The IRS has posted the Draft Form 990 and is soliciting comments until September 14, 2007. Independent Sector and American Health Lawyers Association have issued initial analysis pieces, which were reviewed to draft this summary.

OVERVIEW

The new Draft Form 990 includes a 10-page core form and 15 schedules. The comment period ends September 14, 2007, and the final form should be completed by December. The IRS can then take about six months to revise instructions and other written materials, but must meet a tight deadline in order to give computer programmers time to enter the changes. By midyear 2008, the programmers switch their attention to updating the 1040 form, which will take priority. So, the Form 990 project must be finished by mid-2008 or set aside until 2012.

Many of the changes in the draft reflect suggestions from the Panel on the Nonprofit Sector (convened by the Independent Sector), including providing charitable purpose and key program activity information on the first page of the form and separating information relevant only to particular types of organizations into distinct sections or schedules.

The IRS stated three guiding principles in redesigning the Form 990:

1. Enhancing transparency to provide the IRS and the public with a realistic picture of the filing organization;
2. Promoting compliance by accurately reflecting the filing organization's operations so the IRS may effectively assess the risk of noncompliance: and
3. Minimizing the burden on filing organizations.

The Draft Form is a leap forward in achieving the first two goals. As for healthcare organizations, the Draft Form will increase the compliance and reporting burden.

CORE FORM

Part I: Summary Page

The Summary Page is intended to provide a "snapshot" of key metrics about an organization. The snapshot requests the following information:

Line Information Provided
1 Brief description of Organization's Mission
2 Three most significant activities and activity codes
3 Total number of members of governing body
4 Number of "independent" members of governing body
5 Total number of employees
6 Number of individuals with compensation exceeding $100,000
7 Compensation of the highest paid individual
8a Total compensation paid to officers, directors, and key employees
8b Total compensation in Line 8a as percentage of total program service expense
9a Gross unrelated business revenues
9b Net unrelated business income from Form 990T
10 Whether the organization has ceased operations or disposed of more than 25% of net assets

Part II: Compensation of Officers, Directors, Key Employees and Highly Compensated Employees and Schedule J

This section provides a new table for listing and reporting compensation paid to current and former officers, directors, trustees, and key employees. The reportable compensation is what is listed on the W-2 or 1099 and board member and key employee addresses must indicate where that person resides, not the organization's address. This section also asks if the board reviewed and approved the salaries of the CEO, Executive Director, Treasurer, and CFO using comparability data - this follows the procedure outlined under the "intermediate sanctions" portion of the tax code and provides a "rebuttable presumption" that the compensation is reasonable.

Schedule J is a complex form and requires substantial additional information on compensation for officers and directors and key employees if certain dollar amount triggers are hit under Part II.

Part III: Governance

This new section brings together many questions about governance previously scattered throughout the Form 990. The new section asks organizations to report the number of members and independent members of its board, whether the organization has a conflict of interest policy and how many transactions were reviewed under the policy, whether the organization has a whistleblower and document retention policy; how the organization prepares its financial statements; and how the organization make information about its policies and financial reports available to the public. The questions underscore the IRS's belief that good governance and accountability practices provide safeguards that the organization's assets will be used consistently with its exempt purposes.

Part IV: Statement of Revenue

The section provides significantly more detail than the current Form 990 on the types of contributions, program service revenue, and other revenue an organization receives. If an organization received noncash contributions over $5,000 it must complete Schedule M and if an organization receives over $10,000 in gross income from fundraising events it must complete Schedule G.

Part V: Statement of Functional Expense

This section revised the line items of the current form on reporting expenses.

Part VI: Balance Sheet

This section remains largely the same. Organizations that have tax-exempt bond liabilities must complete Schedule K and organizations that made loans to current or formers officers, director, or key employees must complete Schedule L.

Part VII: Statements Regarding General Activities
Part VIII: Statements Regarding Other IRS Filings

These questions largely address tax compliance issues and indicate when an organization must complete additional specific schedules. Questions include whether the organization engaged in lobbying, provided medical care, reporting of unrelated business activities, and utilization of donor-advised funds.

Part IX: Statement of Program Service Accomplishment

Similar to Part III of the current form, it asks organizations to describe any significant changes in their activities, describe the organization's most significant program service accomplishment for the year, and assign activity codes to those described on the summary page.

SCHEDULES

Attached is a chart of the new schedules, which describes whether the schedule is new or replaces an existing one, estimates the percentage of tax-exempt organizations that will have to file each schedule, and includes specific comments pertaining to the schedule. The fifteen schedules, many of which are not relevant to our members, are:

Schedule Topic

A Public Charity Status
B Contributors
C Political and Lobbying Activity
D Supplemental Financial Statement Detail
E Schools
F Foreign Activities
G Fundraising and Gaming
H Hospitals
I Grants
J Compensation
K Tax Exempt Bonds
L Loans
M Noncash Contributions
N Termination or Significant Disposition of Assets
R Related Organizations

Schedule A - Public Charity Status

This schedule focuses solely on questions to determine the public charity status of 501(c)(3) organizations and adds questions about supporting organizations, which covers 5 years instead of 4.

Schedule C - Political and Lobbying Activity

This schedule combines questions on political and lobbying activities formerly asked on Schedule A and asks for considerably more information on political activities. The questions parallel the guidance in the IRS's Political Activity Compliance Initiative (PACI) and the questions are designed to help organizations comply with the law in this area and help the IRS enforce it.

Schedule D - Supplemental Financial Statement Detail

This schedule compiles several sections of the prior attachments and all organizations will be required to complete this schedule.

Schedule H - Hospitals

This schedule must be completed by all organizations that provide hospital or medical care. Skilled nursing facilities are included in the definition of providing "medical care." This schedule is designed to capture information on community benefit, collection and billing practices, and descriptions of how the organization furthers its exempt purpose. The form uses the Catholic Health Association's model for reporting community benefit in the draft, but is asking for comments and alternative models. The schedule, as its title suggests, focuses and is based on hospitals. It has some relevant issues related to nursing facilities, but is not directly on point. We are soliciting ideas on this area specifically for inclusion in our comments to the IRS.

Schedule J - Compensation

This schedule asks for a detailed breakdown of the compensation, deferred compensation, non-taxable benefits, and non-taxable expense reimbursement of key employees and officers and directors. It also asks other questions to determine whether the organization has complied with excess benefit restrictions in the tax code.