In order to increase transparency, accountability and compliance, the federal government has tightened the reporting requirements for Form 990, Return of Organization Exempt from Income Tax.

The IRS recently released the revised Form 990 to be used for the 2008 tax year. It also provided a detailed draft of the instructions for the enhanced reporting requirements. Although the IRS may make further changes to the form based on public comments it receives, the new draft provides a clear picture of the government's expectations.

Is the New Form 990 More Burdensome Than the Current Form? According to the IRS, "organizations with complicated compensation arrangements, related entity structures, and activities that raise compliance concerns can expect to see an increase in the effort required to complete the form. This increase could be significant in some cases."

Following are some of the key points in the new Form 990 instructions that not-for-profit managers should know about:

New elements - The draft instructions contain several new elements that are designed to promote uniform reporting and understanding. They include a glossary of key definitions of terms such as an accountable expense allowance plan, nonqualified deferred compensation, and refunding escrow. There is also extensive information about the many types of compensation that must be reported, such as base salary, deferred bonuses, loans with forgone interest or debt forgiveness, contributions to qualified and nonqualified retirement plans, split dollar life insurance, employer-provided housing, tuition assistance for family, social club dues and employer-provided automobiles.

Additional instructions - The IRS has added significantly to the length of the instructions by increasing guidance for both the core form and separate schedules. Some of the changes reflect special instructions for organizations conducting activities through joint ventures and disregarded entities, governance of foreign activities, and relocation of educational materials.

Compensation - Under the draft instructions, a not-for-profit organization must list certain officers, directors, trustees and employees of the organization who have compensation above certain thresholds. The modified rules require reporting for:

• Current officers, directors and trustees (without regard to amount of compensation).
• Current key employees with compensation exceeding $150,000.
• Current five other highest-compensated employees with compensation exceeding $100,000.
• Former officers, key employees and highest-compensated employees with compensation exceeding $100,000.
• Former directors and trustees receiving more than $10,000 in this capacity.

Hospitals - Hospitals are generally required to complete a new schedule. This applies to hospitals that are licensed or certified by law (or are required to be) whether or not the entity is directly operated by the organization or through a disregarded entity or joint venture.

Deferred compensation - Any amounts must be reported prior to vesting. If an employee is required to perform services over a stated period of time, the compensation is to be treated as being earned ratably over that time period - even if the arrangement is unfunded and subject to substantial risk of forfeiture.

Not-for-profit organizations should take steps now to prepare for the new Form 990 requirements. Here are four practical suggestions:

1. Review all governance policies and procedures.
2. When appropriate, make modifications to existing policies and procedures, which are reflected in the draft instructions.
3. Pay especially close attention to issues involving executive compensation, document retention and whistleblower claims.
4. Develop new internal controls to provide information that will be needed for future reports.