Praise, Concerns For Draft Of New 990

October 1, 2007       Mark Hrywna      

If everyone who has filed public comments on the revised draft federal Form 990 literally gave two cents to the Internal Revenue Service (IRS), the tax agency might have a few extra dollars.

The IRS in August released some 300 pages of public comments received about the draft version that was unveiled in June. The agency accepted public comments until September 14.

Many of those providing comments commended the IRS for the effort to overhaul the nonprofit tax form for the first time in almost 30 years before offering critiques. Some of the correspondence was only one or two lines long while others were several pages in length.

Tough on the little guy More than a few small nonprofit organizations urged the IRS to lessen the burden on them by increasing the gross receipts threshold that requires filing Form 990.

The Venice Area Garden Club in Venice, Fla., never reached $25,000 in relative terms 30 years ago but "in 2007 dollars, it is much more likely every year that we will," said Treasurer Lynn Macedonio. "For small organizations like ours, filling out complex forms (10 pages with Schedule A) is a burden. It means more detailed record keeping and as a small group our pool of people to perform this function is limited. It also becomes a financial burden as we may have to pay to have the forms completed."

Arthur W. Judd, president of the South Austin Hospital Auxiliary in Austin, Texas, said completing the Form 990 is a burden, and asked that that the threshold be raised to $250,000 for filing Form 990 rather than Form 990 EZ. With no paid staff or contractors, and gross receipts of just more than $100,000, the auxiliary is operated completely by volunteers, he said.

There is a "huge difference in organizations" that bring in a half-million dollars or more and those that generate less, said Cynthia Dwyer, executive director of Sonshine Soup Kitchen in Derry, N.H. "Smaller organizations can’t afford in-house accountants and need language understandable to the ordinary population."

"Such a dramatic change all at once in the Form 990 and its schedules will be very confusing for stakeholders who are used to the current form, and very expensive for organizations that need to comply," said Anthony DeStefano, a certified public accountant (CPA) in Somerdale, N.J. "I’m sure that the administrative burden here falls disproportionately on smaller organizations."

Bob Ottenhoff, president of GuideStar in Williamsburg, Va., which makes Form 990s and other nonprofit data from the IRS available online, said raising the level required to file would be a good idea, as long as the IRS is collecting some basic information on every nonprofit."

Ottenhoff said that he fears the cost of completing the form will skyrocket. He said GuideStar’s auditors expect a 50- to 100-percent increase in the time it takes to complete the new form. "Not every organization is like GuideStar; some will be more, some less, but when you add up the costs of time and money, it’s a huge burden."

Revisions to Form 990 should aim to simplify it, Ottenhoff said, thereby increasing the quality of the data it contains and making it more useful, complete and timely. "I’m concerned that the way the redesign has been presented, it will be more complicated, and as a result, will be more inaccurate, and therefore, less useful."

tax form vs. Goverance Form "We have hundreds of thousands of people coming to our site every year asking ask us questions" about Form 990, Ottenhoff said. "Many of them find the form right now to be confusingÉthe information to be inaccurate. I think there’s a danger that too often these decisions are driven by a small group of people in Washington, D.C., who don’t understand the pressures and the needs of nonprofits across the country, and the needs of some of those users."

Ottenhoff said the issue comes back to defining the primary purpose of Form 990. If it’s tax compliance, he said, then the IRS must make sure the information is timely and accurate. "If you can do that, you can have a huge, positive impact on the sector."

James DeSota, neighborhood coordinator for the Southeast Como Improvement Association in Minneapolis, questioned listing an organization’s most significant accomplishment of the past fiscal year on a tax form. "I know it’s for the sake of comparing organizations, and keeping things transparent, but it still seems like the kind of data collection you wouldn’t want IRS dealing with. They should deal with numbers, which they do very wellÉleave the higher order deductive reasoning skills to others and don’t try to make the IRS into something it’s not."

A "major weakness" in the form, said Gregg Schulte, chief financial officer for Jefferson Community & Technical College in Louisville, Ky., is that it does not require audit report footnotes. Likewise, T. Michael Adkins, a CPA in Pensacola, Fla., suggested the form should reconcile any "publicly available financial statements" which might include compilations and reviews.

Ratios, smatios While Independent Sector (IS) applauded the new summary page of the core form, the Washington, D.C.-based advocacy group did take issue with requiring organizations to do calculations for things like fundraising expenses as a percentage of contributions and compensation of officers and others as a percentage of program service expense.

"Ratios are a very dangerous thing," said GuideStar’s Ottenhoff. "They rarely give an accurate portrayal of an organization. We’ve worked pretty hard to help people understand that without some context, using a ratio is a meaningless way to look at an organization. Some organizations do things differently from others. ‘How are they really doing against their mission,’ which we think is a much better way to judge an organization. What did it say it will do, and is it doing it? ‘What are its program accomplishments’ captures the significance of an organization much better than ratios," he said.

"It’s a good goal to help the public understand their organization better but putting ratios and compensation on the summary page is not the way to do it," Ottenhoff said.

Likewise, the Better Business Bureau Wise Giving Alliance said the inclusion of ratios on the summary page, absent any proper context, is not useful in the case of compensation or fundraising expenses. The Arlington, Va.-based alliance added that "the reporting of fundraising expenses and the income attributed to those efforts varies so widely from one organization to the another that there is no practical way for the IRS to produce a valid ratio on the Form 990."

OMB Watch, a Washington, D.C.-based watchdog organization, suggested the IRS should separate reporting of political campaign activities from legislative lobbying activities, as well as drop the requirement that nonprofits involved in electioneering report total hours worked. Forcing volunteers to keep time sheets, they argue, would discourage civic participation.

Another advocacy group. Alliance For Justice in Washington, D.C., said new reporting requirements for lobbying and political activities will "lead to substantial confusion within the nonprofit advocacy community and the general public and will add to the burden placed on reporting organizations. For these reasons, we strongly urge the (Internal Revenue) Service to reconsider many of the proposed changes concerning lobbying and political activities, and at a minimum, to delay implementation of these elements until these issues can be satisfactorily resolved."

IS, a coalition of more than 500 nonprofits that drafted 19 pages of its own comments, believes it’s unrealistic for nonprofits to be ready to use the new form in Fiscal Year 2008. The organization asked the IRS to delay implementation of the core form until FY 2009 and longer for additional schedules.

Several of the watchdog-type organizations and coalitions urged patience in forging ahead on the Form 990 revisions. IS encouraged "delaying implementation of the core form until reports are due for FY 2009 activities," and another year or more for the new schedules. OMB Watch advised the IRS to "take the time to get it right" since the new form likely will be in place for many years.

Both IS, whose president Diana Aviv sits on GuideStar’s board, and Ottenhoff urged patience in forging ahead on the Form 990 revisions. IS encouraged "delaying implementation of the core form until reports are due for FY 2009 activities," and another year or more for the new schedules.

"This is so important, has such an impact on the sector, and it hasn’t been done in many years, GuideStar’s Ottenhoff said. "Let’s take the time to do this right, find a form that is a reasonable request to ask of nonprofit organizations."  NPT