IRS to Revise Form 990 to Require Additional Information from Nonprofits

Changes to Form 990, Return of Organization Exempt from Income Tax, are on the horizon. The U.S. Department of the Treasury announced that the IRS plans to revise Form 990 to “improve transparency, strengthen tax administration, and provide clearer reporting on certain activities” of 501(c)(3) organizations, including government contracts, government grants, and fiscal sponsorship arrangements.

It’s important to note that while the Treasury announcement specifically mentions 501(c)(3) organizations, these changes would affect all tax-exempt organizations required to file Form 990.

Areas of Increased Focus

According to the Treasury, clearer reporting on government contracts and grants, which often involve substantial public funds, would:

• Provide the IRS and the public with a better understanding of the sources and use of funding
• Support proper revenue classification
• Reduce the risk of fraud and misuse of taxpayer money

The Treasury also said that increased reporting on fiscal sponsorship would help address recent congressional concerns that some of these arrangements may be used to conceal the identity of the project operator and the control and use of funds.

In a fiscal sponsorship arrangement, a tax-exempt organization supports other charitable groups and initiatives. The current Form 990 does not require sponsors to disclose information about these arrangements, and sponsored projects do not file their own Form 990.

What’s Next for Nonprofits

No changes to Form 990 have been finalized. According to the announcement, the Treasury and the IRS intend to:

• Publish proposed regulations outlining the potential reporting changes
• Provide a public comment period before any reporting changes are finalized
• Consider “administrative feasibility, proportionality, and reporting burden” when developing the proposed changes  

The last significant changes to Form 990 were made in 2008. Staying informed on developments in this area and being aware of the heightened federal scrutiny of nonprofit transparency and accountability can help your organization prepare for the coming changes.

CRI’s team of professionals has extensive experience with the unique tax considerations nonprofits face. Please contact us with questions or to discuss how we can assist your organization with your tax needs.