Nonprofit Accounting Basics

Advisory Committee on Taxation Issues 2015 Report

Author: 

Kari Bedell

Greater Washington Society of CPAs
Topics: 

Advisory Committee on Tax Exempt and Government Entities

The Advisory Committee on Tax Exempt and Government Entities (ACT) is comprised of members appointed by the IRS Commissioner in order to provide a representative forum for communication regarding exempt organization issues. The ACT produces an annual Report of Recommendations each year, and the 2015 Report was presented in Washington DC on June 17th .

This Year’s Project

The majority of the more than 1.5 million nonprofit organizations in the US are small enough that they file either 990-EZ short forms or 990-N postcards, but nearly 300,000 organizations filed the Form 990 in 2013. That document currently consists of a “core form” of twelve pages, and up to sixteen supplemental schedules. For the 2008 filing year, the IRS Form 990 was completely overhauled in an IRS effort to provide greater transparency, improved compliance and to minimize the filing burden on exempt entities.

For this year’s project, the ACT decided to undertake a survey of various stakeholder groups to evaluate the impact of the 2008 redesign as well as to determine if adjustments should now be made based on the experience filers and users of the form have had thus far. The ACT reached out to various stakeholders during their process and in the end the survey was completed by nearly 1,900 people including nonprofit staff, accountants/preparers, state regulators, grantmakers, donors, researchers and others.

The 2015 Recommendations

Recommendation 1: The IRS Exempt Organizations Division should support a Congressional mandate to require electronic filing of the Form 990 series and should also take interim steps to encourage and provide incentives for voluntary e-filing of the Form 990 series for exempt organizations that are not subject to the mandatory e-filing requirements. The IRS should recommend to the Department of Treasury the elimination of the $10 million asset threshold for electronic filing of the Form 990 found in the Code Section 6011 regulations. 

While the ACT was compiling their report, a number of related actions were transpiring which they cite as having had bearing on this recommendation: 

Contributing further still has been the drumbeat for more access to information about the sector from researchers, educators, media, charity watchdogs, grantmakers, donors, nonprofit staff themselves, state charity officials…the list goes on. In addition to the obvious value to many of the above noted groups which both aggregated, searchable sector wide data can provide, the ACT cites specific benefits to the IRS of moving to mandatory e-filing.

 

Recommendation 2: The IRS Exempt Organizations Division should convene a task force comprised of representative stakeholders to determine which parts and schedules of the current Form 990 and related instructions should be updated, enhanced, and/or deleted in order to allow a more clear understanding, better accuracy, enhanced consistency of reporting by the various Form 990 filers.

While the ACT affirms the value of the redesigned Form, it learned from this year’s project that more review by an expert stakeholder group is needed. Survey respondents noted length and complexity, confusing instructions, lack of conformity with GAAP all as deficiencies with the current Form. Most problematic for filers is Part IX, Statement of Functional Expenses, followed by Part VII, Compensation and Schedule G, Fundraising and Gaming.

 

Recommendation 3: The IRS should consider requesting additional information from Form 990-N filers. This will be especially important given the relatively new Form 1023-EZ application process, which will result in more recognized tax-exempt organizations that will not have had their activities specifically reviewed by the IRS and which will likely file a Form 990-N due to their smaller size. In addition, because filing a Form 990-N likely will be the filing organization’s only contact with the IRS, the agency should engage in more education and outreach as part of the Form 990-N filing process.

In her overview of fiscal year 2014, IRS Director of Exempt Organization Tammy Ripperda reported that since implementation of the new Form 1023-EZ in July 2014, nearly 10,000 organizations had applied for exemption using that form. While IRS will conducts post-determination reviews on 3% of those organizations, that leaves a lot of entities who will never be subject to substantive filing of information on their activities. In an era of unrelenting scrutiny of the IRS Exempt Organizations Division, this seems to point to a serious potential issue if not addressed.

 

The full ACT 2015 Report can be found HERE