April 08, 2008
IRS Releases Instructions for Charity Tax Form
By Sam Kean and Peter Panepento
Washington
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.
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Here of some of my suggestions for the 990:
1. First class travel is sometime acquired by using the points from credit card charges paid for by the non profit; credit card points should be accounted for because they are,in effect, becoming benefits to the administrator at non profit expense. 3. Some administrators use non profit funds to send seasonal gifts to donors and omit the name of the non profit. If the non profit name is omitted ,then the amount of the gifts should be income to the administrator
4. Documentation that specifically outlines the direct benefit to the non profit for Foreign travel. The cost of the accommodations should be kept to no more than the cost of the Federal allowable accommodation allowance for the most expensive American city and the remainder becoming income to the administrator using the benefit
5. Many medical non profits compensate their top people from several sources and only reporting the salary in the budget. The “one time merit based incentive” payments, all business meals, and memberships/donations from non profit funds to foreign organizations be counted as compensation,unless the organization has an active and provable fund raising and operating entity in a foreign country.
6. All meals in excess of $75 ,including rentals of facility,china,wine,flowers,and any costs associated with the meal. The meal should be a direct benefit to the non profit and not a celebration of birthdays,weddings,or memorials or like celebrations.
7. All personal gifts over $75 given personally to any employee of the non profit should be accounted for as taxable income to the employee by a 1099.
8. Medical non profits offering VIP or value added services to a certain population of the clinical practice must be counted as taxable income and valued and the persons receiving such benefit should receive a 1099. The cost of the service must include office space,utilities,depreciation of office furniture and equipment ,even uniforms and and telephone costs should be included in the cost analysis of a VIP operation.
9. All medical bills or costs to the non profit relative to special treatment to a class of patients or their friends who also receive special treatment must be assessed a fee relative to the cost of providing that VIP or special service. The methodology of determining the costs of must be based on the overhead costs charged to the Federal grants. These costs must be counted as income and passed on via a 1099.
10. All payments to arts organizations by non profits that art is not their mission, must add the cost of memberships,donations,dues,or similar expenses shall be included in the administrator’s income and taxed.
11. The non profit should fully disclose what percentage of its total income goes to its mission. If the percentage is less than the norm of the non profit groups in total, then the IRS must audit the non profit within 180 days of the discovery.
12. All losses of a medical non profit to unpaid charity care must use the same formula to determine the correct amount of charity care. Not charging a group of VIP’s or donors or special groups of people not charged for medical care, their deductible,extraordinary care such as house calls or off hour calls for a select group of patients should be revealed and and the users of the service taxed by a 1099.
13. Art provided a non profit ,that does not have art as a mission of their non profit can not provide a tax deduction for the donor,nor can the non profit reclassify art as “office furniture” or any other misnomer,nor can funds be donated and used for art. Any funds included in new buiding contstuction can not be paid for by tax exempt bonds.
— Brent Apr 11, 08:26 AM #