Resources for the New 990 Requirements - Stay Exempt

About the changes to the Form 990

990 is the number of the Annual tax forms the IRS requires most nonprofit organizations to submit.  This series of forms has been significantly altered and most nonprofit organizations will be required to use a new form as of the 2008 tax year.  New policies must be in place for the year in which you are reporting.  The 990s go well beyond the original focus on organizational finances, and either demand or encourage many operational changes.

Which form is right for your nonprofit?

There are three basic forms available to nonprofits based on their financial activity.  For filing in 2008 or 2009, the following classifications will be in place:

• 990-N e-Postcard , New Requirement for small nonprofits, whose annual gross receipts are normally $25,000 or less.

• 990 EZ or 990  – Organizations with annual gross receipts between $25,000 and $100,000, whose total assets are less than $250,000

• 990 - Gross receipts ≥ $100,000, orTotal assets ≥ $250,000
  
  

When do I have to start using the new form?

To allow organizations time to adjust to the new forms, the IRS is phasing in the new returns during a three-year transition period. During the transition, an organization’s annual filing requirement depends on its financial activity. View this chart for full transition schedule. 

• The first 990-N,  e-Postcards were due in 2008 for tax years ending on or after December 31, 2007

• The new 990 forms are effective for your organization’s fiscal year starting in 2008 for returns filed beginning in 2009. There are, however, special transition rules for smaller organizations.  Again, see this chart for transition schedule.

Note: While your organization may have three years to transition to the new Form 990, it may be more beneficial for your organization to start using the new Form 990 sooner. Early use of the new form will ensure that your organization is thoroughly prepared for the new requirements of the changed 990, and demonstrate transparency and accountability to the public. 

What new Policies and Procedures should my organization adopt?

Conflict of interest policy - recommended

• Sample

Whistle-blower policy - required

Procedures for addressing complaints from employees regarding financial improprieties or misuse of organization resources

• Sample MANP Whistleblower

Document retention and destruction policy - required

Guidelines for maintaining and documenting storage and destruction of electronic and hard-copy files & outlines backup procedures and archiving of documents

• Sample MANP Document Retention Policy.doc

Expense reimbursement policy - recommended

Requires receipts for any expenses to be reimbursed, documents business purpose of any reimbursable expenses and business usage of any corporate assets  

• Sample from Minnesota

Non-standard gift acceptance policy - recommended

This policy should provide policies over the acceptance of any "non-standard" contribution. A non-standard contribution is one that is not expected to further the organization's tax-exempt purpose, for which there is no ready market to convert the asset to cash and the value of the asset is difficult to ascertain.  These are usually very specific to the organization, but this sample can serve as a starting point. 

• Sample from Nonprofit Insurance Alliance Group   

Executive Compensation Review Process - required

The new 990 requires disclosure of the process that a tax-exempt organization uses to determine appropriate compensation for key employees.

• Article on Executive Compensation & the IRS by Guidestar

• A Sample Executive Compensation Policy from Montana

The process for obtaining data and filing out this section of the 990 is somewhat similar to those laid out in a procedure called a “rebuttable presumption of reasonableness” , which is used to insure compliance with the regulations that determine intermediate sanction taxes.  This method is offered as one by which an organization may ensure it satisfies inquiries by the IRS into the reasonableness of the compensation of its highly-paid influential persons.

Charity care policy (hospitals)

• Provide free or discounted care to medically indigent
• Not include a per-patient limit on care funded out of reserve for indigent patients

Written debt collection policy (hospitals)

• Provisions on the collection practices to be followed for patients who are known to qualify for charity care or financial assistance

Policy regarding chapters and affiliates (if applicable)

• Ensure activities and operations of affiliates are consistent with those of the parent organization

Joint Venture Policy (if applicable)

These guidelines would set forth the procedures that an organization should utilize in evaluating a potential joint venture with a taxable entity in order to prevent any adverse impact on the organization’s tax-exempt status.

• Sample