The IRS is considering revising Form 990 to increase public accountability through better disclosure. IRS Announcment 2002-87, released September 4th, seeks public comment on a variety of proposed changes to reporting on fundraising, transactions between PACs and their nonprofit affiliates, corporate ties and conflicts of interest and grants to foreign organizations. The changes are meant to “increase public confidence in the integrity of the disclosures by exempt organizations.” They also reflect problems with implementation of the Stealth PAC law of 2000, efforts to prevent money laundering to terrorist organizations, Congressional concerns about fundraising practices and requests from state charity officials to make information required by state and federal governments more uniform. The announcement lists recent changes made to Form 990 in these four areas. Comments are due on January 28, 2003. Summary of IRS Announcement 2002-87: Possible Changes to Form 990 Fundraising Issues for Comment: § 501(c)(3) and 501(c)(4) organizations are required to break down total expenses into three categories: program services, management and general, and fundraising. Should other nonprofits, including labor unions, farm bureaus, trade associations, business leagues and fraternal organizations be required to do the same? (See Part II, columns A-D of Form 990) § Should Form 990 filers be required to use SOP 98-2 (standards developed by the American Institute of Certified Public Accountants) in order increase uniformity in the definition of fundraising costs? If so, should there be exemptions for smaller organizations? § Are there other reporting changes that would “provide the Service, the states, and the public with additional information about fundraising practices?” Recent Changes in Effect: § When a group uses an outside fundraiser, it must report the gross amount raised, not just the portion it receives. (See Part 1, line 1a Form 990.) § Fundraising expenses cannot be reported as program expenses, even when a group is raising funds for other nonprofits. (See Part II Form 990.) § A check box was added to indicate whether or not the filer is using SOP 98-2. (See Part II Form 990) § Dropped a requirement for filing a list of contributors with Schedule A, but requires the filer to prepare the list and keep it on file. The total amount contributed still needs to be reported. (See Schedule A, Part IVA, lines 26(b), 27(a) and 28 of Form 990.) Political Committees (Section 527 Organizations) Issues for Comment: § Should social welfare organizations, labor unions, trade associations and business leagues (groups exempt under 501(c)(4), (5) and (6) and PACs (527 organizations) be required to disclose compensation and transfers to affiliates and other exempt groups? (This would be on Schedule A, Parts I and II and VII. Currenlty only charities, 501(c)(3) organizations, are required to file Schedule A.) § Since many parts of Schedule A used by charities do not apply to other types of organizations, would a better alternative be to add a new section to Form 990 for reporting financial and other transactions between PACs and welfare organizations, labor unions, trade associations and business leagues? If so, should the disclosure include information about the affiliate relationship, or just the financial transfers? § Should detailed information on transactions and affiliate relationships be moved from Schedule A to Form 990 itself for all organizations? § What other changes would improve information about PACs? Recent Changges in Effect: § Since PACs exempt under Section 527 were not required to file Form 990 before the Stealth PAC law of 2000 passed, the form and instructions needed revisions to account for these new filers. Foreign Grants Issues for Comment: § Should Form 990 require separate reporting of foreign grants? § Should more detailed informatioin on foreign grants be required than is currently reported for domestic grants? § Should non-grant transactions with foreign entities also be reported (i.e. leases, sales, etc.)? Recent Changes in Effect: § None. Corporate Responsibility Issues for Comment: § Should Form 990 filers be required to disclose whether or not they have conflict of interest policies and/or independent audit committees? § Charities are currently required to report transactions with substantial contributors, officers, directors, trustees and key employees. Should this requirement be extended to other nonprofits? § Is more information needed than is currently collected in Form 990? (See Schedule A, Part III, Question 2.) § Is there other information that could be disclosed to increase public confidence in the nonprofit sector? Recent Changes in Effect: § None. Comments to the IRS are due January 28, 2003, and should be sent to : Internal Revenue Service 1111 Constitution Ave. NW Washington, DC 20224 ATTN: David W. Jones T:EO:RA