2016 Form 990 and Instructions Changes

By: Laurie Hanson

The Form 990 and its many schedules remained largely unchanged for tax year 2016. The changes can be summarized pretty quickly, and include the following:

  1. For returns that cannot be electronically filed, the IRS previously considered returns that were delivered via USPS, FedEx and UPS as timely filed if postmarked at least by the due date of the return. The IRS has added DHL Express to this listing. Whenever a return is mailed to the IRS, regardless of the service used, we encourage you to obtain and retain the receipt for proof of mailing. That way, if the IRS later assesses a penalty for late filing, you’ll have proof that the return was filed on time and will be able to easily have the penalties abated.
  2. For tax years beginning after 12/31/15, the first extension for Form 990 and 990-EZ will cover a six-month period. A second extension is no longer available. Previously, two three-month extensions were available. Form 990 is due 4 ½ months after year end. The extension makes the return due 10 ½ months after year end. Thus, the final filing due date with extensions remains unchanged.
  3. The publicly supported charity definition has been updated to include an agricultural research organization under Internal Revenue Code (IRC) 170(b)(1)(A)(ix). This only pertains to IRC 501(c)(3) organizations that are exempt as a public charity and operate as agricultural research organizations. In other words, it doesn’t affect most organizations.
  4. Goods or services with insubstantial value have been indexed for inflation. The value of items valued at $10.60 or less that bear the organization’s name or logo and are given to donors in exchange for a donation need not be disclosed to the donor.
  5. For Hospitals, a few minor changes have been made to Schedule H to better reflect compliance with the final regulations under 501(r)..
  6. Form 990-T has been updated to include a specific line for tax on hospitals that are not compliant with IRC 501(r) regulations. The tax is not new. Only the line on the form is new.

Beyond Form 990 itself, you may be interested in the following nonprofit related tax issues:

If your organization hires veterans, you may be eligible for a credit against the employer portion of social security tax on wages paid to all employees. The credit applies to qualified first-year wages paid to qualified veterans who began work for the organization after December 31, 2014 and before January 1, 2020. The qualified veteran must be performing services in activities related to the purpose or function constituting the basis of the organization’s tax exempt status under IRC 501. The credit is claimed on Form 5884-C.

If your organization has foreign bank accounts with an aggregate value exceeding $10,000 at any time during the calendar year, Form 114 FinCEN, Report of Foreign Bank and Financial Accounts (FBAR) is required to be filed by April 15. A six-month extension is available. Previously, this form was due June 30 with no extensions.

Please feel free to contact your Eide Bailly nonprofit tax advisor to discuss any of the above items.

Who is Looking at Your 990?

It’s been said that more people will look at your Form 990 than your Annual Report. The IRS requires nonprofits to make their Form 990 available for public inspection. Individuals can access your organization’s Form 990 without you even knowing. The most common place to find public inspection copies is at GuideStar.org. However, there are many other sites that provide access to the forms.

So who is really looking at your return and why? The IRS is viewing the forms for compliance requirements as well as identifying areas of concern. Prospective board members are most likely pulling a copy of your return to learn about your organization. Many grantors and major donors will view the form before providing financial support. Your competitors will view your form and compare themselves to you. Others include state agencies, reporters and media and watchdog groups that may be trying to benchmark you, seeing how you spend your money, or looking for a story.

If you think no one is looking at your Form 990 you are wrong. It’s important to prepare the Form 990 to meet IRS requirements as well as to meet public perception judgments. Have you looked at your Form 990 from the view of the general public? If so, what story does it tell?

Why Does the Form 990 Matter?

Now is the time of year when many nonprofits are preparing and reviewing their Form 990s in anticipation of the May 15th deadline. It’s important to take a minute or two and reflect on why the filing matters. First off, the Form 990 is an informational return that provides an abundance of information about the organization that goes beyond the financial information. Most importantly, it’s widely available for public inspection. Lastly, the Form 990 provides insight regarding an organization’s governance, operations and programs.

To state the obvious, the other reason the filing matters is it is a requirement for maintaining tax-exempt status. The Form 990 informs the IRS about activities, financial status and also demonstrates how the organization is meeting the qualifications of a specific classification of tax-exempt status. Organizations that do not file for three consecutive years will lose tax-exempt status.

It is more important than ever to file a complete and accurate return. Penalties for failure to file range from $20 per day for small organizations up to $100 per day for organizations with gross receipts greater than $1 million. The IRS is using the information gathered from Form 990s to develop potential indicators of noncompliance for their exam process. Filing a complete and accurate return is important to avoid IRS scrutiny.