October 3, 2008
 

The New IRS Form 990 ... Part II.

by Terrence Canela, Esq., CAE
Associate General Counsel

Summary:
The hardest thing in the world to understand is the income tax.—Albert Einstein

Last March, AIArchitect published an article introducing the IRS’s new Form 990, the federal income tax return form that nonprofit, 501(c) tax exempt organizations file each year, “The New IRS Form 990: What do AIA components need to know?”

This article is a follow-up piece to highlight the IRS’s revised Form 990 Instructions, released last August. The instructions are intended to provide additional guidance to organizations that file their tax returns using the Form 990. (The IRS describes the Instructions as still in “draft” form but does not anticipate further significant changes.) As the IRS explains: “The revised instructions provide additional examples to illustrate key points, reduce information gathering and reporting burden in certain key areas, and establish or revise definitions or standards in certain areas (e.g., key employee, officer).”

The purpose of this article is to reiterate some of the main points to remember from the March article and provide additional information based on the newly released (nearly final) Form 990 Instructions.

Be prepared

  • The new Form 990 will be used for the 2008 filing, which is to say the return you will file in 2009.
  • The overarching theme and underlying purpose of the revisions to the Form 990 is increased transparency through broader disclosures, which the IRS believes will lead to improved governance.
  • Look at the form in advance and talk to your tax advisor(s) early.

Summary of key changes

The new Form 990 is longer and more comprehensive. AIA components will be required to disclose much more information about their inner workings and operations than before. Key changes include:

  • Increased disclosures concerning organizational policies and procedures
  • Detailed information on internal governance and management structure
  • Additional reporting of the AIA component’s compensation of officers, directors, trustees, key employees, and highest compensated employees.

Organizational policies and procedures: The biggest change in the new Form 990 that will impact all AIA components is with respect to policies and procedures. AIA components will be asked to disclose whether they have certain policies and procedures in place. Such policies and procedures will include the handling of:

  • Conflict of interest
  • Whistleblowers
  • Document retention and destruction
  • Compensation determination for top management staff, officers, and key employees
  • Local chapter, branches, or affiliate governance policies and procedures.

Although answering “no” to whether you have a given policy will not automatically trigger an IRS investigation, it could. AIA components that do not already have certain policies in place will need to implement such policies and procedures by the end of 2008 in order to answer in the affirmative truthfully on their tax returns or be prepared to explain why not if asked. Keep in mind as well that your Form 990 returns are public records, so inquiries may come from other sources besides the government.

Internal governance and management structure
Boards of directors: AIA components will be required to answer questions regarding the composition of their boards of directors. You will be asked to provide the number of voting board members and how many of those members are “independent” board members. A board member is generally considered independent if he or she, or his or her family members, do not receive compensation or other significant benefits from the organization. Components will also be required to disclose family or business relationships between officers, directors, or their family members, and key employees. (See Note 1 in the right margin.)

In addition, AIA components will be asked whether meeting minutes are kept and whether the board of directors reviewed the Form 990 prior to filing. If you do not have these processes in place and information at hand, give yourself time to gather such information well in advance of your tax return filing.

Compensation: In addition to disclosing officer and director compensation, if any, AIA components will be asked to report compensation of:

  • Current key employees
  • The five highest compensated, current, non-key employees making in excess of $100,000
  • Former officers, key employees, and highest compensated, non-key employees who earned in excess of $100,000 during the reporting year.

In calculating compensation, organizations need to take into account deferred compensation, health and retirement plan benefits, and other compensation if $10,000 or more.

The new Form 990, instructions, and a wealth of related information are available from the IRS Web site.

 

Copyright 2008 The American Institute of Architects. All rights reserved. Home Page
home
news headlines
practice
business
design
recent related
› The New IRS Form 990: What do AIA components need to know?”

Read Part I of this article.

Note: Although most AIA component staff would not be considered “key employees” as the IRS defines it, you should nevertheless be aware of the term. The draft Instructions define “key employee” as an individual on staff who meets certain baseline criteria with respect to compensation and responsibility, as follows:
1. Earns $150,000 or higher (the “$150,000 test”)
2. Has responsibilities, powers, or influence over the organization as a whole that are similar to those of officers, directors, or trustees; or manages a discrete segment or activity of the organization that represents 10 percent or more of the activities, assets, income, or expenses of the organization, as compared to the organization as a whole; or has or shares authority to control or determine 10 percent or more of the organization’s capital expenditures, operating budget, or compensation for employees (the “Responsibility Test”)
3. Is one of the 20 employees with the highest reportable compensation from the organization (the “Top 20 Test”).

The information in this article is provided for informational purposes only and should not be construed as legal advice for your specific set of circumstances. To comply with requirements imposed by the IRS, we inform you that unless expressly stated otherwise in this communication, any tax advice contained in this communication is not intended or written to be used, and cannot be used by a taxpayer to (i) avoid penalties under the Internal Revenue Code, or (ii) promote, market, or recommend to another party any transaction or other matter addressed herein.