GuideStar CEO raises concerns about draft Form 990

Bob Ottenhoff, president and CEO of GuideStar, the online source for public access to nonprofit annual reports to the Internal Revenue Service on Form 990, has raised concerns about the draft of the form, which is being revised for the first time since 1979 by the IRS.

In his October GuideStar newsletter Ottenhoff said GuideStar has major concerns with the proposed draft. "Most important, we think it would place an undue burden on the thousands of nonprofit organizations trying to do a good job and perform admirable public services." The column includes reactions from numerous nonprofits to the proposed new form. Complaints included:

• The new form would increase audit costs by 50 to 100 percent.
• More difficult preparation would likely require nonprofits that use pro-bono preparers to switch to paid.
• More resources would be diverted from programming to reporting.
• New form would place greater reporting burden on nonprofits than tax-paying for-profits have.
• The emphasis new form places on ratios, such as fundraising expense to net proceeds and administrative overhead to total expense, could lead to nonprofits skewing their data to look good.

Ottentoff also reported that other comments he received support the new form. "I find myself agreeing with the goal, more transparency and accountability," he writes, "but disagreeing on the tactics."

He proposes that the IRS raises the filing threshold for filers of new Form 990-N "epostcard" from $25,000 to $50,000 and that for Form 990-EZ from $100,000 to $500,000. Only organizations with more than $500,000 in annual gross revenue would file the full Form 990.

In the September GuideStar newsletter, Ottenhoff made four recommendations:

1. Less Is More. Form 990 should be simplified, and the highest priority should be placed on collecting data that are useful, complete, accurate, and timely.
2. Minimize the Burden on Filers. The costs of compliance with the proposed form need to be balanced against the utility and accuracy of the information gathered. The proposed form's increased complexity will work against improving timeliness of the returns. Auditors say the cost of preparation will rise 50 to 100 percent in the first year of the proposed new form – nearly $5,000 per audit. This is an unreasonable burden to impose on the nonprofit sector.
3. Help Decision Makers. The Form 990 must present an accurate picture to the public of the finances and activities of a nonprofit. The draft does not meet this objective. Rather, it creates an inaccurate picture by presenting financial ratios and compensation data out of context.
4. Don't Rush. Changing the 990 will affect the sector for years to come. GuideStar urges the IRS to take the time to gather the data needed to create the most effective return possible.