In response to an IRS request for comments, the AICPA Form 990 Instructions Task Force and Exempt Organizations Technical Resource Panel have responded with a comprehensive list of recommendations to improve the form.
Full Text:
May 21, 2008
IRS
Draft 2008 Form 990 Instructions
1111 Constitution Ave., NW.
Washington, DC 20224
Attention: SE:T:EO
RE: Instructions for Form 990, Return of Organization Exempt from Income Tax
Dear Sir:
The AICPA is the national, professional association of CPAs,
with approximately 350,000 members, including CPAs in business and
industry, public practice, government, and education; student
affiliates; and international associates. Our members provide audit and
tax services to thousands of not-for-profit organizations.
The attached comments were developed by our Form 990
Instructions Task Force made up practitioners who serve tax-exempt
organizations and are experienced with both the nuances of the
Instructions and the challenges that arise for taxpayers in applying
them. The comments were approved by our Exempt Organizations Technical
Resource Panel.
We look forward to working with you in the future on this
matter. We stand ready to discuss and explain our comments with you at
any time. If you have any questions, please contact either of the
undersigned: Marie Arrigo at (917) 286-8602 or MArrigo@eisnerllp.com,
or Jane Searing at (425) 635-7428 or JSearing@clarknuber.com; or George
White, AICPA Technical Manager, at (202) 434-9268, or gwhite@aicpa.org.
Sincerely,
Marie Arrigo
Co-Chair,
Form 990 Instructions Task Force
Sincerely,
Jane Searing
Chair, Exempt Organizations
Technical Resource Panel
cc:
Steven Miller
Lois Lerner
Ward Thomas
AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
Comments on Form 990 Instructions
Developed by the
Form 990 Instructions Task Force
Marie Arrigo, Co-Chair
John Valenzuela, Co-Chair
Jody Blazek
Alan Blum
Bliss Jones
Deborah Kosnett
Betsy Krisher
Richard Pon
Fred Rothman
Jane Searing
Jeanne Schuster
George White, AICPA Technical Manager
May 21, 2008
General Instructions AICPA _____________________________________________________________________ Section of the instructions General, overall Importance Low Urgency Low Comment It is difficult to tell, when reading through any of the draft instructions, whether any given term is defined in the accompanying Glossary, without turning to the Glossary to look. Recommendation Provide some sort of identifier for terms defined in the Glossary -- perhaps a different type font, or italics, or symbol, that will immediately alert the reader to go to the Glossary for the definition. (It may also be useful, if the final instructions are available on the Web in PDF format, to hyperlink terms defined in the Glossary with their Glossary definitions.) _____________________________________________________________________ Section of the instructions Highlights of general instructions Importance Medium Urgency Medium Comment Highlights say short years ending in 2008 may use 2007 forms. Instructions don't state this Recommendation Include this option in the instructions for short periods _____________________________________________________________________ Section of the instructions Highlights -- 1st bullet point Importance High Urgency High Comment Request for specific examples of accomplishments for particular subsectors of exempt organizations: Nursing homes Recommendation Nursing Home Sector: number of beds, number of allied health professionals and medical personnel, specialized facilities and treatments for the elderly _____________________________________________________________________ Section of the instructions Highlights -- 1st bullet point Importance High Urgency High Comment Request for specific examples of accomplishments for particular subsectors of exempt organizations: Hospitals Recommendation Hospitals: number of licensed beds, specialties, number of Inpatients and outpatients treated. Reference to Sch H, for charity care etc. _____________________________________________________________________ Section of the instructions Highlights -- 1st bullet point Importance High Urgency High Comment Request for specific examples of accomplishments for particular subsectors of exempt organizations: Colleges Recommendation Colleges: number of students full time and part time, number of of faculty, explanation of degrees offered, description of financial aid offered. _____________________________________________________________________ Section of the instructions Highlights -- 1st bullet point Importance High Urgency High Comment Request for specific examples of accomplishments for particular subsectors of exempt organizations: Social Clubs Recommendation Social Clubs: number of members, offerings to members, any community programs or benefits _____________________________________________________________________ Section of the instructions Highlights -- 1st bullet point Importance High Urgency High Comment Request for specific examples of accomplishments for particular subsectors of exempt organizations: Trade Associations Recommendation Trade Associations: number of members, offerings to members, description of trade shows etc. _____________________________________________________________________ Section of the instructions Highlights -- 2nd bullet point Importance Low Urgency Low Comment Request for whether to rely on existing activity codes or develop new ones Recommendation Recommend new codes be adopted -- suggest look to states like Massachusetts for listing of codes _____________________________________________________________________ Section of the instructions General, Page 7 Importance Low Urgency Low Comment The definition of "gross receipts" does not specifically state that gross proceeds from securities and asset sales are includible in the gross receipts total. Organizations usually record in their general ledger only the net gain or loss from securities sales, and must dig into detail statements and documents to determine gross proceeds. Accordingly, without an explicit reminder in the instructions, they may not calculate gross receipts correctly. This is especially important, now that the Form 990 no longer includes the prior form's Line L, Gross receipts, that automatically calculated the gross receipts total. Recommendation Provide specific guidance as to the inclusion of gross proceeds from securities and asset sales. _____________________________________________________________________ Section of the instructions General, Page 8 Importance High Urgency High Comment The instructions state that a controlling organization must file Form 990, rather than Form 990-EZ, if it controls one or more "controlled entities" within the meaning of section 512(b)(13), if it is required to file a 990 at all, and if there was any transfer of funds between the controlling organization and any controlled entity during the year. This requirement presents a burden for those small organizations, such as trade associations, that have an affiliated section 501(c)(3) foundation or other tax-exempt affiliate that meets the definition of a "controlled entity," as they otherwise would be permitted to file Form 990EZ during the Form 990 transition period. Recommendation Permit small controlling organizations with tax-exempt controlled entities to file Form 990-EZ (assuming no UBIT issue), and specify that they must also file Schedule R. _____________________________________________________________________ Section of the instructions General, Page 9 Importance Low Urgency Low Comment The 2007 Form 990 instructions listed 8 types of political organizations that were not required to file Form 990. The draft instructions list only 4 types. Are the other 4 types of organizations now required to file a Form 990? Recommendation Clarify, in the instructions, why the 4 types of political organizations that were left out now have to file Form 990; or if the 4 were omitted in error, restore them to the listing of political organizations that do not have to file. _____________________________________________________________________ Section of the instructions General, Page 10 Importance Low Urgency Low Comment The Sequencing List indicates the order in which each section of the new Form 990 should be completed, in order, to maximize efficiency. While the overall order is logical, it may be beneficial to move completion of Part VII higher up in the list, as it would be useful in the completion of Part IX (currently part of Item 3) to know the compensation numbers for the current officers, directors, trustees, and key employees. Recommendation Move the completion of Part VII higher up the list: make it Item #3, and renumber Items 3 - 10 to 4 - 11. _____________________________________________________________________ Section of the instructions Amended return section, p13 Importance Medium Urgency Medium Comment Sch O instructions ask for information on sections being amended Recommendation In the amended return section, instruct the taxpayer to complete Schedule O to list changes _____________________________________________________________________ Heading Part I and II AICPA _____________________________________________________________________ Section of the instructions Importance Urgency Comment No comment Recommendation _____________________________________________________________________ Part III AICPA _____________________________________________________________________ Section of the instructions Specific Instructions: line 2 Importance High Urgency High Comment New Program services must answer "Yes" if the organization undertook any new "significant" activities. Recommendation Recommend providing a definition and or examples of what is "significant" _____________________________________________________________________ Section of the instructions Specific Instructions: line 3 Importance High Urgency High Comment Changes in programs must answer "Yes" if the organization made any significant changes in its program activities. Recommendation Recommend providing a definition and or examples of what is "significant" _____________________________________________________________________ Part IV AICPA _____________________________________________________________________ Section of the instructions Core Form, Part IV, Line 12, and Schedule D, Parts XI, XII, and XIII Importance Low Urgency Low Comment The instructions for Line 12 provide that an organization is to answer no if it has not received an audited financial statement prepared in accordance with GAAP for the year for which it is completing the return. There are times when a return must be filed prior to the issuance of the signed financial statements, such as when the signed financials will not be issued until after the final extended due date. Although the instructions for Line 12, and Schedule D,Parts XI, XII, and XIII, provide that organizations answering "No" may provide the reconciliations, it is not clear whether in those circumstances the answer should be "Yes" or "No". Recommendation The instructions for Part IV, Line 12 should clarify whether in the circumstances described the answer should be "Yes" or "No". We would recommend that a "Yes" answer would be appropriate. _____________________________________________________________________ Section of the instructions Line 36 Transfers by charitable organizations Importance High Urgency High Comment The instructions say that 501(c)(3) organizations must answer. The instructions should clarify that Schedule R, Part V, line 2 is only applicable and therefore needs to be completed by 501(c)((3) organizations Recommendation Adding that Schedule R, Part V line 2 is applicable for transactions with noncharitable organizations only if the reporting organization is a 501(c)(3) organization. _____________________________________________________________________ Section of the instructions Line 29 Non-cash Contributions Importance High Urgency High Comment The instructions require any organization that received during the year more than $25,000 in the value of donations, gifts, grants, or other contributions of property other than cash, regardless of whether they reported such amounts as non-cash contributions in Part VIII, Line 1g to answer "Yes" to this line. Recommendation More clarification and possibly examples would be helpful. (1) This question should be answered using the same basis as the return is being prepared (cash v. accrual). (2) Another consideration is donation of art, historical artifacts that are not recorded on the balance sheet, or assets received as an agent for another organization. Clarification should be provided as to what assets should be included. As an example, Form 8283 would be required for a donation of art. However, an appraisal of this donation would not be required by the organization. Therefore, the organization would have no basis to record the asset. _____________________________________________________________________ Part V AICPA _____________________________________________________________________ Section of the instructions Importance Urgency Comment No Comment Recommendation _____________________________________________________________________ Part VI AICPA _____________________________________________________________________ Section of the instructions Core Form Part VI, Line 1b Importance Medium Urgency Low Comment A reference is made to the "large board" exception. This exception should be detailed in the instructions for the preparer. Recommendation Include a definition of a large board and what the exception is. _____________________________________________________________________ Section of the instructions Part VI line 1b Importance High Urgency High Comment #3 to be independent, the voting member must not receive "material financial benefits" from the organization or a related organization. Recommendation Need a better definition and perhaps examples to understand what constitutes a material financial benefit. _____________________________________________________________________ Section of the instructions Core Form Part VI, Line 10 Importance High Urgency High Comment The instructions state that you should check "yes" if the 990, as ultimately filed, was given to "each" member of the governing body. . . . prior to the filing of the form. . . . . . . . . This is a very high bar to meet. The organization should have the ability to provide the form to the board members, in draft and provide the final at filing or immediately after filing of the final form. Recommendation The instructions should state "has a process to disseminate the 990 to all members of the governing board prior to filing" _____________________________________________________________________ Section of the instructions Line 2 Relationships Importance High Urgency High Comment Second business relationship includes performance of services for compensation of greater than $5,000. There is no exception for professional services which are privileged in some way e.g. Physician/patient or attorney/client Recommendation Provide an exception to the general disclosure rule that does not require disclosure of privileged relationships such as physician/patient or attorney/client. _____________________________________________________________________ Part VII AICPA _____________________________________________________________________ Section of the instructions Section A, Page 1 Importance High Urgency High Comment The current draft instructions propose to put a reporting floor under compensation of key employees of $150,000 (reportable compensation). However, FORMER key employees must be listed if reportable compensation is $100,000 or more. It does not make sense to report former key employees at a lower threshold level than current key employees. Recommendation The standard for former key employees should be revised upward to $150,000, even though this contradicts Page 7 of the form itself. There is already one such correction: on Page 2 of the draft Part VII instructions, a "Caution" box indicates that the Form 990, Part VII, Page 7 notation "regardless of amount of compensation" should be ignored, and the $150,000 threshold utilized, for current key employee reporting. _____________________________________________________________________ Section of the instructions Section A, Page 2 Importance Medium Urgency Medium Comment The definition of "Officer" indicates that an organization's officers "may" be determined by reference to the organization's organizing document, bylaws, or governing body resolutions. It is not clear whether the use of the word "may" indicates that an organization has the option of listing fewer officers than its organizing documents, etc. may include, as long as applicable state law is complied with. Recommendation Explicitly state, in the instructions, that those organizations that list more than the standard officer positions in their organizing documents (for example: multiple vice presidents) have the option of reporting only those officers required by state law. _____________________________________________________________________ Section of the instructions Section A, Page 2 Importance High Urgency High Comment The instructions significantly expand the definition of a key employee to include anyone that manages a segment or activity of an organization representing 5% or more of the activities, assets, income, expenses, capital expenditures, operating budget or employee compensation of the organization. This definition is troublesome and burdensome, for the following reasons: o There are numerous definitions of "significance," both in the Internal Revenue Code and Regulations and in various Form instructions. Most of these definitions begin at a 15% to 25% level. Five percent is too low to invoke "significance." o The expanded definition is not consistent with Reg. § 53.4958-3(e)(2)(iv) and (v), which deal with "substantial influence." Reg. § 53.4958-3(e)(2)(iv) utilizes the term "substantial," whereas Reg. § 53-4958-3(e)(2)(v) refers to a "discrete" segment or activity. Examples 8-11 in the § 4958 regulations utilize the term "discrete" in conjunction with the term "substantial." Examples 1-4 of the draft 990 instructions are based on Examples 8-11, but assert that 5% is "substantial." However, this term is not defined in the § 4958 Regulations, much less set at a 5% threshold o It appears that the 5% threshold may have been pulled from the top-heavy benefit plan rules of § 416, where a "key employee" is defined as a "more than 5% owner of the employer." Using this particular definition in a not-for-profit setting implies that a 5% owner and a non-owner employee who "manages" 5% of an exempt organization are somehow equivalent, when they are not. An employee (especially an at-will employee) and an owner are simply not going to exert the same degree of control over an organization. o A 5% threshold will be particularly burdensome, as many organizations will likely face tremendous difficulties trying to obtain information on a large number of employees. The expanded requirement will entail voluminous requests to payroll, human resources, and accounts payable, and may very well significantly delay Form 990 filings. Additionally, such individuals would also have to be incorporated into disclosures about family and business relationships and conflicts of interest, further extending the reporting burden on organizations large and small. Recommendation The utilization of 5% with respect to defining discrete segment and control over capital expenditures, operating budget,or compensation of employees is not realistic, will result in an exponential increase of key employees -- especially for larger organizations -- and in many instances will blur the relative authority of those so designated as key employees under the current definition. It is our recommendation that the definition of "significant disposition" -- 25% -- as set forth in the Schedule N instructions, be utilized instead. Inasmuch as the IRS has announced that its plans for formal guidance include regulations to implement Form 990 revisions, it is our recommendation that the term "substantial" be defined as a 25% standard with respect to the term "substantial." _____________________________________________________________________ Part VII AICPA _____________________________________________________________________ Section of the instructions Section A, Page 2 Importance High Urgency High Comment Example 1 under the "key employee" definition includes "contributions from alumni and foundations" in total organization revenue, and implies that a portion of those contributions have been counted as part of the law school's revenue, thereby pushing that department over the 5% limit. It is not at all clear how donations were allocated to the law school: were only direct donations to the law school included? Were general donations allocated amongst the school's various departments? Recommendation Provide guidance as to how contributions are to be included in departmental revenue -- or else stipulate that donations themselves comprise a separate department (especially if the organization has a separate fundraising department or division). _____________________________________________________________________ Section of the instructions Section A, Page 2 and 3 Importance Low Urgency Low Comment The examples provided under the definition of "key employee" include a university and a hospital. In truth, the world of exempt organizations is far broader than schools and hospitals -- and is also broader than charitable organizations. These other types of organizations tend to be organized differently, with smaller staffs and significantly different revenue streams. Recommendation Provide additional examples based on other organizational types: trade associations, action organizations, etc. _____________________________________________________________________ Section of the instructions Section A, Page 5 Importance Medium Urgency Medium Comment The section on Group returns provides two Part VII/Schedule J reporting alternatives, in terms of a parent organization and its subordinates: parent/subordinates separately, and parent/subordinates consolidated. It is not clear, from the instructions, whether the separate reporting requirement envisions a Part VII/Schedule J for EACH subordinate (with the group 990 containing many Parts VII and Schedules J), or whether the subordinates are all included in one Part VII/Schedule J, as is the case with the consolidated reporting alternative. Recommendation Clarify the instructions for separate reporting, preferably requiring only one Part VII/Schedule J including all subordinates. _____________________________________________________________________ Section of the instructions Section A, Page 5 Importance Low Urgency Low Comment The instructions do not indicate whether the reporting of "average hours per week" will allow for fractional hour reporting Recommendation Clarify the instructions, preferably allowing for fractional hours. Directors and trustees of small organizations, for example, may spend an average of less than an hour per week on organization business, and greater reporting accuracy will be achieved if fractional hours are permitted. _____________________________________________________________________ Section of the instructions Section A, Pages 5 and 6 Importance Medium Urgency Medium Comment The instructions for current and former officers, directors, trustees, and key employees are confusing, with regard to which boxes should be checked, and which titles should be included. Recommendation Provide a chart that more clearly shows the checkbox and titling requirements for each type of "current" and "former" position. _____________________________________________________________________ Section of the instructions Section A, Pages 5 and 6 Importance High Urgency High Comment The instructions provide that the former "five highest compensated" employees must be listed if they fell out of the top 5 for the current year, but were listed in the top 5 at any time during the prior 5 years. This is a cumbersome requirement, for this reason: unlike the listings of officers, directors, trustees, and key employees, the listing of the "5 highest compensated" employees can be significantly fluid from year to year. Differences in annual pay raises, increases in the number of employees, and expansion of program offerings can lead to significant changes in which employees are in the top 5 from year to year. Most of the time, employees falling out of the top 5 do so not because their positions or duties changed, but because their compensation did not keep pace with that of other employees, or new employees were brought in at a higher level. Recommendation Require the reporting of former "five highest paid" only if their pay and duties change due to serving in a lesser capacity, if they move to a related organization and serve in a different capacity, or if they were not an employee at all during the year, but were compensated (either by the reporting organization or a related organization) as a consultant or independent contractor. _____________________________________________________________________ Section of the instructions Section A, Page 6 Importance Medium Urgency Medium Comment The explanation for the "volunteer exception" refers to compensation from a "related" for-profit organization. Technically, such an organization is not really "related," as there is no connection between the reporting organization and the for-profit organization, other than what amounts to a coincidental linkage to one individual. Recommendation Rewrite this section to clarify that the "related" label does not apply to this relationship, and revise the Schedule R instructions to state that the "brother/sister" relationship does not include one to which the volunteer exception applies. _____________________________________________________________________ Section of the instructions Section A, Page 7 Importance Medium Urgency Medium Comment The instructions state that "other compensation" must always include the value of certain health benefits, including "health benefits provided by employer self-insurance." It is not clear whether this includes, for example, payment by a self-insured organization of an employee's $100,000 hospital bill (and how the existence of a stop-loss policy might affect the amount reported), or whether the organization need only report the employee's share of the organization's overall assumed risk. Recommendation Provide explicit guidance with regard to "other compensation" reporting and self-insured health plans, preferably with the goal of enhancing comparability amongst all organizations: both those that self-insure and those that transfer risk to third parties. _____________________________________________________________________ Section of the instructions Section A, Pages 7 - 9 Importance High Urgency High Comment Both the Example on Page 7 and the chart on Page 9 indicate that EMPLOYEE contributions to 401k and 403b plans are to be treated as additional compensation. The Example includes employee pre-tax contributions to a qualified defined-contribution plan in total "other compensation," despite the fact that these dollar amounts are already included in "reportable compensation" (Box 5 of Form W-2). Furthermore, the chart classifies an employee contribution to a 401k plan as a Part VII "other compensation" amount, as well as a Schedule J, Part C amount. This reporting requirement has the effect of double-counting employee pre-tax contributions: once as part of "reportable compensation," and again as "other compensation." This may be misleading to readers of Form 990. Furthermore, the same chart indicates that employee pre-tax contributions to a 403b plan should be reported as "reportable compensation," rather than as "other compensation." It does not make sense to report employee contributions to a 403b plan differently than contributions to a 401k plan. Recommendation Because it is already included in Box 5 of Form W-2, neither employee contributions to a 401k plan nor a 403b plan should be separately reported in either Part VII or Schedule J (see Schedule J comments). If detail of pre-tax contributions is desired on a per-employee basis, Schedule O can be utilized for this purpose. _____________________________________________________________________ Part VIII, IX, X and XI AICPA _____________________________________________________________________ Section of the instructions Part X -- Line 3 -- Savings and Temporary Cash Importance Medium Urgency Medium Comment Certain types of accounts listed -- money-market and certificates of deposit are publicly traded securities held in investment accounts. Recommendation Add words "unless held in an investment account with a financial institution." _____________________________________________________________________ Appendix AICPA _____________________________________________________________________ Section of the instructions Appendix B, Gross Receipts description Importance Medium Urgency Low Comment Math as described isn't as clear as it could be Recommendation Recommend rephrasing Form 990 math to: Gross receipts are the sum of Total Revenue (line 12 of Form 990 Part VIII) and the expenses previously deducted (sum of lines 6b,7b,8b, 9b and 10b of Form 990 Part VIII) The Form 990EZ math should then be rephrased to be consistent with the above example. The math definition would then also correlate more closely to the example provided. _____________________________________________________________________ Glossary AICPA _____________________________________________________________________ Section of the instructions Glossary as a whole Importance Medium Urgency Low Comment Overall note: words used in definitions that are also defined in the Glossary are to be italicized. That convention did not seem to be consistently used throughout the Glossary. Recommendation Revisit this section to ensure all terms that should be italicized are italicized _____________________________________________________________________ Section of the instructions Definition of "allowance for doubtful accounts" Importance Medium Urgency Medium Comment Rephrase definition Recommendation Propose the following or something to this effect: " a contra-asset account established to offset accounts receivable for amounts that will not be paid" _____________________________________________________________________ Section of the instructions Definition of an "audit" Importance High Urgency High Comment Rephrase definition to be more technically accurate Recommendation Propose the following or something to this effect:" a formal examination of an organization's financial records and practices by an independent, certified public accountant with the objective of issuing a report on the organization's financial statements as to whether those statements were fairly stated in accordance with generally accepted accounting principles (or recognized other comprehensive basis of accounting)" _____________________________________________________________________ Section of the instructions Definition of an "endowment" Importance Medium Urgency Medium Comment SFAS 117 is used as a reference initially with this definition however it is not defined here. Recommendation Italicize "SFAS 117" as part of this definition so the reader knows they can find the definition later on in the glossary _____________________________________________________________________ Section of the instructions Definition of "financial statements" Importance Medium Urgency Medium Comment Definition does not conform with SFAS 117 language Recommendation Propose the following or something to this effect: " A statement of financial position as of the end of the fiscal year along with a statement of activities and cash flows for the year then ended, as well as a statement of functional expenses for the year then ended (if applicable). " _____________________________________________________________________ Section of the instructions Definition of "fixed formula" Importance Medium Urgency Medium Comment Definition should include a reference to excess benefit transaction context Recommendation Expand definition to begin "Relates to excess benefit transactions (see Appendix G). In that context, a fixed formula. . . . . ." _____________________________________________________________________ Section of the instructions Definition of "fixed payment" Importance Medium Urgency Medium Comment Definition should include a reference to excess benefit transaction context Recommendation Expand definition to begin "Relates to excess benefit transactions (see Appendix G). In that context, a fixed payment is. . . . . ." _____________________________________________________________________ Section of the instructions Definition "key employee" Importance High Urgency High Comment Modify "key employee" definition. Recommendation Modify definition to take into account previous recommendation, as stated in Part VII, Section A, page 2. _____________________________________________________________________ Section of the instructions Definition of "permanent (true) endowment" Importance Medium Urgency Medium Comment Definition should be modified to align more closely with SFAS 117 Recommendation Propose the following or something to this effect: " Permanent endowment relates to those endowment assets held that correspond to permanently restricted net assets. Such endowment funds are maintained. . . . . . ." _____________________________________________________________________ Section of the instructions Definition of "refunding escrow" Importance Medium Urgency Medium Comment See recommendation Recommendation Italicize "refunding issue" within the definition _____________________________________________________________________ Section of the instructions Definition of "review of financial statements" Importance High Urgency High Comment Rephrase definition to be more technically accurate Recommendation Propose the following: "A service provided by an independent accountant the objective of which is to express limited assurance that there is no material modification that should be made to the financial statements in order for the statements to be in conformity with generally accepted accounting principles. A review is substantially less in scope that an audit." _____________________________________________________________________ Schedule A AICPA _____________________________________________________________________ Section of the instructions Importance Urgency Comment No Comment Recommendation _____________________________________________________________________ Schedule B AICPA _____________________________________________________________________ Section of the instructions Contributors listed on Part I* Importance High Urgency High Comment It would be very helpful to specify whether governments should be included. It seems logical that they would not be, as they are not a person within the meaning of IRC section 7701, but it doesn't really matter because contributions are not limited for 509(a)(1) organizations Recommendation Specifically including or excluding governments will get more consistent reporting between organizations. _____________________________________________________________________ Section of the instructions Specific instructions for Part I* Importance High Urgency Medium Comment The definition of "cash contribution" does not include credit cards. Recommendation Include them in the list of inclusions. _____________________________________________________________________ * Restated from our 2/08 comments. Schedule C AICPA _____________________________________________________________________ Section of the instructions General Instructions, Pages 2 and 3 Importance High Urgency High Comment On Page 2, the instructions indicate that the definitions in the "General Definition of Terms" section are applicable throughout Schedule C. However, on the next page, the definition of "lobbying activities" is the one that applies only to section 501(c)(3) organizations. The definition of lobbying activities for section 501(c)(4), (5) and (6) organizations is different, in that it excludes local-level lobbying activities, and includes lobbying communications with a "covered executive branch official." The draft instructions attempt to differentiate between "lobbying activities/lobbying expenditures" (section 501(c)(3) organizations) and "lobbying and political expenditures" (section 501(c)(4), (5) and (6) organizations), but as many non-charitable organizations (and their advisors) think of their lobbying programs as "activities" and do not automatically associate political activities with lobbying activities, the general "lobbying activity" definition on Page 3 is confusing, and may lead to erroneous reporting. Recommendation Change the sentence at the bottom of Page 2 to read: "(Definitions in this section are applicable throughout this Schedule, except where noted)." Then, on Page 3, indicate that the "lobbying activities" definition applies to 501(c)(3) organizations only, and that the definition for section 501(c)(4), (5) and (6) organizations may be found on Page 6. It may also be useful to revise the definition on Page 6 as "Lobbying and Political Activities," and retool the definition accordingly. Alternatively, the general "Lobbying Activities" definition may be moved to the "Part IIA -- Definition of Terms" section, on pages 3 - 6. _____________________________________________________________________ Section of the instructions General Instructions, Page 3 Importance Low Urgency Low Comment The definition for "specific legislation" implies, but does not specifically state, that a "legislative proposal" may be one that may not yet have been introduced into a legislative body as an actual bill or action. Recommendation Change the definition to read as follows: "Specific legislation includes (1) legislation that has already been introduced in a legislative body and (2) specific legislative proposals that an organization either supports or opposes, whether or not actually introduced into any legislative body." _____________________________________________________________________ Section of the instructions Part II-A section, Page 3 Importance Low Urgency Low Comment The definition of "exempt purpose expenditures," as well as the calculation in Part II-A of Schedule C, would be enhanced by the inclusion of a worksheet that would allow an organization to more easily calculate its "other" exempt purpose expenditures (Part II-A, line 1d). In our observation, too many organizations merely take total expenditures and subtract lobbying expenditures, to arrive at "other" exempt purpose expenditures. This often times leads to an overstatement of total exempt purpose expenditures. Recommendation Include a cumulative worksheet, perhaps at the end of the Schedule C instructions or in the specific instructions for Part II, stepping the organization through the various components of "other" exempt purpose expenditures. _____________________________________________________________________ Section of the instructions Page 4 item 5 under exempt purpose expenditures Importance High Urgency Medium Comment The extent that fundraising expenditures are includible as exempt purpose expenditures is unclear based on the phrase "Fundraising expenditures, except that exempt purpose expenditures do not include amounts paid to or incurred . . . if the amounts are primarily for fundraising." Recommendation Reword to clarify the extent to which fundraising expenditures are includible as exempt purpose expenditures. For example, if the amount paid is to an auxiliary of the organization and the amount is for fundraising purposes, then the amount would be excluded from exempt purpose expenditures. _____________________________________________________________________ Section of the instructions Part I-A, Page 8, Lines 1 and 2 Importance High Urgency High Comment The instructions for Line 1 are contradictory for organizations that have separate segregated funds (SSFs). The first paragraph ("Note") instructs a section 501(c) organization with an SSF to "report transfers to the funds in Parts I-A and I-C." However, the next paragraph ("Line 1") indicates that a 501(c) organization collecting "political contributions or member dues earmarked for a separate segregated fund, [which] promptly and directly transfers them to that fund as prescribed in Regulations section 1.527-6(e) . . ." should not report those transfers in Part I-A. Accordingly, it is not clear what a 501(c) with an SSF is to do: does it report transfers in Part I-A only if it fails to correctly transfer funds in accordance with the Regulations? If this is the case, it is highly likely that many organizations will incorrectly report properly-made SSF transfers in Part I-A. Recommendation Revise the instructions to provide that either all SSF transfers be reported in Part I-A (with clarifying details presumably to be provided in Part I-C), or that no SSF transfers be report in Part I-A. If it is desired that a 501(c) organization with an SSF provide a detailed description of its direct and indirect political campaign activities (but not its transfers to the SSF) in Line 1, then the instructions for Line 2 should be modified to clarify that no SSF transfers should be reported. _____________________________________________________________________ Section of the instructions Part I-A, Page 8, Line 3 Importance Medium Urgency Medium Comment The instructions for Line 3 indicate that an organization using volunteer labor hours in the conduct of its political campaign activities should estimate the total number of volunteer hours. The instructions do not specify whether volunteer hours associated with an organization's Separate Segregated Fund (SSF) should also be included -- either in connection with the collection and proper remittance of SSF contributions, or the subsequent political activities actually conducted by the SSF. Recommendation Modify the instructions to specify exactly what volunteer labor hours should be included, and whether it would be desirable for the organization to provide a breakdown of those hours (organization vs. SSF, for example) in Part IV of Schedule C. _____________________________________________________________________ Section of the instructions Part I-C, Page 9 Importance Low Urgency Low Comment The Line 2 instructions specify that an organization transferring its own funds to its SSF for political purposes would report such transfers here. This directive implies, but does not explicitly state, that such amounts would likely include political contributions or member dues collected but improperly transferred to the SSF, through a failure to follow the procedures set forth in Regulations section 1.527-6(e). Recommendation Clarify the Line 2 instructions to explicitly include improperly-made transfers of collected political contributions and member dues. _____________________________________________________________________ Schedule D AICPA _____________________________________________________________________ Section of the instructions Schedule D, Part I -- Other similar funds or accounts Importance High Urgency High Comment The definition of donor advised and other similar funds or accounts is too broad. Most temporarily restricted funds, where the organization reports the use to the donor, will not be considered donor advised funds, unless other donor control elements exist. Recommendation Temporarily restricted funds, where further donor control does not exist and the organization reports the use of the funds to the donor, will not be considered donor advised funds. _____________________________________________________________________ Section of the instructions Schedule D, Part II, Line 4 Importance High Urgency High Comment The first sentence of the instructions for line 4 should be moved to be the first line for line 5. Recommendation Move the sentence to the instructions to Line 5 _____________________________________________________________________ Section of the instructions Schedule D, Part III, Line 1b Importance High Urgency High Comment The instructions for this line should mimic the wording for the line. Recommendation The wording should include the terms "held for public exhibition, education or research in furtherance of public service. . . ." _____________________________________________________________________ Section of the instructions Part III, line 2 Importance High Urgency High Comment The IRS is under the misconception that SFAS 116 allows nonprofits to record collections as either 1) capitalized and held for public exhibition, education or research in furtherance of public services, or 2) held for financial gain. SFAS 116, para. 13 provides that contributed collection items shall be recognized as revenue or gains [when contributed] if collections are capitalized. SFAS 116, para. 26 provides that an entity that does not recognize and capitalize its collections should expense the cost of collection items purchased and recognize as revenues or gains the proceeds of collection items sold. Recommendation Form 990 Line 2 needs to be revised to read: 2. If the organization does not capitalize its collections of art, historical treasures or similar assets, provide the following required to be reported under SFAS 116 relating to these items: a. Revenues from the sale of collection items included in Form 990 Part VIII line 7a(ii) b. Expenses related to the cost of collection items purchased included in Form 990 Part IX. Instruction pg5, last para, last line should be revised by inserting "sales proceeds and purchases of" between "report" and "its" and the second to the last line of the carryover para on pg 6 should be revised to say "pertains to collection items not capitalized, as those terms are." _____________________________________________________________________ Section of the instructions Schedule D, part IV Importance High Urgency High Comment The instructions ask for specific items that should be "carve outs" for items not to be included in this section Recommendation The following items should be specifically carved out of this section, Patient trust funds, consumer funds, patient and other security deposits related to a exempt program, etc. _____________________________________________________________________ Section of the instructions Part IV, line 1a Importance Medium Urgency Low Comment Clarify "carveout" as it relates to charitable remainder trusts. Recommendation Charitable Remainder Trusts are subject to separate tax reporting, therefore the Part IV "carveout" does not appear to be necessary. _____________________________________________________________________ Section of the instructions Schedule D, part XIV, Supplemental Information Importance High Urgency High Comment Reference in the instructions to Part XIII, lines 2d and 4. The reference is missing a letter, it should be to 4b. Recommendation Add the reference to "4b" rather than just 4. _____________________________________________________________________ Schedule E AICPA _____________________________________________________________________ Section of the instructions Importance Urgency Comment No Comment Recommendation _____________________________________________________________________ Schedule F AICPA _____________________________________________________________________ Section of the instructions Highlights Importance High Urgency High Comment Items 1-5 contain definitions that duplicate the same information in the Instructions. Recommendation Consolidate definitions. Move definitions for Grantmaking, program services, fundraising from instruction to Highlights or vice versa. _____________________________________________________________________ Section of the instructions Highlights Comment Important reporting methods should be revealed in the highlights. Recommendation Several policy matters could be summarized in the highlights: Importance Medium Urgency Medium Recommendation For 2008, Part II, column (a) does not require grantee's name nor in column (b) an EIN #. Importance High Urgency High Recommendation Part I only reports expenditures paid from accounts outside the U.S. _____________________________________________________________________ Section of the instructions Specific Instructions for Part I General Information Importance Medium Urgency Medium Comment Column (d) has insufficient room to make required descriptions. Recommendation Create specified list of activities for input -- (a) Grants to organizations and individual (b) Program services, (c) Fundraising. Also in the future, the space for descriptions should be expanded unless the code idea for columns (d) in Part I and column (h) in Part II are implemented. Importance Medium Urgency Medium Comment Column (e) has insufficient room to make required descriptions. Recommendation Create specified list of activities for input -- (a) Orphanage, (b) School, (c) Hospital, (d) Church, temple mosque or synagogue, (e) Disaster relief efforts, (f) relief for indigents, (g) housing restoration or building (h) health care, (i) agricultural, (j), education or cultural programs, (l) water programs, (m) Other _____________________________________________________________________ Section of the instructions General Instructions, Page 2 Importance Low Urgency Low Comment The definition of "foreign organizations" does not mention those organizations formed outside of the United States, but that have received a section 501(c)(3) determination letter, nor do the instructions indicate whether such organizations should be flagged or classified differently in this Schedule, in light of the fact that they actually have a U.S. determination letter. Recommendation Provide a definition for such organizations, and further distinguish such organizations from (a) organizations recognized as charities by a foreign country, and (b) an organization that has provided a "good faith determination" that it is the equivalent of a U.S. 501(c)(3) organization. _____________________________________________________________________ Section of the instructions Part I, Line 3, Columns (d) and (e) Importance Medium Urgency Medium Comment It appears that there are only four activities that may be listed in this section: (a) grantmaking, (b) fundraising, (c) program services, and (d) unrelated trade or business activities. It is unclear, from the instructions and the heading of Column (d), whether unrelated trade or business activities are considered a type of program service, or a separate category entirely. It is also unclear whether a passive investment, as referenced in Page 2 of the instructions, would be considered a separate activity to be listed. Recommendation Explicitly note the types of activities that should be listed in Column (d), including unrelated trade or business activities and/or investments, if includible. Also specify whether the type of unrelated trade or business activity needs to be detailed in Column (e). _____________________________________________________________________ Schedule F AICPA _____________________________________________________________________ Section of the instructions Part II, Line 1, Page 4 Importance Low Urgency Low Comment The "TIP" at the bottom of Page 4 does not indicate that the organization should check the box at the top of Part II (meaning that no one recipient received more $5,000). Recommendation Rewrite the "TIP" to include the check-the-box instruction. _____________________________________________________________________ Section of the instructions Part II, Line 2, Page 5 Importance Medium Urgency Medium Comment Part II, Line 2 on Schedule C itself mentions only two classifications of foreign organizations: (a) those recognized as charities by a foreign country, and (b) those that have received a "section 501(c)(3) equivalency letter." The Line 2 instructions add a third classification: a foreign organization that has been recognized by IRS as a 501(c)(3) organization and that has been awarded a determination letter. This is confusing, especially in light of the fact that the general instructions do not make mention of such an organization (as noted in comment above). Recommendation While there is no real remedy for 2008, the 2009 form should be revised to include this classification of foreign organization, in Line 2. _____________________________________________________________________ Section of the instructions Part II, Line 2, Page 5 Importance Medium Urgency Medium Comment Is it intended that the "section 501(c)(3) equivalency letter" referenced on Page 5 be produced in accordance with sections 53.4942(a)3(a)(6) and 53.4945-5(a)(5) of the regulations, following the procedures set forth in Rev. Proc. 9294? If so, it might be useful to reference these regulations, as well as the Revenue Procedure, in this section of the instructions. Recommendation Provide the Regulations and Rev. Proc. references. It would also be useful to distinguish amongst the various types of foreign organizations and their classifications as charitable organizations, in the General Instructions (as previously noted, above). _____________________________________________________________________ Section of the instructions Schedule F,Lines 1 and 2 Importance Medium Urgency Medium Comment The instructions require a description in Part IV of how an organization monitors grants to ensure their proper usage, and provides examples of such monitoring, including "friends of" organization that supports specifies foreign organizations. The instructions, however, do not provide any degree of specificity with respect to such procedures, and do not make clear whether "friends of" organizations are required to describe their grantmaking procedures. Recommendation The instructions should provide references to IRS source material, as well as other relevant sources that are applicable, including the USA Patriot Act and Executive Order13224. In addition, the Council on Foundations on its web site devoted to cross border philanthropy(usig.org) has significant resources to assist organizations in need of guidance. With respect to "friends of" organizations, there should be references to Revenue Rulings that establish the process to be followed by such organizations with respect to grant making. _____________________________________________________________________ Section of the instructions Instructions for Part IV, Questions 14-16 Importance High Urgency High Comment Instructions for the Part IV questions and Part IX, line 3, should be coordinated. Recommendation Expand instructions for line 14b to include instruction for Part I of Schedule F that does not include money disbursed in the U.S. _____________________________________________________________________ Section of the instructions Instructions for Part IX, line 3 Importance High Urgency High Comment Instructions to Statement of Functional Expense should be coordinated with Schedule F. Recommendation If Schedule F, Part I, does not report expenses paid in the U.S., shouldn't the Page 15 instructions to line 3 provide the same instruction? _____________________________________________________________________ Section of the instructions Instructions for Part IV, lines 1416, Part IX, line 3, and Schedule F Importance High Urgency High Comment Term "assistance to organizations" should be defined. Recommendation Remove the term. All grants provide assistance so word "assistance" is duplicative. Money spent on programs not directed at particular organization is captured in Question 14b. _____________________________________________________________________ Section of the instructions Form 990 EZ Importance High Urgency High Comment Why isn't the IRS requiring Schedule F for organizations that file Form 990EZ? There are many organizations that will qualify for the 990EZ in 2008 that have significant foreign activities Recommendation Not exclude Schedule F for Form 990EZ. _____________________________________________________________________ Section of the instructions General Importance High Urgency High Comment Revise foreign activity thresholds. Recommendation In future years, thresholds for foreign activity could be combined and raised to a single amount of $15,000 similar to domestic thresholds. _____________________________________________________________________ Schedule G AICPA _____________________________________________________________________ Section of the instructions Part I Importance Low Urgency Low Comment The scope of events generating gross receipts of $15,000 or more will be too low in the future. Recommendation Consider indexing scope in the future. _____________________________________________________________________ Schedule H AICPA _____________________________________________________________________ Section of the instructions Highlights #1 3rd Bullet Importance High Urgency High Comment States that the definition of facility is a campus, building, structure, or other physical location or address at which the organization provides medical care. This would include even blood drawing stations offsite. Recommendation Listing each outreach site for blood drawing is a burden and not really providing valuable information -- therefore, recommend changing the definition such that if the medical care is only blood drawing or something similar to this it should not be reportable. ___________ 
