IRS has issued a draft of the 2013 Form 990, Return of Organization Exempt From Income Tax, and draft instructions for that form. While the form itself is virtually identical to the 2012 Form 990, IRS has made quite a number of changes to, and clarifications of, the instructions to the form.
Background. Organizations that are exempt from income tax under Code Sec. 501(a) generally must file an annual information return reporting gross income, receipts, disbursements, and such other information as IRS requires. The main form used for this purpose is Form 990, “Return of Organization Exempt from Income Tax.”
Clarifications contained in the draft instructions to Form 990. While the 12-part draft Form 990 is virtually identical to the 2012 Form 990, there are several changes and clarifications in the draft instructions to Form 990, including the following:
… Short period returns. In 2012, IRS added an instruction that a short period return cannot be filed electronically unless it is a final return. For 2013, the instruction provides that a short period return cannot be filed electronically unless it is a final return or an initial return.
… Accounting method changes. In prior years, organizations that made accounting method changes had to report them on Form 990 only if they had audited financial statements. For 2013, the “audited financial statements” language has been removed, and the places on Form 990 at which the method change must be reported, have changed.
… Documentation requirements. The new instructions require more detail be included in documentation that must be filed with the return by any organization that made a name change or that terminated, dissolved, merged, or had its exemption revoked by IRS.
… What should, and what should not, be reported as compensation to officers, etc. Form 990, Part VII is entitled, “Compensation of Officers, Directors, Trustees, Key Employees, Highest Compensated Employees, and Independent Contractors.” New instructions clarify that directors’ compensation for non-director independent contractor services to the organization and related organizations must be reported in Part VII, Section A, i.e., the portion of that Part in which information on each individual officer, etc. is provided. New instructions also provide that compensation from a management company to one of the organization’s officers, directors, trustees, key employees, or highest compensated employees is generally not reportable in Part VII, Section A.
… New and clarified definitions. Form 990 uses the term “contributions” frequently. The instructions clarify that “contributions” include neither donations of services nor discounts provided on sales of goods in the ordinary course of business.
Form 990, Part IV, Checklist of Required Schedules, asks a large number of questions and then directs filers to fill out other Form 990 Parts and/or Schedules based on the answers to those questions. Several of those questions ask about grants made by the organization. For this purpose, the new instructions create a new term, i.e., “domestic individual,” and define that term as an individual who lives or resides in the U.S. and is not a foreign individual.
Form 990 uses the term “related organization” frequently; for example, officer, etc. compensation paid by related organizations must be reported on Form 990. The new instructions clarify when a Voluntary Employees’ Beneficiary Association (VEBA) is, and is reported as, a “related organization” by its contributing employers and sponsoring organizations.
References: For a tax-exempt organization’s annual return, Form 990, see FTC 2d/FIN ¶ S-2801 ; United States Tax Reporter ¶ 60,334 ; TaxDesk ¶ 688,001 ; TG ¶ 60703 .
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