Nonprofits respond to IRS’ Form 990 draft instructions

The National Council of Nonprofit Organizations in May sent the following comments to the Internal Revenue Service in response to the IRS’ invitation for feedback about its draft instructions for completing the new Form 990 nonprofit tax return.

NCNA is the network of 42 state and regional nonprofit associations serving over 20,000 members in 39 states and the District of Columbia, Including the Hawai‘i Alliance of Nonprofit Organizations.

NCNA links local organizations to a national audience through state associations and helps small and midsize nonprofits manage and lead more effectively; collaborate and exchange solutions; engage in critical policy issues affecting the sector; and achieve greater impact in their communities.

The nonprofits in our federation are typical of the majority of the nonprofit sector, in being of small to medium size, focused on their public benefit missions, and strapped for resources frequently when it comes to integrating substantial legal and accounting changes.

Process to revise the Form 990 has been open and flexible

Our first comment is that NCNA appreciates the obvious effort the IRS has made throughout the past year to listen to and consider what individuals and organizations are saying regarding the annual reporting forms. The regulatory process for this redesign has been open, inviting, and demonstrated flexibility in considering remarks of many nonprofit organizations of all sizes and varieties.

NCNA was active in bringing our members, and in some cases their members, into the review process of the draft Form 990. We created a task force composed of well-informed members and held a series of webinars to capture information and reactions from those in the field. We then submitted extensive comments based upon the feedback we received from the field. Some of our suggested changes were in fact made on the revised form.

After the form was finalized we held a three-part webinar series to inform the field about the changes. These webinars are now downloadable on the NCNA website. More recent activities include written updates to our members to encourage their review and encouraging our members, in a variety of ways, to review the draft instructions.

Nonprofits don’t have time to analyze the new forms

Despite our best efforts we have found that it has been difficult to get nonprofits in the field to give this review thorough consideration and we fear that their voices will not be adequately represented given the time constraints. When we have received feedback, we have heard that this will take “much more studying” and, for example, that “the entire issue of reporting compensation is tremendously confusing – so confusing that I’m not sure my comments are very helpful.”

The reality is that as important as the IRS timing is in finalizing these draft instructions for use for the 2008 FY, what is occupying the time of small to midsize nonprofits right now is their 2007 FY filings using the old forms. IRS may well find that comments and questions regarding the instructions will happen when nonprofits are actually filing the revised form next year. With this in mind we ask that you consider reworking the instructions after the initial use when those in the field will have most of their questions.

This does put us all in a difficult situation since some information will require changes now in capturing data/information needed to fully complete the form next year. This will require extensive outreach to the field instructing them on capturing data in new ways in order that they have the needed information to file the form correctly.

NCNA requests guidelines for information nonprofits should gather now

With this in mind we suggest we work in partnership with IRS to develop “easy-to-use guidelines” for nonprofit use as they report their 2008 financial data. This information will be widely shared with the field through our state association network. We suggest a partnership with IRS, NCNA and state association sponsored seminars or webinars to get the word out as widely as possible. We believe the most critical task at hand is ensuring nonprofits are capturing financial and other data NOW.

On a positive note many of the nonprofits that we represent will be filing the 990-EZ (according to estimates that Ron Schultz of the IRS made on one of our webinars) and as a result many will be looking more seriously at the changes to that form. We do hope there will be some opportunity for comment on the changes to the 990-EZ as nonprofits begin the filing process. We would be willing to capture information from the field as to the questions/concerns they have about filing the 990-EZ form.

We have no reason to doubt that IRS will continue to have an open and inviting process going forward.  We look forward to the opportunities established by the Service for continuing to be in conversation with the sector about the final implementation of this impressive multi-year overhaul of the filing system.

Thank you for your consideration of this request.

Sincerely,

Audrey R. Alvarado, PhD.
Executive Director, National Council of Nonprofit Associations