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IRS Proposes Major Changes To Tax-Exempt Reporting

by Leroy Baker, Tax-News.com, New York

18 June 2007

The US Internal Revenue Service has released for comment and discussion a significantly revised draft Form 990, the annual return required to be filed by tax-exempt organizations to report information about their operations.

“The tax-exempt sector has changed markedly since the Form 990 was last overhauled more than a quarter of a century ago," explained Kevin Brown, Acting Commissioner of the IRS. “We need a Form 990 that reflects the way this growing sector operates in the 21st century. The new 990 aims to give both the IRS and the public an improved window into the way tax-exempt organizations go about their vital mission.”

The redesign of Form 990 is based on three guiding principles: enhancing transparency to provide the IRS and the public with a realistic picture of the organization; promoting compliance by accurately reflecting the organization’s operations so the IRS may efficiently assess the risk of noncompliance; and minimizing the burden on filing organizations.

The draft released last week consists of a core form to be completed by each Form 990 filer, and a series of schedules designed to require reporting of information only from those organizations that conduct particular activities.

“Most organizations should not experience a change in burden,” stated Lois G. Lerner, director of the IRS’s Exempt Organizations division. “However, those with complicated compensation arrangements, related entity structures and activities that raise compliance concerns may have to spend more time providing meaningful information to the public.”

In releasing this redesigned form, the IRS said it is soliciting comments, especially in connection with the goals of increased transparency of information and use as a compliance tool. The comment period lasts until Sept. 14, 2007.

The IRS's move has been welcomed by senior Senators, who have been agitating for more tax transparency in the non-profit and tax-exempt sector for some time.

“This is good news," said Sen. Chuck Grassley, ranking member and former chairman of the Senate Finance Committee. "The 990 filing is often the public’s only look at a non-profit’s finances. If you’re making a donation, you may want to research what proportion of your money is going to executive salaries rather than helping people in need. With the current form, transparency is lacking. A potential donor might get frustrated and give up. That doesn’t help charities. And the lack of transparency doesn’t serve taxpayers. They deserve accountability for the generous tax breaks the federal government offers to tax-exempt groups. The IRS’ revisions are on the right track."

However, Grassley added that he was disappointed the disclosure threshold for salaries had been set too high.

"Salaries are a huge expense, and the public needs adequate information. Now I hope the agency keeps moving to analyze public comments and get the final form in place as soon as possible. President Carter was in office the last time the IRS rewrote this form. Let’s open the blinds and let the sunshine in," he suggested.

Also supporting the measure, Max Baucus, Finance Committee Chairman added: “This new form will help the public and the IRS assess whether tax exempt organizations are staying true to the reasons they were granted exempt status in the first place. We must be assured that the public’s donations are used appropriately."

"I will continue to value greater transparency and openness as I work with my colleagues to oversee the tax-exempt sector and to maintain public confidence in their work," Baucus declared.

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