AICPA Comments on 2008 Form 990 Draft Instructions

AICPA Comments on 2008 Form 990 Draft Instructions

News story posted in Comments on 29 May 2008| comments
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Summary

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.
 _____________________________________________________________________
Section of the instructions

      Schedule H, and Core Form, Line 20

Importance

      High

Urgency

      High

Comment

      The definition of a hospital refers to a facility that is, or is
 required to be, licensed or certified in its state as a hospital,
 regardless of whether operated directly or by indirectly through a
 disregarded entity or joint venture taxed as a partnership. Although
 nursing homes are not certified or licensed as hospitals, there are
 those that were classified as hospitals by the IRS at a time when
 such organizations were classified as chronic care or acute care
 facilities. The Centers for Medicare and Medicaid Services ("CMS") do
 not consider nursing homes as hospitals. Given longstanding IRS
 classification as hospitals, and CMS nonrecognition of such
 facilities as hospitals, there is uncertainty on the part of such
 facilities as to whether they are required to complete Schedule H.

Recommendation

      To provide clarity, the instructions should provide that
 facilities classified by the IRS as hospitals, but neither certified
 or licensed as hospitals by their state, nor required to be so
 certified or licensed, are not required to complete schedule H.
 _____________________________________________________________________
Section of the instructions

      Schedule H

Importance

      High

Urgency

      High

Comment

      The instructions for Part V, the Highlights, line 1, third
 bullet point gives the definition of a "facility" as a location where
 the organization provides care. The same definition should be
 included in the instructions for Part V and is currently not
 included.

Recommendation

      Reiterate the definition of a facility as a location where the
 organization provides care in the Instructions.
 _____________________________________________________________________

Schedule I                                   AICPA
 _____________________________________________________________________
Section of the instructions

      General Instructions

Importance

      High

Urgency

      High

Comment

      There is no indication of whether the information should be on a
 cash or accrual method of accounting.

Recommendation

      Add to instructions that the amounts are reported on the method
 of accounting the organization normally uses. The amounts should be
 reported in the amount that is included in expenses on the statement
 of activities and not on the discounted basis reported on the balance
 sheet.
 _____________________________________________________________________

Schedule J                                   AICPA
 _____________________________________________________________________
Section of the instructions

      Line 1a, Page 4

Importance

      Low

Urgency

      Low

Comment

      The instructions for Line 1a, Certain Benefits, indicates that
 Part III should be used to provide relevant information with regard
 to any of the boxes checked, and that such information "may" include:
 type of benefit, who received the benefit, and whether it was treated
 as taxable compensation. Use of the word "may" appears to indicate
 that provision of this information is optional.

Recommendation

      Change the wording of the sentence to say: ". . . Provide in
 Part III of this Schedule relevant information regarding these items,
 including, at a minimum, the following:"
 _____________________________________________________________________
Section of the instructions

      Line 1a, Page 4

Importance

      Low

Urgency

      Low

Comment

      The definition for "first class travel" includes "any travel on
 an airplane or boat that is owned by the organization." This would
 imply that travel on an organization-owned boat or plane is similar
 to first-class travel in that it is more expensive than regular
 travel -- which may or may not be the case. Furthermore, travel on an
 organization-owned vehicle has more in common with "charter travel"
 than it does with first-class travel.

Recommendation

      Switch company-owned vehicle travel from "first class travel" to
 "charter travel." This will have no real impact on Schedule J itself,
 as the checkbox combines both first-class and charter travel, but it
 might help the organization better classify and explain such travel
 arrangements in Part III, as well as put such travel into the proper
 frame of reference for readers of Form 990.
 _____________________________________________________________________
Section of the instructions

      Line 1a, Page 4

Importance

      Low

Urgency

      Low

Comment

      The definition for "personal services" includes services
 provided by a physician or other medical specialist. It is not an
 uncommon practice for corporations to subject their executives to a
 routine annual physical examination, for the benefit of the
 organization itself, as well as the executive (in the belief that a
 healthy employee is a better employee).

Recommendation

      Change the "personal services" definition to exclude the annual
 "executive" physical examination, to the extent that such exam is a
 routine, baseline exam (as opposed to an ultra-comprehensive,
 high-tech exam utilizing cutting-edge technology and testing).
 _____________________________________________________________________
Section of the instructions

      Line 2, Page 4

Importance

      Medium

Urgency

      Medium

Comment

      The Line 2 instructions indicate that a "yes" answer requires
 substantiation of all expenses or benefits listed in Line 1a. By
 definition (Page 4 of the Schedule J draft instructions), a
 discretionary spending account does not require substantiation under
 the accountable plan rules. Accordingly, an organization that
 provides a discretionary spending account to one or more executives,
 but otherwise requires substantiation of all other expenditures,
 might have to check "no" to this question.

Recommendation

      Clarify the instructions for Line 2 to permit organizations
 providing discretionary spending accounts to check "yes" if they
 otherwise require substantiation of all other expenditures subject to
 the accountable plan rules.
 _____________________________________________________________________
Section of the instructions

      Line 3, Page 4

Importance

      Low

Urgency

      Low

Comment

      The Line 3 instructions refer to compensation of the
 CEO/Executive Director, but do not further define the position.

Recommendation

      Clarify that a "CEO/Executive Director" is an organization's top
 management official, who reports directly to the Board of Directors;
 and that such individual may have a different title, including
 "Executive Vice President," "President," etc.
 _____________________________________________________________________
Section of the instructions

      Lines 5 and 6, Page 7

Importance

      Medium

Urgency

      Medium

Comment

      The instructions for Line 5 define "net revenues" as "gross
 revenues less certain expenses." Likewise, the term "net earnings" is
 used, but not further defined. These are vague definitions, and may
 be confusing, especially to those persons lacking an accounting or
 bookkeeping background.

Recommendation

      Provide a more concise definition of "net revenues,"
 specifically naming those costs that could be included as revenue
 offsets. For example: discounts, cost of goods sold, direct costs,
 etc. Also provide a more comprehensive definition of "net earnings,"
 both overall and in terms of one or more activities of an
 organization.
 _____________________________________________________________________
Section of the instructions

      Part II, Page 8

Importance

      High

Urgency

      High

Comment

      The instructions for Part II require that a former "key
 employee" must be listed if his or her reportable compensation is
 $100,000 or more. However, the floor for current "key employee"
 reporting is set at $150,000, in the current draft instructions. 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

      Part II, Page 8

Importance

      High

Urgency

      High

Comment

      The bulleted listing of individuals to be reported in Part II of
 Schedule J is confusing. Rather than making reference to Section A,
 Part VII of Form 990 -- from which all Schedule J reportable
 individuals are to be drawn -- the listing enumerates the individual
 positions, setting up seeming contradictions. For example: the first
 and third bullet points appear to conflict -- is a "former"
 individual to be reported if he or she received more than $100,000 of
 reportable compensation, or more than $150,000 of "reportable" and
 "other" compensation?

Recommendation

      Reword the first and third bullet points as follows: [first
bullet] "Each of the organization's former officers, former
 directors, former trustees, former key employees, and former five
 highest compensated employees, who were listed in Section A, Part VII
 of Form 990, AND who received more than $100,000 of reportable
 compensation from the organization and/or related organizations
 ($150,000 for former key employees), disregarding payments from a
 related organization if below $10,000;" [third bullet] "Any
 individual listed in Section A, Part VII of Form 990 for whom the sum
 of Columns (D), (E) and (F) of Section A is greater than $150,000;"
[fourth bullet] "Any individual listed in Section A, Part VII
 of Form 990 who received or accrued compensation for services
 rendered to the organization from an unrelated organization . . ."
 The above approach is much clearer than the current instructions,
 which place the admonition to list only Section A, Part VII
 individuals in the paragraph following the bulleted listing.
 _____________________________________________________________________
Section of the instructions

      Part II, Page 10

Importance

      Medium

Urgency

      Medium

Comment

      The instructions for Column (C) state that an organization
 should report an increase in actuarial value of deferred amounts only
 if they "exceed the increases that would be determined based on an
 interest or earnings rate that equals 120% of the applicable Federal
 rate." It would make more sense (and would provide for greater
 comparability between defined-benefit and defined-contribution types
 of plans) if the instructions would simply require an organization to
 report the estimated increase in actuarial value, regardless of
 amount. This would reduce the reporting burden on organizations, in
 that they would not have to first determine the increase in actuarial
 value, and then perform an additional calculation to determine if the
 increase were greater than the 120% AFR threshold.

Recommendation

      Remove the 120% AFR threshold for reporting increases in
 actuarial value.
 _____________________________________________________________________

Schedule K                                   AICPA
 _____________________________________________________________________
Section of the instructions

Importance

Urgency

Comment

      No Comment

Recommendation
 _____________________________________________________________________

Schedule L                                   AICPA
 _____________________________________________________________________
Section of the instructions

Importance

Urgency

Comment

      No Comment

Recommendation
 _____________________________________________________________________

Schedule M                                   AICPA
 _____________________________________________________________________
Section of the instructions

      Line 29

Importance

      Low

Urgency

      Low

Comment

      If the organization doesn't track how many Forms 8283 it
 completes, the instructions ask them to leave it blank rather than
 estimate.

Recommendation

      It would be better to estimate the number of forms. Leaving it
 blank may mislead the reader.
 _____________________________________________________________________

Schedule N                                   AICPA
 _____________________________________________________________________
Section of the instructions

Importance

Urgency

Comment

      No Comment

Recommendation
 _____________________________________________________________________

Schedule O                                   AICPA
 _____________________________________________________________________
Section of the instructions

Importance

Urgency

Comment

      No Comment

Recommendation
 _____________________________________________________________________

Schedule R                                   AICPA
 _____________________________________________________________________
Section of the instructions

      Part V, line 2

Importance

      High

Urgency

      High

Comment

      Instructions refer to all organizations filing Schedule R must
 report certain transactions with a controlled entity as per IRC
 section 512 (b)(3). It would appear that the correct cite is IRC
 section 512(b)(13).

Recommendation

      Correct the cite to IRC section 512(b)(13).
 _____________________________________________________________________

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