IRS releases its first major redesign of Form 990 in 30 years.

Nonprofit and Church Legal Trends - Free Edition - July August 2007 (free edition)

This significant redesign of the Form 990 is going to affect virtually all nonprofit organizations that file a 990 beginning in the 2008 tax year. Although this redesign is still in the draft stage, let’s take a detailed look at it since it will affect how nonprofits gather data and the setup of their accounting systems in 2008. Some of the major changes focus on compensation and conflicts of interest among officers and board members.

In Part 2, you must detail all the compensation paid to officers, directors, and key employees. Included in the compensation is any compensation from related organizations, loans and other amounts owed to your organization, and loans owed to related organizations. Compensation must be reported on officers, directors, trustees, key employees, highly compensated employees, and independent contractors. In addition, you must now list former directors if they received more than $10,000 in compensation in their capacity as a former director. For those organizations that rotate certain employees on and off the board, this could mean a new level of disclosure, depending on how the IRS sees the phrase “capacity as a former director.”

The Statement of Revenue in Part 4 now asks for a specific breakdown of revenue from federated campaigns, outside fundraising campaigns, fundraising events, government grants, and Medicare/Medicaid payments. The Statement of Functional Expense is mostly the same but you may need to tweak your accounting system to collect more data. The instructions detail how to allocate indirect costs and this procedure may be new to some organization. Your accounting department should look closely at these instructions before January 1, 2008, so that any adjustments in your interdepartmental reporting can be made early in the year.

Organizations must also detail grants and other assistance to organizations outside of the U.S. If a recipient received more than $5,000, significant details will be required. In the next part, organizations have to report grants and other assistance to individuals outside the U.S if any one recipient received more than $5,000.