IRS responds to nonprofit comments on draft Form 990

The Internal Revenue Service has revised the draft Form 990 to move the "efficiency ratios" section off the front page of the new form. According to the CharityGovernance.com blog, Ronald J. Schultz, an IRS official working on the new Form 990, announced at the American Bar Association's Tax Section meeting in Vancouver that the IRS will drop the ratios from the proposed new Core Form. These ratios included compensation, fundraising and administrative v. progam expense.

"The IRS got the message," said the headline on the blog. The IRS will replace the ratios with questions that highlight an organization's activities and accomplishments. Those questions had appeared in the original draft toward the back of the Core Form. The IRS still plans to include a section on governance practices.

Many nonprofits submitting comments about the new form argued the existing questions convey inappropriate judgments, which could mislead Form 990 users. Revisions of the draft questions are expected. 

Tax Notes Today reported that the proposed new Schedule H, which applies to hospitals, generated the most comment. The IRS is grappling with how to define a hospital and Schultz told the ABA Tax Section that the IRS will likely look to state licensing or certification as the basis for defining a hospital.

The IRS announced the new Form 990 during the summer and requested coments from the nonprofit community by September on this frist major revision of the annual nonprofit tax filing in 40 years.