Form 990, which tax-exempt organizations are required to file annually, was dramatically redesigned in 2008 to account for the changing needs of its users. However, the less-often filed Form 990-PF, which tax-exempt private foundations and nonexempt charitable trusts are also required to submit, remains unchanged; it’s the same form the IRS rolled out in 1974, the year President Nixon resigned from office.
The incompatibility between the forms has been causing issues for tax practitioners who prepare them and confusion for organizations that use them. Noting that Form 990-PF is “difficult to follow, even for sophisticated readers,” the NYSSCPA recently recommended several changes that, if implemented, would provide a solution. The Society detailed the changes in a July 17 letter to the IRS, drafted by members of its Exempt Organizations Committee.
“We hope the NYSSCPA’s suggestions are received as simple, but tangible, ways to improve how the IRS collects the proper amount of tax revenue from private foundations, while also reducing the compliance burden on the organizations,” said Joanne S. Barry, the Society’s executive director.
The recommendations reflect a desire in the world of nonprofits to better align processes and simplify systems. With the governance changes and increased oversight brought about by New York state’s new Nonprofit Revitalization Act—a reform bill that completely overhauled the laws that regulate the state’s nonprofits—as well as heightened scrutiny nationwide, the tax preparer community that specializes in exempt organizations has been working to minimize complexities wherever possible, said S. Ethan Kahn, one of the letter’s authors.
Indeed, according to Kahn, “the exempt organization industry is under the microscope,” which led the committee to look for ways to make the filing process “more efficient and streamlined” so as to “avoid pitfalls down the road.”
The NYSSCPA offered three revisions that it believed “could be quickly and easily implemented and readily accepted by the IRS, tax professionals, and the nonprofit community.”
The first concerns what Exempt Organizations Committee Chair Kevin C. Sunkel referred to as a “useless requirement.” The Form 990-PF requires schedules to be attached by category of investments. According to Sunkel, this is a very onerous process, because a foundation generally has an endowment with multiple investment advisers and accounts, the disclosure of which also carries an increased fraud risk.
“If someone wanted to commit a fraud … they know the name of your CEO and CFO, where your investments are, all kinds of information about the organization,” Sunkel said, adding that investments are constantly changing, so the information will likely be out-of-date by the time it’s filed.
In contrast, the Form 990 simply asks that investments be entered on a single line on the balance sheet, with no supporting schedule required. The Society felt that the Form 990-PF should have a similar reporting requirement, rather than having to deal with multiple schedules.
The Society also recommended that the IRS change the threshold for reporting compensation for highly paid employees on the Form 990-PF to match the reporting threshold on the Form 990, which is $100,000.
“The private foundation one is still $50,000,” Sunkel said. “In an area like New York, that’s hardly the high-level managers.”
The last easy fix, according to the Society: Conform the 990-PF reporting requirement with Form 990, with regard to foundation bylaws changes. The 990-PF requires that a conformed—that is, a true and exact—copy of the bylaws be attached to the form, while the 990 only requires a description of the changes.
The Society hopes the recommendations lead to a more comprehensive discussion on changes to the Form 990-PF that could further reduce complexity; its initial outreach to the IRS identifies “low hanging fruit” that “seemingly would not face much adversity,” Kahn said. The committee is in the process of drafting a second, longer and more technical letter to the IRS with suggestions that will require a more extensive conversation. Still, even the small changes the Society has recommended will likely make a big difference for people who both file and read a Form 990-PF, Kahn said.
Updating it to make it more similar to the current Form 990 will allow practitioners to better “cruise from form to form,” which could produce “a scenario where they could have one employee doing 990s and 990-PFs vs. two because it’s so area-specific.”
Sunkel said the IRS has acknowledged that it received the letter but, as of press time, has not responded.
cgaetano@nysscpa.org