Thursday, September 11, 2008

Here's The New Tax Form You'll File For 2008 Reporting

The IRS released the new nonprofit tax form, 990-EZ tax return this week, on September 11.

All American nonprofits (in one of many forms, as defined by the IRS; e.g. a 501(c)(3), a 501(c)(4), etc.) for the fiscal year of 2008 and after, that earned receipts in the amounts of $25,000 or more; will be required to file either an IRS form 990 (or 990N) or IRS form 990EZ. The minimum receipts requirements to file and the forms are new. Be sure to review the IRS code that describes which organizations must file which forms and which organizations are exempt. Maybe in previous years the organization that you work for did not have to file a tax return? Starting with the 2008 fiscal year and on, the organization may now be required to. Review the nonprofit tax forms and publications information in the IRS' "charities" section of its website to get the new information and to be prepared.

Why? "The Pension Protection Act of 2006 requires the IRS to revoke the tax exemption of any nonprofit that fails to file a return for three years in a row for tax years beginning January 1, 2007. Thus, in May 2010, nonprofits that have failed to file Form 990, 990-EZ, 990-PF, or 990-N for three consecutive years will begin losing their tax-exempt status." [2007; Coffman, Suzanne E. ]

If you lay the tax form required for nonprofits for 2007 fiscal year and prior, on a table next to this new form - you will not only notice the new information required of each nonprofit that earned $25,000 in receipts, or more; you will be able to infer why the document has been changed. In Seeking Grant Money Today I wrote "The New Tax Form You'll Have To File..." and in that post I explained that, "The IRS developed this new tax form because the previous one, created in the late 1970's, was outdated. Congress has dealt with more than one or two nonprofits, in recent years, who receive federal grants but seem to also pay their leadership exorbitant amounts and benefits. These kinds of operations were only discovered after Congress investigated the organizations. This situation was indicative of a real issue: the reporting required via federal tax filings was not informative enough for the government (and others) to SEE what a given nonprofit does/doesn't do with its money for its mission statement. The IRS asked for public commentary as they developed the new form. In its final state, the form reflects the government's and responding American nonprofit organizations' suggestions, goals, issues, and concerns."

Page 3 of the IRS' new tax form 990EZ's instructions explains, "Some members of the public rely on Form 990, or Form 990-EZ, as the primary or sole source of information about a particular organization. How the public perceives an organization in such cases may be determined by the information presented on its return. Therefore, the return must be complete, accurate, and fully describe the organization’s programs and accomplishments." It also states, "
An organization’s completed Form 990, or Form 990-EZ, is available for public inspection as
required by section 6104. Schedule B, Schedule of Contributors, is open for public inspection for
section 527 organizations filing Form 990 or Form 990-EZ. For other organizations that file Form 990 or Form 990-EZ, parts of Schedule B may be open to public inspection. See the Instructions for Schedule B for more details."

Grant writers, for example regularly use grant donors' filed tax form 990's to determine which potential grant donors are most likely to give to the organizations that they are working for. To learn more about how a filed tax form 990 can be useful when seeking grant money read, "The Grant Writer's Little Helper: IRS Tax Form 990 Part 1 of 2" and also be sure to read "The Grant Writer's Little Helper:...Part 2 of 2" .

In reviewing the new 990 EZ form, you'll notice that now the "Contributions, gifts, grants, and similar amounts received" line item is the first accounting requested on the form. Further, page 2 of the new 990 EZ is dedicated, now, to not just stating what the tax exempt organization's primary exempt purpose is, but it also requires nonprofits to describe achievements in carrying out the purpose specifically requesting "a description of the services provided, the number of persons who benefited, or other relevant information for each program..."

As I explained in Seeking Grant Money Today's former post, "Transparency...Four Letter Word Or Wave of the Future?" donors today (including the governments who have jurisdiction to oversee any American nonprofit's tax exempt work and its financial reporting) request information to provide potential donors (and the community) with insight into what the nonprofit does with its money and resources; if it is effective, efficient, current, and consistent in the work of its mission statement; how well the organization operates (e.g. does it follow its own bylaws, does it retain an effective board that knows and utilizes modern professional nonprofit best practices); and other important insights. You see, not only fundraisers use the nonprofit's 990 tax return. Potential donors to your nonprofit look up your organization's record, by researching your organization's 990 filings, to decide 'is this organization worth my investment (volunteer time and/or financial) in this nonprofit?'. Sometimes donors find less than what they'd hope for and decide to research another nonprofit's operations who does the same work as the first nonprofit's but hopefully better. Organizational operations and accounting transparency; accountability to a nonprofit's cause, constituency, donors, and work; and honest self reporting are modern day nonprofit operations best practices. Nonprofits who still try to hide their foibles or errors are going to find they will also lose donors, volunteers, potential community collaborators, and perhaps even their legal nonprofit status (see my quote of Coffman's article for, above). There is no nonprofit that does not have its share of challenges. It is how the nonprofit chooses to acknowledge, fix, and report their challenges that demonstrates either a modern, open, but confident nonprofit; or one of old practices that does not know it can ask for help to right its operations, and proudly demonstrate to its constituency that it has met its own challenges and succeeded.

As I explain in "How To Increase The Number of New Donors" the government is doing us nonprofits a favor. They're pulling us: some kicking, screaming, and fighting it, into the modern era of accountability to our current and even future supporters' benefit.

2 comments: said...

Any word on a new 1023?

Arlene M. Spencer said...

The IRS' charities section of its website lists the new nonprofit tax form, 990, its variations, attachments and each document's instructions at:,,id=185561,00.html

I've not heard anything about a new 1023 form. As you know, the 990 needed revamping ala Congress' limit with nonprofits who abused their tax free status. Perhaps the 1023 will be another tool in curbing 'abuse' of this kind. We'll see! Thanks for commenting! Arlene