PUBLIC POLICY

Small and medium nonprofits
comment on draft Form 990

HANO and other state associations that make up the National Council of Nonprofit Associations have participated in a number of conference calls in recent weeks to share comments and suggestions on the Internal Revenue Service’s draft of a new Form 990, the annual filing by tax-exempt organizations.

NCNA’s network of state and regional nonprofit associations serves more than 20,000 organizations in 41 states and the District of Columbia, which are predominately small –with annual budgets less than $1 million – and grassroots-based. State associations work to ensure nonprofits are able to comply with all federal and state laws and regulations, including reporting requirements, of which the IRS Form 990 is paramount.

The draft Form 990 represents the first significant makeover of the form in 30 years. The IRS’ stated goals are to enhance transparency, promote compliance and minimize the burden on filing organizations. The draft includes a 10-page “core form” that all filers would complete and there are 15 schedules “designed to require reporting of information only from those organizations that conduct particular activities.”

The NCNA network based its review on these principles:

  • Further advance accountability and transparency of the entire nonprofit sector.
  • Submit comments that are in the spirit of helping IRS capture information that is useful, relevant, and informative.
  • Ensure effective and best practices for the nonprofit sector are fostered through the types of information provided in Form 990.
  • Reduce reporting burdens on small and midsize nonprofits, which represent the largest number of charities in the United States.

The deadline for comments to the IRS is Sept. 14. NCNA’s suggestions are now in draft form and being finalized. In brief, they include: 

  • Extend the time frame for implementation. NCNA members would like to see a second draft of the revised form and instructions for review and a one-year delay in the implementation to provide time for training.
  • Continue using Nonprofit Taxonomy for Exempt Entities categories that currently exist rather than create new ones. Work with the National Center for Charitable Statistics to ensure a classification system that meets IRS and the nonprofit sector needs.
  • Update the filing thresholds. Allow nonprofits with annual revenues of $50,000 or less – as opposed to the current $25,000 or less – to use the new IRS reporting postcard 990N. Those with revenues of $50,000 and over would use the new Form 990 and Form 990EZ should be discontinued.
  • Maintaining reporting periods that correspond to the organization’s fiscal year.
  • Retain the option for group returns. The new Form 990 will capture more detailed and useful information about related organizations, which should increase transparency and accountability of these types of arrangements.
  • Move the ratios listed on page 1 in the draft to Schedule A. If this is not possible, move the list of organizational accomplishments (Part IX) to the front page of the core form.
  • Present a “you must file schedule x” matrix on the instruction sheet to inform filers which of the 15 schedules organizations of various types must file.

The NCNA’s draft comments also include specific suggestions for the core form and most of the 15 schedules. These include a discussion of the ratios on the first page of the draft 990. “We have a general concern about including the ratios on the first page of the Form and recommend that the percentage calculations be dropped from the Summary Page. Including these percentages on the Summary Page implies that there is a 'correct' percentage for each calculation, that is, a lower percentage of fundraising expense as a percentage of either total expenses or total contributions and grants is presumably an indicator of a more efficient or effective organization,” the NCNA comments say.

“Instead, a high percentage of fundraising expenses as compared to contributions or expenses could be caused by the launch of a new fundraising initiative while a low percentage of fundraising expenses as compared to contributions could simply reflect one or more unusually large gifts.”

NCNA suggests a more accurate efficiency ratio might be to examine fundraising costs as a percentage of expenses or contributions over a period of years. Click here to see the complete draft of NCNA’s comments on the proposed new Form 990.