The Internal Revenue Service has posted the draft instructions for the new Form 990, the primary tax document that charities file each year with the government.
The instructions, which are available on the tax agency’s Web site, correspond with the redesigned Form 990, which takes effect for the 2008 tax year. The redesign is the first major overhaul of the form in 25 years.
As it did with the release of the draft version of the Form 990, the IRS is inviting public comment on the instructions. And it expects to incorporate a number of comments and suggestions into the final version of the instructions this fall, says Ronald J. Schultz, senior technical advisor for the agency’s tax-exempt division.
“We rolled them out with the expectations that we’ll get significant comments,” he says.
He adds that the most difficult parts of the instructions to craft were sections on governance and compensation, details on filing a group return, and the definitions of terms like “key employee” and “officer.”
Many charity leaders, lawyers, and accountants have been anticipating the release of the instructions, which are the key to understanding how to fill out the updated Form 990.
Jack Siegel, a lawyer in Chicago who advises charities and has followed the redesign closely, praised the instructions. “They’re very good. They’re lengthy, but very good,” he says, adding that he had to reload his printer a few times while printing out the instructions.
Mr. Siegel says he was especially impressed with the section about executive compensation. The new form uses a more elaborate grid and makes clear where to put each type of compensation, which should help avoid the confusion that plagued the old form.
“That’s going to be very helpful and make compliance easier for charities,” he says. He adds, “It’s going to make the information the public gets more accurate, and you can draw comparisons more easily between charities.”
The main part of the redesigned Form 990 consists of an 11-page document — what the IRS calls the “core form” — that all nonprofit organizations would complete. The form is accompanied by 16 supporting schedules, one or more of which charities would be required to fill out, depending on their activities. The IRS says most charities probably would have to fill out only three of the schedules.
By comparison, the current Form 990 has a nine-page main section, two schedules, and 36 possible attachments.
The proposed instructions offers new tools to make the form easier to understand, including a glossary of terms and a sequencing list to help organizations determine the order to fill out parts of the form.
People who want to offer suggested changes have until June 1 to submit them. Comments should be sent to the IRS by e-mail.