AICPA Comments on 2008 Form 990 Draft Instructions
Summary
Full Text:
May 21, 2008
IRS
Draft 2008 Form 990 Instructions
1111 Constitution Ave., NW.
Washington, DC 20224
Attention: SE:T:EO
RE: Instructions for Form 990, Return of Organization Exempt from Income Tax
Dear Sir:
The AICPA is the national, professional association of CPAs, with approximately 350,000 members, including CPAs in business and industry, public practice, government, and education; student affiliates; and international associates. Our members provide audit and tax services to thousands of not-for-profit organizations.
The attached comments were developed by our Form 990 Instructions Task Force made up practitioners who serve tax-exempt organizations and are experienced with both the nuances of the Instructions and the challenges that arise for taxpayers in applying them. The comments were approved by our Exempt Organizations Technical Resource Panel.
We look forward to working with you in the future on this matter. We stand ready to discuss and explain our comments with you at any time. If you have any questions, please contact either of the undersigned: Marie Arrigo at (917) 286-8602 or MArrigo@eisnerllp.com, or Jane Searing at (425) 635-7428 or JSearing@clarknuber.com; or George White, AICPA Technical Manager, at (202) 434-9268, or gwhite@aicpa.org.
- Sincerely,
Marie Arrigo
Co-Chair,
Form 990 Instructions Task Force
Sincerely,
Jane Searing
Chair, Exempt Organizations
Technical Resource Panel
Steven Miller
Lois Lerner
Ward Thomas
Comments on Form 990 Instructions
Developed by the
Form 990 Instructions Task Force
Marie Arrigo, Co-Chair
John Valenzuela, Co-Chair
Jody Blazek
Alan Blum
Bliss Jones
Deborah Kosnett
Betsy Krisher
Richard Pon
Fred Rothman
Jane Searing
Jeanne Schuster
George White, AICPA Technical Manager
May 21, 2008
General Instructions AICPA
_____________________________________________________________________
Section of the instructions
General, overall
Importance
Low
Urgency
Low
Comment
It is difficult to tell, when reading through any of the draft
instructions, whether any given term is defined in the accompanying
Glossary, without turning to the Glossary to look.
Recommendation
Provide some sort of identifier for terms defined in the
Glossary -- perhaps a different type font, or italics, or symbol,
that will immediately alert the reader to go to the Glossary for the
definition. (It may also be useful, if the final instructions are
available on the Web in PDF format, to hyperlink terms defined in the
Glossary with their Glossary definitions.)
_____________________________________________________________________
Section of the instructions
Highlights of general instructions
Importance
Medium
Urgency
Medium
Comment
Highlights say short years ending in 2008 may use 2007 forms.
Instructions don't state this
Recommendation
Include this option in the instructions for short periods
_____________________________________________________________________
Section of the instructions
Highlights -- 1st bullet point
Importance
High
Urgency
High
Comment
Request for specific examples of accomplishments for particular
subsectors of exempt organizations: Nursing homes
Recommendation
Nursing Home Sector: number of beds, number of allied health
professionals and medical personnel, specialized facilities and
treatments for the elderly
_____________________________________________________________________
Section of the instructions
Highlights -- 1st bullet point
Importance
High
Urgency
High
Comment
Request for specific examples of accomplishments for particular
subsectors of exempt organizations: Hospitals
Recommendation
Hospitals: number of licensed beds, specialties, number of
Inpatients and outpatients treated. Reference to Sch H, for charity
care etc.
_____________________________________________________________________
Section of the instructions
Highlights -- 1st bullet point
Importance
High
Urgency
High
Comment
Request for specific examples of accomplishments for particular
subsectors of exempt organizations: Colleges
Recommendation
Colleges: number of students full time and part time, number of
of faculty, explanation of degrees offered, description of financial
aid offered.
_____________________________________________________________________
Section of the instructions
Highlights -- 1st bullet point
Importance
High
Urgency
High
Comment
Request for specific examples of accomplishments for particular
subsectors of exempt organizations: Social Clubs
Recommendation
Social Clubs: number of members, offerings to members, any
community programs or benefits
_____________________________________________________________________
Section of the instructions
Highlights -- 1st bullet point
Importance
High
Urgency
High
Comment
Request for specific examples of accomplishments for particular
subsectors of exempt organizations: Trade Associations
Recommendation
Trade Associations: number of members, offerings to members,
description of trade shows etc.
_____________________________________________________________________
Section of the instructions
Highlights -- 2nd bullet point
Importance
Low
Urgency
Low
Comment
Request for whether to rely on existing activity codes or
develop new ones
Recommendation
Recommend new codes be adopted -- suggest look to states like
Massachusetts for listing of codes
_____________________________________________________________________
Section of the instructions
General, Page 7
Importance
Low
Urgency
Low
Comment
The definition of "gross receipts" does not specifically state
that gross proceeds from securities and asset sales are includible in
the gross receipts total. Organizations usually record in their
general ledger only the net gain or loss from securities
sales, and must dig into detail statements and documents to determine
gross proceeds. Accordingly, without an explicit reminder in the
instructions, they may not calculate gross receipts correctly. This
is especially important, now that the Form 990 no longer includes the
prior form's Line L, Gross receipts, that automatically calculated
the gross receipts total.
Recommendation
Provide specific guidance as to the inclusion of gross proceeds
from securities and asset sales.
_____________________________________________________________________
Section of the instructions
General, Page 8
Importance
High
Urgency
High
Comment
The instructions state that a controlling organization must file
Form 990, rather than Form 990-EZ, if it controls one or more
"controlled entities" within the meaning of section 512(b)(13), if it
is required to file a 990 at all, and if there was any transfer of
funds between the controlling organization and any controlled entity
during the year. This requirement presents a burden for those small
organizations, such as trade associations, that have an affiliated
section 501(c)(3) foundation or other tax-exempt affiliate that meets
the definition of a "controlled entity," as they otherwise would be
permitted to file Form 990EZ during the Form 990 transition period.
Recommendation
Permit small controlling organizations with tax-exempt
controlled entities to file Form 990-EZ (assuming no UBIT issue), and
specify that they must also file Schedule R.
_____________________________________________________________________
Section of the instructions
General, Page 9
Importance
Low
Urgency
Low
Comment
The 2007 Form 990 instructions listed 8 types of political
organizations that were not required to file Form 990. The draft
instructions list only 4 types. Are the other 4 types of
organizations now required to file a Form 990?
Recommendation
Clarify, in the instructions, why the 4 types of political
organizations that were left out now have to file Form 990; or if the
4 were omitted in error, restore them to the listing of political
organizations that do not have to file.
_____________________________________________________________________
Section of the instructions
General, Page 10
Importance
Low
Urgency
Low
Comment
The Sequencing List indicates the order in which each section of
the new Form 990 should be completed, in order, to maximize
efficiency. While the overall order is logical, it may be beneficial
to move completion of Part VII higher up in the list, as it would be
useful in the completion of Part IX (currently part of Item 3) to
know the compensation numbers for the current officers, directors,
trustees, and key employees.
Recommendation
Move the completion of Part VII higher up the list: make it Item
#3, and renumber Items 3 - 10 to 4 - 11.
_____________________________________________________________________
Section of the instructions
Amended return section, p13
Importance
Medium
Urgency
Medium
Comment
Sch O instructions ask for information on sections being amended
Recommendation
In the amended return section, instruct the taxpayer to complete
Schedule O to list changes
_____________________________________________________________________
Heading Part I and II AICPA
_____________________________________________________________________
Section of the instructions
Importance
Urgency
Comment
No comment
Recommendation
_____________________________________________________________________
Part III AICPA
_____________________________________________________________________
Section of the instructions
Specific Instructions: line 2
Importance
High
Urgency
High
Comment
New Program services must answer "Yes" if the organization
undertook any new "significant" activities.
Recommendation
Recommend providing a definition and or examples of what is
"significant"
_____________________________________________________________________
Section of the instructions
Specific Instructions: line 3
Importance
High
Urgency
High
Comment
Changes in programs must answer "Yes" if the organization made
any significant changes in its program activities.
Recommendation
Recommend providing a definition and or examples of what is
"significant"
_____________________________________________________________________
Part IV AICPA
_____________________________________________________________________
Section of the instructions
Core Form, Part IV, Line 12, and Schedule D, Parts XI, XII, and
XIII
Importance
Low
Urgency
Low
Comment
The instructions for Line 12 provide that an organization is to
answer no if it has not received an audited financial statement
prepared in accordance with GAAP for the year for which it is
completing the return. There are times when a return must be filed
prior to the issuance of the signed financial statements, such as
when the signed financials will not be issued until after the final
extended due date. Although the instructions for Line 12, and
Schedule D,Parts XI, XII, and XIII, provide that organizations
answering "No" may provide the reconciliations, it is not clear
whether in those circumstances the answer should be "Yes" or "No".
Recommendation
The instructions for Part IV, Line 12 should clarify whether in
the circumstances described the answer should be "Yes" or "No". We
would recommend that a "Yes" answer would be appropriate.
_____________________________________________________________________
Section of the instructions
Line 36 Transfers by charitable organizations
Importance
High
Urgency
High
Comment
The instructions say that 501(c)(3) organizations must answer.
The instructions should clarify that Schedule R, Part V, line 2 is
only applicable and therefore needs to be completed by 501(c)((3)
organizations
Recommendation
Adding that Schedule R, Part V line 2 is applicable for
transactions with noncharitable organizations only if the reporting
organization is a 501(c)(3) organization.
_____________________________________________________________________
Section of the instructions
Line 29 Non-cash Contributions
Importance
High
Urgency
High
Comment
The instructions require any organization that received during
the year more than $25,000 in the value of donations, gifts, grants,
or other contributions of property other than cash, regardless of
whether they reported such amounts as non-cash contributions in Part
VIII, Line 1g to answer "Yes" to this line.
Recommendation
More clarification and possibly examples would be helpful. (1)
This question should be answered using the same basis as the return
is being prepared (cash v. accrual). (2) Another consideration is
donation of art, historical artifacts that are not recorded on the
balance sheet, or assets received as an agent for another
organization. Clarification should be provided as to what assets
should be included. As an example, Form 8283 would be required for a
donation of art. However, an appraisal of this donation would not be
required by the organization. Therefore, the organization would have
no basis to record the asset.
_____________________________________________________________________
Part V AICPA
_____________________________________________________________________
Section of the instructions
Importance
Urgency
Comment
No Comment
Recommendation
_____________________________________________________________________
Part VI AICPA
_____________________________________________________________________
Section of the instructions
Core Form Part VI, Line 1b
Importance
Medium
Urgency
Low
Comment
A reference is made to the "large board" exception. This
exception should be detailed in the instructions for the preparer.
Recommendation
Include a definition of a large board and what the exception is.
_____________________________________________________________________
Section of the instructions
Part VI line 1b
Importance
High
Urgency
High
Comment
#3 to be independent, the voting member must not receive
"material financial benefits" from the organization or a related
organization.
Recommendation
Need a better definition and perhaps examples to understand what
constitutes a material financial benefit.
_____________________________________________________________________
Section of the instructions
Core Form Part VI, Line 10
Importance
High
Urgency
High
Comment
The instructions state that you should check "yes" if the 990,
as ultimately filed, was given to "each" member of the governing
body. . . . prior to the filing of the form. . . . . . . . . This is
a very high bar to meet. The organization should have the ability to
provide the form to the board members, in draft and provide the final
at filing or immediately after filing of the final form.
Recommendation
The instructions should state "has a process to disseminate the
990 to all members of the governing board prior to filing"
_____________________________________________________________________
Section of the instructions
Line 2 Relationships
Importance
High
Urgency
High
Comment
Second business relationship includes performance of services
for compensation of greater than $5,000. There is no exception for
professional services which are privileged in some way e.g.
Physician/patient or attorney/client
Recommendation
Provide an exception to the general disclosure rule that does
not require disclosure of privileged relationships such as
physician/patient or attorney/client.
_____________________________________________________________________
Part VII AICPA
_____________________________________________________________________
Section of the instructions
Section A, Page 1
Importance
High
Urgency
High
Comment
The current draft instructions propose to put a reporting floor
under compensation of key employees of $150,000 (reportable
compensation). However, FORMER key employees must be listed if
reportable compensation is $100,000 or more. It does not make sense
to report former key employees at a lower threshold level than
current key employees.
Recommendation
The standard for former key employees should be revised upward
to $150,000, even though this contradicts Page 7 of the form itself.
There is already one such correction: on Page 2 of the draft Part VII
instructions, a "Caution" box indicates that the Form 990, Part VII,
Page 7 notation "regardless of amount of compensation" should be
ignored, and the $150,000 threshold utilized, for current key
employee reporting.
_____________________________________________________________________
Section of the instructions
Section A, Page 2
Importance
Medium
Urgency
Medium
Comment
The definition of "Officer" indicates that an organization's
officers "may" be determined by reference to the organization's
organizing document, bylaws, or governing body resolutions. It is not
clear whether the use of the word "may" indicates that an
organization has the option of listing fewer officers than its
organizing documents, etc. may include, as long as applicable state
law is complied with.
Recommendation
Explicitly state, in the instructions, that those organizations
that list more than the standard officer positions in their
organizing documents (for example: multiple vice presidents) have the
option of reporting only those officers required by state law.
_____________________________________________________________________
Section of the instructions
Section A, Page 2
Importance
High
Urgency
High
Comment
The instructions significantly expand the definition of a key
employee to include anyone that manages a segment or activity of an
organization representing 5% or more of the activities, assets,
income, expenses, capital expenditures, operating budget or employee
compensation of the organization. This definition is troublesome and
burdensome, for the following reasons:
o There are numerous definitions of "significance," both in the
Internal Revenue Code and Regulations and in various Form
instructions. Most of these definitions begin at a 15% to 25%
level. Five percent is too low to invoke "significance."
o The expanded definition is not consistent with Reg. §
53.4958-3(e)(2)(iv) and (v), which deal with "substantial
influence." Reg. § 53.4958-3(e)(2)(iv) utilizes the term
"substantial," whereas Reg. § 53-4958-3(e)(2)(v) refers to
a "discrete" segment or activity. Examples 8-11 in the §
4958 regulations utilize the term "discrete" in conjunction
with the term "substantial." Examples 1-4 of the draft 990
instructions are based on Examples 8-11, but assert that 5% is
"substantial." However, this term is not defined in the §
4958 Regulations, much less set at a 5% threshold
o It appears that the 5% threshold may have been pulled from the
top-heavy benefit plan rules of § 416, where a "key
employee" is defined as a "more than 5% owner of the
employer." Using this particular definition in a
not-for-profit setting implies that a 5% owner and a non-owner
employee who "manages" 5% of an exempt organization are
somehow equivalent, when they are not. An employee (especially
an at-will employee) and an owner are simply not going to
exert the same degree of control over an organization.
o A 5% threshold will be particularly burdensome, as many
organizations will likely face tremendous difficulties trying
to obtain information on a large number of employees. The
expanded requirement will entail voluminous requests to
payroll, human resources, and accounts payable, and may very
well significantly delay Form 990 filings. Additionally, such
individuals would also have to be incorporated into
disclosures about family and business relationships and
conflicts of interest, further extending the reporting burden
on organizations large and small.
Recommendation
The utilization of 5% with respect to defining discrete segment
and control over capital expenditures, operating budget,or
compensation of employees is not realistic, will result in an
exponential increase of key employees -- especially for larger
organizations -- and in many instances will blur the relative
authority of those so designated as key employees under the current
definition. It is our recommendation that the definition of
"significant disposition" -- 25% -- as set forth in the Schedule N
instructions, be utilized instead. Inasmuch as the IRS has announced
that its plans for formal guidance include regulations to implement
Form 990 revisions, it is our recommendation that the term
"substantial" be defined as a 25% standard with respect to the term
"substantial."
_____________________________________________________________________
Part VII AICPA
_____________________________________________________________________
Section of the instructions
Section A, Page 2
Importance
High
Urgency
High
Comment
Example 1 under the "key employee" definition includes
"contributions from alumni and foundations" in total organization
revenue, and implies that a portion of those contributions have been
counted as part of the law school's revenue, thereby pushing that
department over the 5% limit. It is not at all clear how donations
were allocated to the law school: were only direct donations to the
law school included? Were general donations allocated amongst the
school's various departments?
Recommendation
Provide guidance as to how contributions are to be included in
departmental revenue -- or else stipulate that donations themselves
comprise a separate department (especially if the organization has a
separate fundraising department or division).
_____________________________________________________________________
Section of the instructions
Section A, Page 2 and 3
Importance
Low
Urgency
Low
Comment
The examples provided under the definition of "key employee"
include a university and a hospital. In truth, the world of exempt
organizations is far broader than schools and hospitals -- and is
also broader than charitable organizations. These other types of
organizations tend to be organized differently, with smaller staffs
and significantly different revenue streams.
Recommendation
Provide additional examples based on other organizational types:
trade associations, action organizations, etc.
_____________________________________________________________________
Section of the instructions
Section A, Page 5
Importance
Medium
Urgency
Medium
Comment
The section on Group returns provides two Part VII/Schedule J
reporting alternatives, in terms of a parent organization and its
subordinates: parent/subordinates separately, and parent/subordinates
consolidated. It is not clear, from the instructions, whether the
separate reporting requirement envisions a Part VII/Schedule J for
EACH subordinate (with the group 990 containing many Parts VII and
Schedules J), or whether the subordinates are all included in one
Part VII/Schedule J, as is the case with the consolidated reporting
alternative.
Recommendation
Clarify the instructions for separate reporting, preferably
requiring only one Part VII/Schedule J including all subordinates.
_____________________________________________________________________
Section of the instructions
Section A, Page 5
Importance
Low
Urgency
Low
Comment
The instructions do not indicate whether the reporting of
"average hours per week" will allow for fractional hour reporting
Recommendation
Clarify the instructions, preferably allowing for fractional
hours. Directors and trustees of small organizations, for example,
may spend an average of less than an hour per week on organization
business, and greater reporting accuracy will be achieved if
fractional hours are permitted.
_____________________________________________________________________
Section of the instructions
Section A, Pages 5 and 6
Importance
Medium
Urgency
Medium
Comment
The instructions for current and former officers, directors,
trustees, and key employees are confusing, with regard to which boxes
should be checked, and which titles should be included.
Recommendation
Provide a chart that more clearly shows the checkbox and titling
requirements for each type of "current" and "former" position.
_____________________________________________________________________
Section of the instructions
Section A, Pages 5 and 6
Importance
High
Urgency
High
Comment
The instructions provide that the former "five highest
compensated" employees must be listed if they fell out of the top 5
for the current year, but were listed in the top 5 at any time during
the prior 5 years. This is a cumbersome requirement, for this reason:
unlike the listings of officers, directors, trustees, and key
employees, the listing of the "5 highest compensated" employees can
be significantly fluid from year to year. Differences in annual pay
raises, increases in the number of employees, and expansion of
program offerings can lead to significant changes in which employees
are in the top 5 from year to year. Most of the time, employees
falling out of the top 5 do so not because their positions or duties
changed, but because their compensation did not keep pace with that
of other employees, or new employees were brought in at a higher
level.
Recommendation
Require the reporting of former "five highest paid" only if
their pay and duties change due to serving in a lesser capacity, if
they move to a related organization and serve in a different
capacity, or if they were not an employee at all during the year, but
were compensated (either by the reporting organization or a related
organization) as a consultant or independent contractor.
_____________________________________________________________________
Section of the instructions
Section A, Page 6
Importance
Medium
Urgency
Medium
Comment
The explanation for the "volunteer exception" refers to
compensation from a "related" for-profit organization. Technically,
such an organization is not really "related," as there is no
connection between the reporting organization and the for-profit
organization, other than what amounts to a coincidental linkage to
one individual.
Recommendation
Rewrite this section to clarify that the "related" label does
not apply to this relationship, and revise the Schedule R
instructions to state that the "brother/sister" relationship does not
include one to which the volunteer exception applies.
_____________________________________________________________________
Section of the instructions
Section A, Page 7
Importance
Medium
Urgency
Medium
Comment
The instructions state that "other compensation" must always
include the value of certain health benefits, including "health
benefits provided by employer self-insurance." It is not clear
whether this includes, for example, payment by a self-insured
organization of an employee's $100,000 hospital bill (and how the
existence of a stop-loss policy might affect the amount reported), or
whether the organization need only report the employee's share of the
organization's overall assumed risk.
Recommendation
Provide explicit guidance with regard to "other compensation"
reporting and self-insured health plans, preferably with the goal of
enhancing comparability amongst all organizations: both those that
self-insure and those that transfer risk to third parties.
_____________________________________________________________________
Section of the instructions
Section A, Pages 7 - 9
Importance
High
Urgency
High
Comment
Both the Example on Page 7 and the chart on Page 9 indicate that
EMPLOYEE contributions to 401k and 403b plans are to be treated as
additional compensation. The Example includes employee pre-tax
contributions to a qualified defined-contribution plan in total
"other compensation," despite the fact that these dollar amounts are
already included in "reportable compensation" (Box 5 of Form W-2).
Furthermore, the chart classifies an employee contribution to a 401k
plan as a Part VII "other compensation" amount, as well as a Schedule
J, Part C amount. This reporting requirement has the effect of
double-counting employee pre-tax contributions: once as part of
"reportable compensation," and again as "other compensation." This
may be misleading to readers of Form 990. Furthermore, the same chart
indicates that employee pre-tax contributions to a 403b plan should
be reported as "reportable compensation," rather than as "other
compensation." It does not make sense to report employee
contributions to a 403b plan differently than contributions to a 401k
plan.
Recommendation
Because it is already included in Box 5 of Form W-2, neither
employee contributions to a 401k plan nor a 403b plan should be
separately reported in either Part VII or Schedule J (see
Schedule J comments). If detail of pre-tax contributions is desired
on a per-employee basis, Schedule O can be utilized for this purpose.
_____________________________________________________________________
Part VIII, IX, X and XI AICPA
_____________________________________________________________________
Section of the instructions
Part X -- Line 3 -- Savings and Temporary Cash
Importance
Medium
Urgency
Medium
Comment
Certain types of accounts listed -- money-market and
certificates of deposit are publicly traded securities held in
investment accounts.
Recommendation
Add words "unless held in an investment account with a financial
institution."
_____________________________________________________________________
Appendix AICPA
_____________________________________________________________________
Section of the instructions
Appendix B, Gross Receipts description
Importance
Medium
Urgency
Low
Comment
Math as described isn't as clear as it could be
Recommendation
Recommend rephrasing Form 990 math to: Gross receipts are the
sum of Total Revenue (line 12 of Form 990 Part VIII) and the expenses
previously deducted (sum of lines 6b,7b,8b, 9b and 10b of Form 990
Part VIII) The Form 990EZ math should then be rephrased to be
consistent with the above example. The math definition would then
also correlate more closely to the example provided.
_____________________________________________________________________
Glossary AICPA
_____________________________________________________________________
Section of the instructions
Glossary as a whole
Importance
Medium
Urgency
Low
Comment
Overall note: words used in definitions that are also defined in
the Glossary are to be italicized. That convention did not seem to be
consistently used throughout the Glossary.
Recommendation
Revisit this section to ensure all terms that should be
italicized are italicized
_____________________________________________________________________
Section of the instructions
Definition of "allowance for doubtful accounts"
Importance
Medium
Urgency
Medium
Comment
Rephrase definition
Recommendation
Propose the following or something to this effect: " a
contra-asset account established to offset accounts receivable for
amounts that will not be paid"
_____________________________________________________________________
Section of the instructions
Definition of an "audit"
Importance
High
Urgency
High
Comment
Rephrase definition to be more technically accurate
Recommendation
Propose the following or something to this effect:" a formal
examination of an organization's financial records and practices by
an independent, certified public accountant with the objective of
issuing a report on the organization's financial statements as to
whether those statements were fairly stated in accordance with
generally accepted accounting principles (or recognized other
comprehensive basis of accounting)"
_____________________________________________________________________
Section of the instructions
Definition of an "endowment"
Importance
Medium
Urgency
Medium
Comment
SFAS 117 is used as a reference initially with this definition
however it is not defined here.
Recommendation
Italicize "SFAS 117" as part of this definition so the reader
knows they can find the definition later on in the glossary
_____________________________________________________________________
Section of the instructions
Definition of "financial statements"
Importance
Medium
Urgency
Medium
Comment
Definition does not conform with SFAS 117 language
Recommendation
Propose the following or something to this effect: " A statement
of financial position as of the end of the fiscal year along with a
statement of activities and cash flows for the year then ended, as
well as a statement of functional expenses for the year then ended
(if applicable). "
_____________________________________________________________________
Section of the instructions
Definition of "fixed formula"
Importance
Medium
Urgency
Medium
Comment
Definition should include a reference to excess benefit
transaction context
Recommendation
Expand definition to begin "Relates to excess benefit
transactions (see Appendix G). In that context, a fixed
formula. . . . . ."
_____________________________________________________________________
Section of the instructions
Definition of "fixed payment"
Importance
Medium
Urgency
Medium
Comment
Definition should include a reference to excess benefit
transaction context
Recommendation
Expand definition to begin "Relates to excess benefit
transactions (see Appendix G). In that context, a fixed payment
is. . . . . ."
_____________________________________________________________________
Section of the instructions
Definition "key employee"
Importance
High
Urgency
High
Comment
Modify "key employee" definition.
Recommendation
Modify definition to take into account previous recommendation,
as stated in Part VII, Section A, page 2.
_____________________________________________________________________
Section of the instructions
Definition of "permanent (true) endowment"
Importance
Medium
Urgency
Medium
Comment
Definition should be modified to align more closely with SFAS
117
Recommendation
Propose the following or something to this effect: " Permanent
endowment relates to those endowment assets held that correspond to
permanently restricted net assets. Such endowment funds are
maintained. . . . . . ."
_____________________________________________________________________
Section of the instructions
Definition of "refunding escrow"
Importance
Medium
Urgency
Medium
Comment
See recommendation
Recommendation
Italicize "refunding issue" within the definition
_____________________________________________________________________
Section of the instructions
Definition of "review of financial statements"
Importance
High
Urgency
High
Comment
Rephrase definition to be more technically accurate
Recommendation
Propose the following: "A service provided by an independent
accountant the objective of which is to express limited assurance
that there is no material modification that should be made to the
financial statements in order for the statements to be in conformity
with generally accepted accounting principles. A review is
substantially less in scope that an audit."
_____________________________________________________________________
Schedule A AICPA
_____________________________________________________________________
Section of the instructions
Importance
Urgency
Comment
No Comment
Recommendation
_____________________________________________________________________
Schedule B AICPA
_____________________________________________________________________
Section of the instructions
Contributors listed on Part I*
Importance
High
Urgency
High
Comment
It would be very helpful to specify whether governments should
be included. It seems logical that they would not be, as they are not
a person within the meaning of IRC section 7701, but it doesn't
really matter because contributions are not limited for 509(a)(1)
organizations
Recommendation
Specifically including or excluding governments will get more
consistent reporting between organizations.
_____________________________________________________________________
Section of the instructions
Specific instructions for Part I*
Importance
High
Urgency
Medium
Comment
The definition of "cash contribution" does not include credit
cards.
Recommendation
Include them in the list of inclusions.
_____________________________________________________________________
* Restated from our 2/08 comments.
Schedule C AICPA
_____________________________________________________________________
Section of the instructions
General Instructions, Pages 2 and 3
Importance
High
Urgency
High
Comment
On Page 2, the instructions indicate that the definitions in the
"General Definition of Terms" section are applicable throughout
Schedule C. However, on the next page, the definition of "lobbying
activities" is the one that applies only to section 501(c)(3)
organizations. The definition of lobbying activities for section
501(c)(4), (5) and (6) organizations is different, in that it
excludes local-level lobbying activities, and includes lobbying
communications with a "covered executive branch official." The draft
instructions attempt to differentiate between "lobbying
activities/lobbying expenditures" (section 501(c)(3) organizations)
and "lobbying and political expenditures" (section 501(c)(4), (5) and
(6) organizations), but as many non-charitable organizations (and
their advisors) think of their lobbying programs as "activities" and
do not automatically associate political activities with lobbying
activities, the general "lobbying activity" definition on Page 3 is
confusing, and may lead to erroneous reporting.
Recommendation
Change the sentence at the bottom of Page 2 to read:
"(Definitions in this section are applicable throughout this
Schedule, except where noted)." Then, on Page 3, indicate that
the "lobbying activities" definition applies to 501(c)(3)
organizations only, and that the definition for section 501(c)(4),
(5) and (6) organizations may be found on Page 6. It may also be
useful to revise the definition on Page 6 as "Lobbying and Political
Activities," and retool the definition accordingly. Alternatively,
the general "Lobbying Activities" definition may be moved to the
"Part IIA -- Definition of Terms" section, on pages 3 - 6.
_____________________________________________________________________
Section of the instructions
General Instructions, Page 3
Importance
Low
Urgency
Low
Comment
The definition for "specific legislation" implies, but does not
specifically state, that a "legislative proposal" may be one that may
not yet have been introduced into a legislative body as an actual
bill or action.
Recommendation
Change the definition to read as follows: "Specific legislation
includes (1) legislation that has already been introduced in a
legislative body and (2) specific legislative proposals that an
organization either supports or opposes, whether or not actually
introduced into any legislative body."
_____________________________________________________________________
Section of the instructions
Part II-A section, Page 3
Importance
Low
Urgency
Low
Comment
The definition of "exempt purpose expenditures," as well as the
calculation in Part II-A of Schedule C, would be enhanced by the
inclusion of a worksheet that would allow an organization to more
easily calculate its "other" exempt purpose expenditures (Part II-A,
line 1d). In our observation, too many organizations merely take
total expenditures and subtract lobbying expenditures, to arrive at
"other" exempt purpose expenditures. This often times leads to an
overstatement of total exempt purpose expenditures.
Recommendation
Include a cumulative worksheet, perhaps at the end of the
Schedule C instructions or in the specific instructions for Part II,
stepping the organization through the various components of "other"
exempt purpose expenditures.
_____________________________________________________________________
Section of the instructions
Page 4 item 5 under exempt purpose expenditures
Importance
High
Urgency
Medium
Comment
The extent that fundraising expenditures are includible as
exempt purpose expenditures is unclear based on the phrase
"Fundraising expenditures, except that exempt purpose expenditures do
not include amounts paid to or incurred . . . if the amounts are
primarily for fundraising."
Recommendation
Reword to clarify the extent to which fundraising expenditures
are includible as exempt purpose expenditures. For example, if the
amount paid is to an auxiliary of the organization and the amount is
for fundraising purposes, then the amount would be excluded from
exempt purpose expenditures.
_____________________________________________________________________
Section of the instructions
Part I-A, Page 8, Lines 1 and 2
Importance
High
Urgency
High
Comment
The instructions for Line 1 are contradictory for organizations
that have separate segregated funds (SSFs). The first paragraph
("Note") instructs a section 501(c) organization with an SSF to
"report transfers to the funds in Parts I-A and I-C." However, the
next paragraph ("Line 1") indicates that a 501(c) organization
collecting "political contributions or member dues earmarked for a
separate segregated fund, [which] promptly and directly transfers
them to that fund as prescribed in Regulations section
1.527-6(e) . . ." should not report those transfers in Part
I-A. Accordingly, it is not clear what a 501(c) with an SSF is to do:
does it report transfers in Part I-A only if it fails to
correctly transfer funds in accordance with the Regulations? If this
is the case, it is highly likely that many organizations will
incorrectly report properly-made SSF transfers in Part I-A.
Recommendation
Revise the instructions to provide that either all SSF
transfers be reported in Part I-A (with clarifying details presumably
to be provided in Part I-C), or that no SSF transfers be
report in Part I-A. If it is desired that a 501(c) organization with
an SSF provide a detailed description of its direct and indirect
political campaign activities (but not its transfers to the SSF) in
Line 1, then the instructions for Line 2 should be modified to
clarify that no SSF transfers should be reported.
_____________________________________________________________________
Section of the instructions
Part I-A, Page 8, Line 3
Importance
Medium
Urgency
Medium
Comment
The instructions for Line 3 indicate that an organization using
volunteer labor hours in the conduct of its political campaign
activities should estimate the total number of volunteer hours. The
instructions do not specify whether volunteer hours associated with
an organization's Separate Segregated Fund (SSF) should also be
included -- either in connection with the collection and proper
remittance of SSF contributions, or the subsequent political
activities actually conducted by the SSF.
Recommendation
Modify the instructions to specify exactly what volunteer labor
hours should be included, and whether it would be desirable for the
organization to provide a breakdown of those hours (organization vs.
SSF, for example) in Part IV of Schedule C.
_____________________________________________________________________
Section of the instructions
Part I-C, Page 9
Importance
Low
Urgency
Low
Comment
The Line 2 instructions specify that an organization
transferring its own funds to its SSF for political purposes would
report such transfers here. This directive implies, but does not
explicitly state, that such amounts would likely include political
contributions or member dues collected but improperly
transferred to the SSF, through a failure to follow the procedures
set forth in Regulations section 1.527-6(e).
Recommendation
Clarify the Line 2 instructions to explicitly include
improperly-made transfers of collected political contributions and
member dues.
_____________________________________________________________________
Schedule D AICPA
_____________________________________________________________________
Section of the instructions
Schedule D, Part I -- Other similar funds or accounts
Importance
High
Urgency
High
Comment
The definition of donor advised and other similar funds or
accounts is too broad. Most temporarily restricted funds, where the
organization reports the use to the donor, will not be considered
donor advised funds, unless other donor control elements exist.
Recommendation
Temporarily restricted funds, where further donor control does
not exist and the organization reports the use of the funds to the
donor, will not be considered donor advised funds.
_____________________________________________________________________
Section of the instructions
Schedule D, Part II, Line 4
Importance
High
Urgency
High
Comment
The first sentence of the instructions for line 4 should be
moved to be the first line for line 5.
Recommendation
Move the sentence to the instructions to Line 5
_____________________________________________________________________
Section of the instructions
Schedule D, Part III, Line 1b
Importance
High
Urgency
High
Comment
The instructions for this line should mimic the wording for the
line.
Recommendation
The wording should include the terms "held for public
exhibition, education or research in furtherance of public
service. . . ."
_____________________________________________________________________
Section of the instructions
Part III, line 2
Importance
High
Urgency
High
Comment
The IRS is under the misconception that SFAS 116 allows
nonprofits to record collections as either 1) capitalized and held
for public exhibition, education or research in furtherance of public
services, or 2) held for financial gain. SFAS 116, para. 13 provides
that contributed collection items shall be recognized as revenue or
gains [when contributed] if collections are capitalized. SFAS
116, para. 26 provides that an entity that does not recognize and
capitalize its collections should expense the cost of collection
items purchased and recognize as revenues or gains the proceeds of
collection items sold.
Recommendation
Form 990 Line 2 needs to be revised to read: 2. If the
organization does not capitalize its collections of art, historical
treasures or similar assets, provide the following required to be
reported under SFAS 116 relating to these items: a. Revenues from the
sale of collection items included in Form 990 Part VIII line 7a(ii)
b. Expenses related to the cost of collection items purchased
included in Form 990 Part IX. Instruction pg5, last para, last line
should be revised by inserting "sales proceeds and purchases of"
between "report" and "its" and the second to the last line of the
carryover para on pg 6 should be revised to say "pertains to
collection items not capitalized, as those terms are."
_____________________________________________________________________
Section of the instructions
Schedule D, part IV
Importance
High
Urgency
High
Comment
The instructions ask for specific items that should be "carve
outs" for items not to be included in this section
Recommendation
The following items should be specifically carved out of this
section, Patient trust funds, consumer funds, patient and other
security deposits related to a exempt program, etc.
_____________________________________________________________________
Section of the instructions
Part IV, line 1a
Importance
Medium
Urgency
Low
Comment
Clarify "carveout" as it relates to charitable remainder trusts.
Recommendation
Charitable Remainder Trusts are subject to separate tax
reporting, therefore the Part IV "carveout" does not appear to be
necessary.
_____________________________________________________________________
Section of the instructions
Schedule D, part XIV, Supplemental Information
Importance
High
Urgency
High
Comment
Reference in the instructions to Part XIII, lines 2d and 4. The
reference is missing a letter, it should be to 4b.
Recommendation
Add the reference to "4b" rather than just 4.
_____________________________________________________________________
Schedule E AICPA
_____________________________________________________________________
Section of the instructions
Importance
Urgency
Comment
No Comment
Recommendation
_____________________________________________________________________
Schedule F AICPA
_____________________________________________________________________
Section of the instructions
Highlights
Importance
High
Urgency
High
Comment
Items 1-5 contain definitions that duplicate the same
information in the Instructions.
Recommendation
Consolidate definitions. Move definitions for Grantmaking,
program services, fundraising from instruction to Highlights or vice
versa.
_____________________________________________________________________
Section of the instructions
Highlights
Comment
Important reporting methods should be revealed in the
highlights.
Recommendation
Several policy matters could be summarized in the highlights:
Importance
Medium
Urgency
Medium
Recommendation
For 2008, Part II, column (a) does not require grantee's name
nor in column (b) an EIN #.
Importance
High
Urgency
High
Recommendation
Part I only reports expenditures paid from accounts outside the
U.S.
_____________________________________________________________________
Section of the instructions
Specific Instructions for Part I General Information
Importance
Medium
Urgency
Medium
Comment
Column (d) has insufficient room to make required descriptions.
Recommendation
Create specified list of activities for input -- (a) Grants to
organizations and individual (b) Program services, (c) Fundraising.
Also in the future, the space for descriptions should be expanded
unless the code idea for columns (d) in Part I and column (h) in Part
II are implemented.
Importance
Medium
Urgency
Medium
Comment
Column (e) has insufficient room to make required descriptions.
Recommendation
Create specified list of activities for input -- (a) Orphanage,
(b) School, (c) Hospital, (d) Church, temple mosque or synagogue, (e)
Disaster relief efforts, (f) relief for indigents, (g) housing
restoration or building (h) health care, (i) agricultural, (j),
education or cultural programs, (l) water programs, (m) Other
_____________________________________________________________________
Section of the instructions
General Instructions, Page 2
Importance
Low
Urgency
Low
Comment
The definition of "foreign organizations" does not mention those
organizations formed outside of the United States, but that have
received a section 501(c)(3) determination letter, nor do the
instructions indicate whether such organizations should be flagged or
classified differently in this Schedule, in light of the fact that
they actually have a U.S. determination letter.
Recommendation
Provide a definition for such organizations, and further
distinguish such organizations from (a) organizations recognized as
charities by a foreign country, and (b) an organization that has
provided a "good faith determination" that it is the equivalent of a
U.S. 501(c)(3) organization.
_____________________________________________________________________
Section of the instructions
Part I, Line 3, Columns (d) and (e)
Importance
Medium
Urgency
Medium
Comment
It appears that there are only four activities that may be
listed in this section: (a) grantmaking, (b) fundraising, (c) program
services, and (d) unrelated trade or business activities. It is
unclear, from the instructions and the heading of Column (d), whether
unrelated trade or business activities are considered a type of
program service, or a separate category entirely. It is also unclear
whether a passive investment, as referenced in Page 2 of the
instructions, would be considered a separate activity to be listed.
Recommendation
Explicitly note the types of activities that should be listed in
Column (d), including unrelated trade or business activities and/or
investments, if includible. Also specify whether the type of
unrelated trade or business activity needs to be detailed in Column
(e).
_____________________________________________________________________
Schedule F AICPA
_____________________________________________________________________
Section of the instructions
Part II, Line 1, Page 4
Importance
Low
Urgency
Low
Comment
The "TIP" at the bottom of Page 4 does not indicate that the
organization should check the box at the top of Part II (meaning that
no one recipient received more $5,000).
Recommendation
Rewrite the "TIP" to include the check-the-box instruction.
_____________________________________________________________________
Section of the instructions
Part II, Line 2, Page 5
Importance
Medium
Urgency
Medium
Comment
Part II, Line 2 on Schedule C itself mentions only two
classifications of foreign organizations: (a) those recognized as
charities by a foreign country, and (b) those that have received a
"section 501(c)(3) equivalency letter." The Line 2 instructions add a
third classification: a foreign organization that has been recognized
by IRS as a 501(c)(3) organization and that has been awarded a
determination letter. This is confusing, especially in light of the
fact that the general instructions do not make mention of such an
organization (as noted in comment above).
Recommendation
While there is no real remedy for 2008, the 2009 form should be
revised to include this classification of foreign organization, in
Line 2.
_____________________________________________________________________
Section of the instructions
Part II, Line 2, Page 5
Importance
Medium
Urgency
Medium
Comment
Is it intended that the "section 501(c)(3) equivalency letter"
referenced on Page 5 be produced in accordance with sections
53.4942(a)3(a)(6) and 53.4945-5(a)(5) of the regulations, following
the procedures set forth in Rev. Proc. 9294? If so, it might be
useful to reference these regulations, as well as the Revenue
Procedure, in this section of the instructions.
Recommendation
Provide the Regulations and Rev. Proc. references. It would also
be useful to distinguish amongst the various types of foreign
organizations and their classifications as charitable organizations,
in the General Instructions (as previously noted, above).
_____________________________________________________________________
Section of the instructions
Schedule F,Lines 1 and 2
Importance
Medium
Urgency
Medium
Comment
The instructions require a description in Part IV of how an
organization monitors grants to ensure their proper usage, and
provides examples of such monitoring, including "friends of"
organization that supports specifies foreign organizations. The
instructions, however, do not provide any degree of specificity with
respect to such procedures, and do not make clear whether "friends
of" organizations are required to describe their grantmaking
procedures.
Recommendation
The instructions should provide references to IRS source
material, as well as other relevant sources that are applicable,
including the USA Patriot Act and Executive Order13224. In addition,
the Council on Foundations on its web site devoted to cross border
philanthropy(usig.org) has significant resources to assist
organizations in need of guidance. With respect to "friends of"
organizations, there should be references to Revenue Rulings that
establish the process to be followed by such organizations with
respect to grant making.
_____________________________________________________________________
Section of the instructions
Instructions for Part IV, Questions 14-16
Importance
High
Urgency
High
Comment
Instructions for the Part IV questions and Part IX, line 3,
should be coordinated.
Recommendation
Expand instructions for line 14b to include instruction for Part
I of Schedule F that does not include money disbursed in the U.S.
_____________________________________________________________________
Section of the instructions
Instructions for Part IX, line 3
Importance
High
Urgency
High
Comment
Instructions to Statement of Functional Expense should be
coordinated with Schedule F.
Recommendation
If Schedule F, Part I, does not report expenses paid in the
U.S., shouldn't the Page 15 instructions to line 3 provide the same
instruction?
_____________________________________________________________________
Section of the instructions
Instructions for Part IV, lines 1416, Part IX, line 3, and
Schedule F
Importance
High
Urgency
High
Comment
Term "assistance to organizations" should be defined.
Recommendation
Remove the term. All grants provide assistance so word
"assistance" is duplicative. Money spent on programs not directed at
particular organization is captured in Question 14b.
_____________________________________________________________________
Section of the instructions
Form 990 EZ
Importance
High
Urgency
High
Comment
Why isn't the IRS requiring Schedule F for organizations that
file Form 990EZ? There are many organizations that will qualify for
the 990EZ in 2008 that have significant foreign activities
Recommendation
Not exclude Schedule F for Form 990EZ.
_____________________________________________________________________
Section of the instructions
General
Importance
High
Urgency
High
Comment
Revise foreign activity thresholds.
Recommendation
In future years, thresholds for foreign activity could be
combined and raised to a single amount of $15,000 similar to domestic
thresholds.
_____________________________________________________________________
Schedule G AICPA
_____________________________________________________________________
Section of the instructions
Part I
Importance
Low
Urgency
Low
Comment
The scope of events generating gross receipts of $15,000 or more
will be too low in the future.
Recommendation
Consider indexing scope in the future.
_____________________________________________________________________
Schedule H AICPA
_____________________________________________________________________
Section of the instructions
Highlights #1 3rd Bullet
Importance
High
Urgency
High
Comment
States that the definition of facility is a campus, building,
structure, or other physical location or address at which the
organization provides medical care. This would include even blood
drawing stations offsite.
Recommendation
Listing each outreach site for blood drawing is a burden and not
really providing valuable information -- therefore, recommend
changing the definition such that if the medical care is only blood
drawing or something similar to this it should not be reportable.
_____________________________________________________________________
Section of the instructions
Schedule H, and Core Form, Line 20
Importance
High
Urgency
High
Comment
The definition of a hospital refers to a facility that is, or is
required to be, licensed or certified in its state as a hospital,
regardless of whether operated directly or by indirectly through a
disregarded entity or joint venture taxed as a partnership. Although
nursing homes are not certified or licensed as hospitals, there are
those that were classified as hospitals by the IRS at a time when
such organizations were classified as chronic care or acute care
facilities. The Centers for Medicare and Medicaid Services ("CMS") do
not consider nursing homes as hospitals. Given longstanding IRS
classification as hospitals, and CMS nonrecognition of such
facilities as hospitals, there is uncertainty on the part of such
facilities as to whether they are required to complete Schedule H.
Recommendation
To provide clarity, the instructions should provide that
facilities classified by the IRS as hospitals, but neither certified
or licensed as hospitals by their state, nor required to be so
certified or licensed, are not required to complete schedule H.
_____________________________________________________________________
Section of the instructions
Schedule H
Importance
High
Urgency
High
Comment
The instructions for Part V, the Highlights, line 1, third
bullet point gives the definition of a "facility" as a location where
the organization provides care. The same definition should be
included in the instructions for Part V and is currently not
included.
Recommendation
Reiterate the definition of a facility as a location where the
organization provides care in the Instructions.
_____________________________________________________________________
Schedule I AICPA
_____________________________________________________________________
Section of the instructions
General Instructions
Importance
High
Urgency
High
Comment
There is no indication of whether the information should be on a
cash or accrual method of accounting.
Recommendation
Add to instructions that the amounts are reported on the method
of accounting the organization normally uses. The amounts should be
reported in the amount that is included in expenses on the statement
of activities and not on the discounted basis reported on the balance
sheet.
_____________________________________________________________________
Schedule J AICPA
_____________________________________________________________________
Section of the instructions
Line 1a, Page 4
Importance
Low
Urgency
Low
Comment
The instructions for Line 1a, Certain Benefits, indicates that
Part III should be used to provide relevant information with regard
to any of the boxes checked, and that such information "may" include:
type of benefit, who received the benefit, and whether it was treated
as taxable compensation. Use of the word "may" appears to indicate
that provision of this information is optional.
Recommendation
Change the wording of the sentence to say: ". . . Provide in
Part III of this Schedule relevant information regarding these items,
including, at a minimum, the following:"
_____________________________________________________________________
Section of the instructions
Line 1a, Page 4
Importance
Low
Urgency
Low
Comment
The definition for "first class travel" includes "any travel on
an airplane or boat that is owned by the organization." This would
imply that travel on an organization-owned boat or plane is similar
to first-class travel in that it is more expensive than regular
travel -- which may or may not be the case. Furthermore, travel on an
organization-owned vehicle has more in common with "charter travel"
than it does with first-class travel.
Recommendation
Switch company-owned vehicle travel from "first class travel" to
"charter travel." This will have no real impact on Schedule J itself,
as the checkbox combines both first-class and charter travel, but it
might help the organization better classify and explain such travel
arrangements in Part III, as well as put such travel into the proper
frame of reference for readers of Form 990.
_____________________________________________________________________
Section of the instructions
Line 1a, Page 4
Importance
Low
Urgency
Low
Comment
The definition for "personal services" includes services
provided by a physician or other medical specialist. It is not an
uncommon practice for corporations to subject their executives to a
routine annual physical examination, for the benefit of the
organization itself, as well as the executive (in the belief that a
healthy employee is a better employee).
Recommendation
Change the "personal services" definition to exclude the annual
"executive" physical examination, to the extent that such exam is a
routine, baseline exam (as opposed to an ultra-comprehensive,
high-tech exam utilizing cutting-edge technology and testing).
_____________________________________________________________________
Section of the instructions
Line 2, Page 4
Importance
Medium
Urgency
Medium
Comment
The Line 2 instructions indicate that a "yes" answer requires
substantiation of all expenses or benefits listed in Line 1a. By
definition (Page 4 of the Schedule J draft instructions), a
discretionary spending account does not require substantiation under
the accountable plan rules. Accordingly, an organization that
provides a discretionary spending account to one or more executives,
but otherwise requires substantiation of all other expenditures,
might have to check "no" to this question.
Recommendation
Clarify the instructions for Line 2 to permit organizations
providing discretionary spending accounts to check "yes" if they
otherwise require substantiation of all other expenditures subject to
the accountable plan rules.
_____________________________________________________________________
Section of the instructions
Line 3, Page 4
Importance
Low
Urgency
Low
Comment
The Line 3 instructions refer to compensation of the
CEO/Executive Director, but do not further define the position.
Recommendation
Clarify that a "CEO/Executive Director" is an organization's top
management official, who reports directly to the Board of Directors;
and that such individual may have a different title, including
"Executive Vice President," "President," etc.
_____________________________________________________________________
Section of the instructions
Lines 5 and 6, Page 7
Importance
Medium
Urgency
Medium
Comment
The instructions for Line 5 define "net revenues" as "gross
revenues less certain expenses." Likewise, the term "net earnings" is
used, but not further defined. These are vague definitions, and may
be confusing, especially to those persons lacking an accounting or
bookkeeping background.
Recommendation
Provide a more concise definition of "net revenues,"
specifically naming those costs that could be included as revenue
offsets. For example: discounts, cost of goods sold, direct costs,
etc. Also provide a more comprehensive definition of "net earnings,"
both overall and in terms of one or more activities of an
organization.
_____________________________________________________________________
Section of the instructions
Part II, Page 8
Importance
High
Urgency
High
Comment
The instructions for Part II require that a former "key
employee" must be listed if his or her reportable compensation is
$100,000 or more. However, the floor for current "key employee"
reporting is set at $150,000, in the current draft instructions. It
does not make sense to report former key employees at a lower
threshold level than current key employees.
Recommendation
The standard for former key employees should be revised upward
to $150,000, even though this contradicts Page 7 of the form itself.
There is already one such correction: on Page 2 of the draft Part VII
instructions, a "Caution" box indicates that the Form 990, Part VII,
Page 7 notation "regardless of amount of compensation" should be
ignored, and the $150,000 threshold utilized, for current key
employee reporting.
_____________________________________________________________________
Section of the instructions
Part II, Page 8
Importance
High
Urgency
High
Comment
The bulleted listing of individuals to be reported in Part II of
Schedule J is confusing. Rather than making reference to Section A,
Part VII of Form 990 -- from which all Schedule J reportable
individuals are to be drawn -- the listing enumerates the individual
positions, setting up seeming contradictions. For example: the first
and third bullet points appear to conflict -- is a "former"
individual to be reported if he or she received more than $100,000 of
reportable compensation, or more than $150,000 of "reportable" and
"other" compensation?
Recommendation
Reword the first and third bullet points as follows: [first
bullet] "Each of the organization's former officers, former
directors, former trustees, former key employees, and former five
highest compensated employees, who were listed in Section A, Part VII
of Form 990, AND who received more than $100,000 of reportable
compensation from the organization and/or related organizations
($150,000 for former key employees), disregarding payments from a
related organization if below $10,000;" [third bullet] "Any
individual listed in Section A, Part VII of Form 990 for whom the sum
of Columns (D), (E) and (F) of Section A is greater than $150,000;"
[fourth bullet] "Any individual listed in Section A, Part VII
of Form 990 who received or accrued compensation for services
rendered to the organization from an unrelated organization . . ."
The above approach is much clearer than the current instructions,
which place the admonition to list only Section A, Part VII
individuals in the paragraph following the bulleted listing.
_____________________________________________________________________
Section of the instructions
Part II, Page 10
Importance
Medium
Urgency
Medium
Comment
The instructions for Column (C) state that an organization
should report an increase in actuarial value of deferred amounts only
if they "exceed the increases that would be determined based on an
interest or earnings rate that equals 120% of the applicable Federal
rate." It would make more sense (and would provide for greater
comparability between defined-benefit and defined-contribution types
of plans) if the instructions would simply require an organization to
report the estimated increase in actuarial value, regardless of
amount. This would reduce the reporting burden on organizations, in
that they would not have to first determine the increase in actuarial
value, and then perform an additional calculation to determine if the
increase were greater than the 120% AFR threshold.
Recommendation
Remove the 120% AFR threshold for reporting increases in
actuarial value.
_____________________________________________________________________
Schedule K AICPA
_____________________________________________________________________
Section of the instructions
Importance
Urgency
Comment
No Comment
Recommendation
_____________________________________________________________________
Schedule L AICPA
_____________________________________________________________________
Section of the instructions
Importance
Urgency
Comment
No Comment
Recommendation
_____________________________________________________________________
Schedule M AICPA
_____________________________________________________________________
Section of the instructions
Line 29
Importance
Low
Urgency
Low
Comment
If the organization doesn't track how many Forms 8283 it
completes, the instructions ask them to leave it blank rather than
estimate.
Recommendation
It would be better to estimate the number of forms. Leaving it
blank may mislead the reader.
_____________________________________________________________________
Schedule N AICPA
_____________________________________________________________________
Section of the instructions
Importance
Urgency
Comment
No Comment
Recommendation
_____________________________________________________________________
Schedule O AICPA
_____________________________________________________________________
Section of the instructions
Importance
Urgency
Comment
No Comment
Recommendation
_____________________________________________________________________
Schedule R AICPA
_____________________________________________________________________
Section of the instructions
Part V, line 2
Importance
High
Urgency
High
Comment
Instructions refer to all organizations filing Schedule R must
report certain transactions with a controlled entity as per IRC
section 512 (b)(3). It would appear that the correct cite is IRC
section 512(b)(13).
Recommendation
Correct the cite to IRC section 512(b)(13).
_____________________________________________________________________
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