Comment Call (07-01)
To: All Affiliated State-Chartered Credit Union CEOs
From: Veronica Madsen – General Counsel
Date: August 20, 2007
RE: Redesigned IRS Form 990
The Internal Revenue Service (IRS) is proposing to amend its Form 990 (“Return of Organization Exempt from Income Tax”), the IRS form filled out annually by state-chartered credit unions. The IRS expects to use the re-designed form for the 2008 tax year (returns filed in 2009).
Please send your comments to MCUL by September 7, 2007.
In addition to the changing landscape of the tax-exempt sector since the last redesign in 1979, the proposed changes to Form 990 are based on the following three guiding principals of the IRS:
• Enhancing transparency to provide the IRS and the public with a realistic picture of the organization, along with the basis for comparison to other organizations;
• Promoting tax 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 PROPOSED RULE
The current Form 990 consists of a 9-page core and Schedules A and B. The redesigned form has a 10-page core form, with a summary page at the beginning. The summary page provides the organization’s identifying information and a snapshot of the organization’s key financial, compensation, governance and operational information. Items reported in the summary would be taken from information provided elsewhere in the form.
Part II requires reporting information about the compensation of officers, directors, trustees and certain other employees. Like the current Form 990, each officer, director, trustee or key employee must be listed, regardless of the compensation amount. However, the redesign would require the reporting of compensation based on Form W-2 reporting for employees, and Form 1099 reporting for directors and other independent contractors. Also like the current form, compensation paid by related organizations must be reported separately.
Some filers would be required to complete Schedule J (“Supplemental Compensation Information) that breaks down the reporting of an individual’s executive compensation, deferred compensation, fringe benefits and expense allowances or reimbursements. Schedule J must be completed for individuals listed in Part II of Form 990 who:
• Are former officers, key or highly compensated employees who received more than $100,000, or directors and trustees who received more than $10,000, of reportable compensation from the organization and any related organizations;
• Have reportable compensation in excess of $150,000 from the organization and any related organizations for the calendar year;
• Received or accrued more than $250,000 of reportable or other compensation, including deferred compensation, nontaxable fringe benefits and expense reimbursements from the organization and related organizations; or
• Who received or accrued compensation from any source, other than the organization, for services rendered to the organization.
Part III would require each organization to provide certain information regarding the composition of the board or governing body, governance and financial statement practices, and the means by which the organization is accountable to the public by making information publicly available. This section requires filers to list the number of members of the governing body, whether there have been any significant changes to the organizing or governing documents, and how information is made available to the public. Also required is information regarding whether the organization has written policies on conflicts of interest, document retention and destruction, whistleblowing, and branch activity.
Parts IV, V and VI generally follow the current form’s layout for reporting revenues, expenses and balance sheet items. The proposal would place all of the required supplemental financial information from Parts I, VII and VIII of the 2006 Form 990 into a separate schedule and would eliminate exclusion codes.
Parts VII and VIII of the redesign contain questions about the general activities of the organization and its compliance with various IRS filing requirements. These questions serve as “trigger” questions for the various schedules an organization might be required to complete.
Part IX would require information on the program service and exempt function activities of the organization, and asks the organization to describe its most significant accomplishment for the year.
QUESTIONS TO CONSIDER
• Does the redesign provide a more efficient method of reporting?
• Part II requires the organization to report information about the compensation of officers, directors, trustees and certain other employees. Do you agree with the requirement to report compensation based on Form W-2 reporting for employees and Form 1099 reporting for directors and other independent contractors?
• Do you agree with the triggers used in the core form for filing Schedule J (Supplemental Compensation Information)?
• Part III includes questions regarding governance, management and financial reporting, including the number of members of the governing body; whether there are specific written policies; and the method by which certain documents are made available to the public. Do you believe these additional items are a good indication that safeguards are in place to provide that an organization’s assets will be used consistently with its exempt purposes?
• Do you believe the new draft form takes into consideration any privacy concerns?
• The IRS specifically requests comment on whether it should preclude group returns. Do you agree?
• The IRS anticipates a new form for the 2008 filing year, which would apply to returns filed in 2009. Is this sufficient time for compliance?
If you have any further questions, or to submit a response, please contact:
Michigan Credit Union League
112 East Allegan St., Suite 800
Lansing, MI 48933
Fax: (517) 482-3762
We Appreciate Your Response.