. However, the IRS specifically asked for comments on the transition period for moving to the new form. Comments on this and other issues were due by Sept. 14. reported on Form 1099 MISC. Reportable compensation from the organization and from any related organization must be listed. Based on certain triggers, an organization might also be required to file a new Schedule J, showing additional detail on both taxable and non-taxable compensation. Schedule J must be filed, for example, if an executive has more than $150,000 reportable compensation or $250,000 total compensation, or if any person listed on the core form has compensation from a source other than the organization or a related organization. Schedule J requires a seven-part breakout of compensation: (1) base compensation included in reportable compensation, (2) bonus and incentive compensation included in reportable compensation, (3) severance or change of control payments included in reportable compensation, (4) other amounts included in reportable compensation, (5) nonqualified deferred compensation not included in reportable compensation, (6) nontaxable welfare and fringe benefits and (7) nontaxable expense reimbursements or allowances. In addition, Schedule J asks whether certain types of compensation arrangements are used, including supplemental nonqualified retirement plans, equity-based compensation, compensation based on revenues or net earnings, first-class travel, club dues, or use of a personal residence. Although the IRS may make further changes to the Form 990 during the process of finalizing the redesigned form, tax-exempt organizations can expect expanded reporting of executive compensation, along with the additional recordkeeping required to comply with the enhanced reporting obligations. ◆ Executive Compensation Reporting Compensation paid to executives of tax-exempt entities is a perennial topic of interest to the press and the public. In addition, since 2004, the IRS has focused on this area through the Exempt Organizations Division’s “Executive Compensation Compliance Project.” In March, the IRS issued a report on the first two phases of this initiative, the “Report on Exempt Organizations Executive Compensation Compliance Project – Parts I and II, March 2007,” available at www.irs. gov/charities/article/0,,id=169100,00.html. Compared to the existing Form 990, the redesigned form generally requires more information on the core form with respect to the compensation of officers, directors and key employees, but uses a simpler measure of compensation, referred to as “reportable” compensation. In the case of an employee, reportable compensation means Medicare wages reported on Form W-2. In the case of other service providers, such as directors, reportable compensation means non-employee compensation January/February 2008 | Association LEADERSHIP 37 http://www.irs.gov/charities/article/0,,id=169100,00.html http://www.irs.gov/charities/article/0,,id=169100,00.html
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