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Changes to 2005 Form 990

April 20, 2006

The Form 990, the Annual Information Return for organizations exempt from federal income tax under Section 501(c), is due on May 15 (for organizations with a December 31 year-end). The IRS revised the 2005 Form 990. We want to alert you to a few changes.

Organizations Not Required to File
For smaller organizations that are not obligated to file the Form 990 because their gross receipts are less than $25,000 (based on a rolling three-year average), the practice has changed regarding informing the IRS that it is not obligated to file. In the past, we advised that such smaller organizations check the box at the top of the Form 990 indicating the organization was not required to file because of the gross receipts test and to submit the form with no further information. Now, organizations are permitted to submit only completed forms. Thus, you cannot check the box (even though it is still an option on the form) and submit a blank form. In light of this new rule, if your organization is not required to file because of the gross receipts test, we advise you to submit nothing to the IRS (unless you want to complete the form 990-EZ). Instead, eventually the IRS will contact your organization to inquire why no Form 990 was submitted, at which point you will have the opportunity to respond and indicate that filing was not required.

More Disclosure Related to Board of Directors
The most significant changes involve seeking more information about relationships between the organization and its directors, officers, key employees and independent contractors.
Specifically, Line 75 on the revised Form 990 now requires:

  • Disclosure of individuals that served as an officer, director, or key employee at any point during the year (not just at the start or end of the year).
  • Disclosure of total number of directors entitled to vote on the organization’s business at board meetings.
  • Disclosure of any family or business relationships among directors, officers, key employees, and independent contractors who were paid more than $50,000 by that organization. Previously, information about independent contractors was reported only on Schedule A, which is required solely for 501(c)(3)s. Now, other types of exempt organizations, such as 501(c)(4)s, may need to report independent contractor information. This question is not on the Form 990-EZ so it doesn’t apply to organizations with gross receipts under $100,000.
  • Disclosure of any compensation received by the organization’s directors, officers, key employees, and independent contractors (paid more than $50,000 by the reporting organization) from organizations under common control or common supervision of the reporting organization. Again, reporting on independent contractors may be required for more than just 501(c)(3) organizations.
  • Disclosure of whether the organization has a written conflicts of interest policy.

The revised Schedule A (which is required for all 501(c)(3) organizations filing any kind of Form 990) now requires:

  • Disclosure of compensation paid to former officers, directors or key employees during the year (not just current).
  • Disclosure of compensation paid to highest paid independent contractors for nonprofessional services and, as a separate question, compensation paid to independent contractors for professional services (in all cases more than $50,000).

New Format
The format of the 990 has been revised slightly, in part to allow for more descriptive information from the organization regarding their substantive activities. This redesign gives organizations more space to showcase their activities.

Please let us know if you have any questions regarding this update or completing the Form 990.

**Pursuant to Circular 230 promulgated by the Internal Revenue Service, if this correspondence, or any attachment hereto, contains advice concerning any federal tax issue or submission, please be advised that it was not intended or written to be used, and that it cannot be used, for the purpose of avoiding federal tax penalties unless otherwise expressly indicated.**

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