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2. The New IRS Form 990:What Does It MeanFor Your Organization? George E. ConstantineThora A. JohnsonSerena G. SimonsJeffrey S. Tenenbaum September 22, 2008 Association of Corporate Counselwww.acc.com

3. Overview • Introduction to the new Form 990, Jeffrey S. Tenenbaum • The core Form 990, Thora A. Johnson • Compensation reporting, Serena G. Simons • Schedule highlights, George E. Constantine • Next steps – Jeffrey S. Tenenbaum

4. Introduction to Redesigned Form 990 Jeffrey S. TenenbaumVenable LLPJSTenenbaum@venable.comThe New IRS Form 990:What Does It Mean For Your Organization?September 22, 2008

5. Background on Form 990 Redesign • Reasons for redesign • first redesign since 1979 • more up-to-date reporting • Purpose of Form 990 • primary tax compliance tool for tax-exempt organizations • IRS and State tax enforcement • source of information for the public, media, researchers, and policymakers about the tax-exempt sector generally and individual organizations specifically

6. IRS “guiding principles" • Enhance transparency to provide the IRS and the public with a realistic picture of the organization, along with the basis for comparison to other organizations • Promote compliance by accurately reflecting the organization’s operations so the IRS may efficiently assess the risk of noncompliance • Minimize the burden on filing organizations

7. Timing of Redesigned Form • Final form issued December 20, 2007 • Draft instructions and glossary issued April 7, 2008, with comment period until June 1 • Final instructions released on August 19 • Implementation for 2008 required • Phased-in Schedules H (Hospital) and K (Bonds)

8. Format of Redesigned Form • Core form, including summary page • 16 schedules with applicability based on organization’s specific indicators • For complete set of Form 990 and final instructions, go to www.irs.gov/charities/article/0,,id=185561,00.html

9. The Core Form 990Thora A. JohnsonVenable LLPTAJohnson@venable.comThe New IRS Form 990:What Does it Mean for Your Organization?September 22, 2008

10. Overview of the Core Form • Summary page with signature block • Statement of program services • Checklist of required schedules • Checklist of other IRS filings and tax compliance • Governance, management, and disclosure questions • Compensation reporting • Financial reporting – revenue, expenses, balance sheet, and financial statements

11. The Summary • New to the Form 990 • A snapshot of the organization • Highlights • most significant activities • key financial, compensation, governance, and operational information • Signature block

12. Statement of Program Services • Mission, program services, programmatic changes, and accomplishments in narrative format • reformatted • upfront so that organization can “tell story” early • Must describe three largest programs • if a Section 501(c)(3), must include: • amount of grants to others • total expenses • revenue

13. Compensation Detail Bonds Transactions with Interested Persons Non-Cash Contributions Terminations and Major Dispositions Supplemental Information Related Organizations and Certain Joint Ventures Public Charity Status Schedule of Contributors Political and Lobbying Supplemental Financial Private School Foreign Activity Professional Fundraising and Gaming Hospitals Grants Checklist of Required Schedules

14. Other IRS Filings and Tax Compliance • Alerts both filer and IRS to other potential federal tax compliance and filing obligations • For example, • UBIT and Form 990-T • substantiation and disclosure requirements applicable to charitable contributions

15. Governance, Management, and Disclosure • Rationale: independent boards and well-defined governance and management policies increase likelihood of tax compliance, safeguarding of charitable assets, and serving of charitable interests • Self-regulation and internal controls • Transparency and accountability

16. Questions Regarding Board and Management • Independence of board members • total number of voting board members • number of voting board members that are independent • relationships between officers, directors, and key employees

17. More Questions Regarding Board and Management • Any delegation to a management company • Any material diversion of assets • Minutes taken at board and board committee meetings

18. and More Questions Regarding Board and Management • Board receives a copy of Form 990 before filed • What process to review Form 990

19. Questions Regarding Policies • A written conflict of interest policy • officers, directors, and key employees required to disclose each year interests that could give rise to conflicts • monitor and enforce its conflict of interest policy

20. More Questions Regarding Policies • Maintain a written whistleblower policy • Maintain a written document retention and destruction policy • Note – broader than SOX requirement

21. More Questions Regarding Policies • Follow the procedures for the rebuttable presumption • Invest in a joint venture with taxable entity

22. Questions About Disclosure • Make its Form 1023 available • Make its governing documents, policies, and financials available

23. Legally Required? • Not all policies legally required • This point clarified on Form 990 itself • Presumption of wrongdoing, however, if not in place?

24. Remaining Sections of Core Form • Compensation • Revenue, expenses, and balance sheet • Financial statement and reporting • audits? • audit committee?

25. Compensation Reporting on the Form 990Serena G. SimonsVenable LLPSGSimons@venable.comThe New IRS Form 990:What Does It Mean for Your Organization?September 22, 2008

26. Form 990 focus • Who gets how much, and who decides? • Compensation information • core form, Part VII • Schedule J • Process of setting compensation • governance and policies • core form, Part VI, Section B, item 15

27. Setting Compensation • General requirements • knowledge in compensation matters • no financial interest • IRS safe harbor process • independent body • comparability data • documentation of decision

28. General Structure For Compensation Reporting • Basic reporting on core form with more detail on Schedule J • New thresholds for reporting on key employees, highest paid non-key employees, and formers and for more detailed reporting • Same structure for all organizations

29. Core Form Reporting - Who • Current officers, directors, trustees, and key employees • Current 5 highest paid non-key employees – reportable compensation over $100,000 • Former officers, key employees – reportable compensation over $100,000 • Former 5 highest paid (different test) • Former directors or trustees – reportable compensation over $10,000

30. Core Form Reporting – Who • “Key employee” definition • $150,000 test • Employee had reportable compensation of more than $150,000 • Responsibility test • Employee had or shared organization-wide control or influence similar to an officer, director, or trustee or • Employee managed or had authority or control over at least 10% of the organization’s activities • Top 20 test • Employee one of “top 20” highest paid

31. Core Form Reporting - Who • Former status applies only to individuals reported as current on any Form 990 from five previous years • Also • 5 highest paid independent contractors - over $100,000 of reportable compensation • Includes organizations as well as individuals

32. Core Form Reporting - What • Reportable compensation from organization • Reportable compensation from related organizations • Other compensation from organization and related organizations

33. Core Form Reporting – Reportable Compensation Definition • For employee, compensation reported on Form W-2, Box 5, i.e., Medicare wages (includes vested nonqualified deferred compensation and 401(k) and 403(b) deferrals) • For non-employee, compensation reported on Form 1099-MISC • Other taxable compensation • For calendar year ending with or within organization’s fiscal year

34. Core Form Reporting – “other” Compensation • Includes nontaxable deferred compensation (qualified and nonqualified, vested and nonvested) and most nontaxable benefits • Reporting exclusion for items under $10,000, but with various exceptions • IRS requested comments on whether nonvested, nonqualified deferred compensation should be excepted

35. Schedule J – Compensation Questions • Fringe benefits (expanded from discussion draft) • first-class or charter travel, companion travel, tax indemnifications and gross-ups, discretionary accounts, housing, payments for business use of personal residence, club dues, personal services • Severance or change in control payments • Supplemental nonqualified deferred compensation • Equity-based compensation

36. Schedule J – Compensation Questions for Charities • Compensation based on revenues or net earnings • Other non-fixed payments • Payments under the initial contract exception

37. Schedule J – Thresholds for “Chart” Reporting • All “Current’s” listed in Form 990, Part VII, Section A – “total” compensation over $150,000 (reportable + other) • All “Former’s” listed in Form 990, Part VII, Section A • Any person listed in Form 990, Part VII, Section A (line 5) who receives compensation from “unrelated” organization for services to filing organization

38. Schedule J – Chart Compensation Breakout • Base compensation • Bonus and incentive compensation • Other reportable (W-2/1099) compensation • Deferred compensation • Nontaxable benefits • Previously reported deferred compensation (intended to address double-reporting issue)

39. Schedule HighlightsGeorge E. Constantine Venable LLPgeconstantine@venable.comThe New IRS Form 990:What Does It Mean For Your Organization?September 22, 2008

40. Overview of The Schedules • 16 separate schedules • Reflects IRS approach of segmenting out unique types of entities and issues (e.g., hospitals, fundraising, bonds) • Checklist of required schedules (Part IV of core form)

41. Compensation Detail Bonds Transactions with Interested Persons Non-Cash Contributions Terminations and Major Dispositions Supplemental Information Related Organizations and Certain Joint Ventures Public Charity Status Schedule of Contributors Political and Lobbying Supplemental Financial Private School Foreign Activity Professional Fundraising and Gaming Hospitals Grants Checklist of Required Schedules

42. Schedule A • Removes questions unrelated to public charity status — no more questions about school non-discrimination policies, lobbying activities, compensation of employees and contractors, related party and other “red flag” transactions • Moves public support testing period from four to five years (including the current tax year) • IRS doing away with advance rulings process

43. Schedule A (cont’d) • Change now allows accrual accounting organizations to use accrual method for calculating public support test (used to required use of cash method for Schedule A) • Supporting organization questions included

44. Schedule A • Other changes: • Form 990-EZ filers will be required to complete this Schedule A • Space added to make the case under the 10% “facts and circumstances” test • Membership dues section included in support schedules • Separates 509(a)(1) and 509(a)(2) support tests

45. Schedule B • No changes – requires listing of all contributors who gave $5,000 or more for the year • Note that new Schedule M captures information on non-cash contributions • Generally not required to be disclosed publicly (except 990-PF and 527s that file Form 990 or 990EZ)

46. Schedule C • Specific form for disclosing lobbying and political activities • Some new disclosure requirements compared to what used to be collected on the Form 990 and Schedule A • description of direct and indirect political campaign activities • estimate of volunteer hours spent on political activities

47. Schedule D • Supplemental financial statements • Disclosures regarding donor advised funds, conservation easements, art collections, other investments, trust and escrow arrangements, endowment funds • FIN 48 disclosure – uncertain tax positions under SFAS 109

48. Schedule E • Only to be completed by schools • Same information as had been collected under Schedule A, Part V

49. Schedule F • Activities outside the U.S. • Recent increased scrutiny on foreign activities • Not limited to 501(c)(3)

50. Schedule F (cont’d) • Significant new disclosures required for entities engaging in non-U.S. activities: • for aggregate revenue or expenses that exceed $10,000 • disclosure of region, offices, employees, activities, expenditures