IRS Preliminary Response to Public Comments Signals Likely Revisions to Form 990

September 28, 2007 comments from IRS indicate their nod to public request for modifications of new Form 990.

Ronald Schultz, Senior Technical Advisor to the Commissioner of Internal Revenue, briefed members of the American Bar Association Section of Taxation, at its September 28, 2007 meeting in Vancouver, B.C., on the IRS' initial response to public comments concerning the new Form 990. Mr. Schultz reports that the IRS will be continuing its review of the public comments posted as of the September 14, 2007 response deadline, but that it has made the following preliminary conclusions about revising the new Form 990:

Form 990 General Revisions

(1) The summary page will be changed to eliminate the expense ratio reporting and instead require a side-by-side comparison between current year and prior year expenses by type.

(2) An organization's statement of program services will be moved to the front of Form 990.

(3) The form will include a governance section, but the current draft will be modified to focus inquiry on the governing body, financial reporting, policies, public disclosures of information, and so on. The IRS will eliminate its question about the number of conflict of interest situations reviewed by the board.

(4) Schedule J will no longer require reporting of non-taxable de minimus fringe benefits or double reporting of non-qualified deferred compensation arrangements.

(5) The compensation reporting for key employees, officers, directors, trustees and highly compensated employees will be revised to require more compensation detail. The ABA suggested that the form should require compensation to be broken out into each component (e.g., hours/week worked, base salary, benefits, job title, name) to make the information more useful to exempt organizations to rely upon for comparable data.

(6) The Form 990EZ may be phased after the 2008 reporting period and the filing thresholds for small exempt organizations will be increased.

Schedule H Revisions:

(7) What reporting will be required for community benefit? The IRS is not persuaded by the public comments that the community benefit table in Part 1 of Schedule H should be scrapped. However, the IRS will probably add reporting for bad debt, Medicare shortfalls and community building activities and other non-quantifiable community benefit activities. Mr. Schultz stated that the purpose of the form is to obtain relevant data about the community benefit standard as it exists today, and may later exist, and to try and anticipate what information would be helpful to policy makers in the future.

(8) Should community benefit be reported by facility, by E.I.N, by system, or some other distinction? The IRS will not allow the taxpayer to choose how to report the community benefit and the IRS is leaning toward requiring the reporting on an E.I.N. basis. However, the IRS may add optional schedules for organizations to complete if they wish to also report community benefit on a system, facility or other basis.

(9) As to whether health care organizations will be required to report joint venture activity on Schedule H, the answer is "yes" because the IRS is interested in obtaining this information specific to health care organizations. Organizations can expect the reporting format to be modified, however.

(10) To the public request to eliminate the billing and collection practice reporting, the IRS is persuaded that this portion of the form must be modified, if not eliminated. But, no final determination has been made.

Possible Relief from Filing for Health Care Organizations:

(11) To the question, "who should be completing the Schedule H," Mr. Schultz responded that the IRS recognizes the Schedule H may be overly broad and that the IRS is receptive to limiting the Schedule H filing requirement only to "licensed hospitals," which would specifically include specialty hospitals and any entity defined as a licensed hospital under state law. The IRS does not intend the definition to include nursing homes or clinics. Further, the IRS has not decided whether non-licensed hospitals would be required to complete Schedule H.

(12) The IRS remains committed to implementing the new Form 990 for reporting periods commencing in tax year 2008.

(13) However, health care organizations will likely receive transitional relief from completing Schedule H. The transitional relief will probably be one year, but may only be for a portion of Schedule H.

The IRS will continue to vet the public comments and anticipates making further revisions to the Form 990 and related schedules. However, implementation of the new form will not be delayed.