Tax Update: 2011 Form 990July 30, 2012
Elizabeth A. Solecki, CPA
The 2011 Form 990, Return of Organization Exempt from Income Tax, has been revised with several significant changes by the Internal Revenue Service (IRS). As we approach the 2011 Form 990 tax filing season for exempt organizations with fiscal year-ends ending in 2012, it is important to be aware of these modifications. The most important changes and clarifications are emphasized below:
Part IV, Checklist of Required Schedules
Prior to 2011, exempt organizations that had total revenue or expenses from foreign activities of more than $10,000 had to complete Schedule F, Part I. The IRS modified this requirement for 2011. Now organizations are also required to complete Part I of Schedule F if they held investments outside the U.S. in foreign partnerships, foreign corporations or other foreign entities with an aggregate book value of at least $100,000 at any time during the tax year.
Part VI, Governance, Management and Disclosure
The IRS has provided additional guidance regarding Part VI, Governance, Management and Disclosure. The most significant clarification relates to line 11a, which asks whether the organization provided a complete copy of the Form 990 to all members of its governing body before filing. An organization that merely informs its governing body members that a copy of the Form 990 is available upon request has not actually provided a copy to its members, and must answer this question "no".
In order to answer this question "yes", the organization must provide a copy in paper or electronic form before filing with the IRS. In addition, the organization can answer this question "yes" if it emailed all of its governing body members a link to a password-protected website on which the entire Form 990 can be viewed, and noted in the email that the Form 990 is available for review on that site.
As a reminder, if the organization redacted or removed any information (such as the names and addresses of contributors listed on Schedule B) from its final Form 990 that is provided to its governing body members for review before filing, Part VI, line 11a should be answered "no".
The IRS has also indicated that for Part VI questions on various policies, the adoption of a policy by the governing body now includes adoption by a committee authorized by the governing body to do so.
Lastly, on line 2 of Part VI, the IRS has eliminated the requirement that a business transaction or relationship involving an officer, director, trustee or key employee (ODTKE) of the organization must be reported simply because that person was a key employee of another organization with which the organization or another ODTKE conducted business.
Part VII, Compensation of Officers, Directors, Trustees, Key Employees, Highest Compensated Employees and Independent Contractors
In the compensation table, there should be only one “position” selected per person, unless the person is both an officer and director/trustee of the organization. The reportable compensation for an officer or employee reported in Part VII includes the amount reported on the Form W-2, box 1 or 5 (whichever is greater). The IRS has also clarified that independent contractors’ compensation should be reported on a calendar year basis ending with or within the tax year of the filing organization.
Part VIII, Statement of Revenue
The IRS has noted that the value of donated services or the use of donated materials, equipment or facilities may not be reported on line 1 as contribution revenue. Also, the IRS has clarified that net losses attributed to uncollectible pledges, refunds of contributions and service revenue or reversal of grant expenses should be reported as “other changes in net assets or fund balances” on Part XI, line 5. An explanation must be provided on Schedule O for any amounts included on this line.
Investments in Joint Ventures and Other Partnerships
When the 2011 Form 990 was originally issued, the IRS required that the filing organization should report in Parts VIII (Statement of Revenue), IX (Statement of Functional Expenses) and X (Balance Sheet) its proportionate interest in a joint venture or other partnership's revenue, expenses and assets using information from the Form 1065, Schedule K-1 provided by the partnership. This is a significant change from prior years, where the filing organization reported its interest in a joint venture or other partnership based on its book value.
The IRS has received a large amount of feedback from various sources which noted that using the organization’s books and records provides more accurate values of the partnership assets than using the Schedule K-1. Many sources also noted that this change will be problematic because it will increase the amount of Form 990s on extension, as many organizations do not receive their Schedule K-1s until after the Form 990 filing due date.
In order to more fully consider the feedback received, and to determine how best to promote compliance and transparency while minimizing the burden of reporting of partnership interests, the IRS has made these new Schedule K-1 reporting requirements optional for tax year 2011.
To find other changes in the Form 990 as well as detailed explanations of the revisions, see the complete 2011 Form 990 schedules and instructions using the following link: