New IRS Form 990: More Reporting Requirements, More Transparency

With Senators Charles Grassley and Dianne Feinstein pushing for investigations of the travel expenses of W. Richard West Jr., former director of the National Museum of the American Indian, the newly redesigned Form 990 tax return for nonprofits, released by the IRS on Dec. 20, seems more relevant than ever. It will require more details about finances, in general, and personnel compensation, in particular.

As one prominent commentator, nonprofits tax attorney and accountant Jack Siegel, has already observed (see below), this increased transparency and accountability will make nosey reporters like me happy. It should also make tax attorneys and accountants like Siegel happy, since any change in the reporting requirements is, by definition, a Tax Lawyers' Relief Bill.

According to the IRS's Background Paper on the new tax form for nonprofits:

The Form 990 has not been significantly revised since 1979 and it is universally regarded as needing major revision. It has failed to keep pace with changes in the law and with the increasing size, diversity, and complexity of the exempt sector. As a result, the current form fails to meet the Service's tax compliance.

The new disclosures required by the new form, to be filed in 2009 for the 2008 tax year (although there will be a graduated transition period for smaller organizations), were recently analyzed by tax lawyer Siegel on his Charity Governance Consulting LLC website:

We were struck by the required disclosures of first class travel, companion travel, personal assistants like chefs and butlers, discretionary spending funds, and the like. Every reporter who reviews a Form 990 will start by reviewing those disclosures. We suspect that these practices will soon all but disappear from the landscape....

The media are always interested in compensation, as well as conflicts of interest. The IRS has handed them that information on a silver platter....As in the past, we learn about compensation paid to officers, directors, key employees, independent contractors, and "highest compensated employees".... However, the information will be better organized and more detailed, particularly when it comes to fringe benefits, deferred, and other forms of compensation.

Siegel and Dan Moore, vice president for public affairs at GuideStar, the online database of nonprofits' tax filings, participated in an online discussion about the new 990 for the Chronicle of Philanthropy, here.

Of particular note are provisions in Schedule D, Supplemental Financial Statements and Schedule J, Compensation Information. There are new questions about:

---The various uses of collections (public display, scholarly research) and how collections further the institution's exempt purposes.

---Whether substantiation was required prior to incurring a reimbursed listed expense.

---Process and data used to establish compensation of the CEO/Executive Director (such as use of a compensation committee and a compensation study or survey.

The new version of the 990's "core form" (not including the various schedules that may, according to specific circumstances, have to be attached) is here. The schedules are here. The IRS says it will release instructions regarding the new 990 early this year.

Many happy returns. At least museum officials managed to prevail on one important issue: They will not be required to capitalize their collections.