Advisory Commitee Releases Report Recommending Changes to Form 990

Published on: by Gene Takagi Category:CURRENT AFFAIRS & OPINION

The Advisory Committee on Tax Exempt and Government Entities (ACT) released its Fifth Annual Report of Recommendations to the IRS.  The first section of the Report focuses on "Policies and Guidelines for Form 990 Revision."  OMB Watch reports that ACT Chair Robert E. Donovan stated that as has been the case with ACT recommendations from previous reports, some of the Report’s recommendations can be implemented immediately while others may take years.

Recognizing that a successful redesign of Form 990 must be preceded by an understanding of its history, the Committee identified the three important changes that have affected the exempt organization information return over the past fifty years:

  1. The return has grown incrementally from a two-page form to a 15-page form which has resulted in its lack of internal coherence and made it difficult to understand.
  2. The return, which initially was designed by the IRS to meet its own tax administration needs, is now being used by multiple stakeholders, including state tax authorities and charities’ bureaus, the public, the press and researchers.
  3. Electronic filing has become mandatory for a limited number of exempt organizations and discretionary for an increasing number of other exempt organizations.

The Report makes the following recommendations:

  1. Form 990 should be designed primarily to assess whether the filer is complying with federal tax requirements.
  2. IRS should continue to accommodate the needs of the states as long as they do not adversely affect the IRS’s primary mission or unduly burden filers.
  3. Form 990 and its instructions should be as understandable to a person unschooled in the law of tax-exempt organizations as possible without compromising its primary purpose.
  4. Form 990 should consist of a core form with schedules organized by topic and type of organization.
  5. Questions on Form 990 should be formulated to obtain evidence or facts which will reveal whether the filer has compiled with federal tax law.
  6. Statutory limits on mandatory electronic filing should be removed and mandatory electronic filing should be phased in.
  7. Form 990 should be redesigned in its entirety and implemented as quickly as possible.

Click here for the full Report.