On Dec. 20, 2007, the Internal Revenue Service (IRS) released the final version of its updated Form 990, the informational return for public charities and other tax-exempt organizations. The new form marked the first revision since 1979 and will be used for the 2008 tax year (returns filed in 2009). The IRS expects to release draft instructions for the 2008 Form 990 later in January. Although the new Form 990 incorporated many suggestions made in public comments on the draft version, the IRS did not make key changes to clarify and simplify reporting of advocacy-related activities.

During the 90-day comment period following the June 2007 IRS release of the Form 990 Discussion Draft, the agency received approximately 700 e-mails and letters totaling approximately 3,000 pages of comments. The final version of the form retains the Discussion Draft's structure of a core form and a series of schedules. Small nonprofits will have a grace period to transition to the new form, when they will be allowed to file Form 990-EZ instead of Form 990. Beginning in the 2010 tax year, all charities with gross receipts of $200,000 or $500,000 in total assets will be required to file Form 990-EZ. Nonprofits with less than $25,000 in gross receipts that are currently required to complete an e-Postcard (Form 990-N) will be required to continue doing so. By 2010, the threshold for those filing postcards will be adjusted to $50,000.

In OMB Watch's comments on the Form 990 Discussion Draft, we recommended several changes. In a recent analysis of the new 990, OMB Watch determined the IRS incorporated only one of the changes we suggested: using a separate box to report "doing business as" names for organizations so such information will be searchable on the web. The IRS retained the combined Schedule C for reporting lobbying and election activities despite concerns that mixing lobbying and political campaign activities in one form is likely to cause substantial confusion. All nonprofits — 501(c)(3), 501(c)(4), 527 organizations, for example — will be required to file Schedule C if engaged in either lobbying or political activity. Charities (501(c)(3) organizations) are not permitted to engage in partisan political activity but are permitted to engage in nonpartisan voter activities; the new form could cause confusion for those organizations.

However, Part IV (listing Required Schedules) of the new Schedule C does define the term "political" so that nonpartisan voter engagement work clearly is not included. Another problematic area is the definition of lobbying in the instructions for filling out Schedule C. The draft instructions used a definition that is inconsistent with the tax code. However, the IRS has not yet provided its version of the final instructions, leaving it uncertain what charities will be told to do in completing the form.

Independent Sector, which represents larger national nonprofits and various foundations, expressed satisfaction with the new form in a statement posted on its website, asserting, "Independent Sector is pleased that the revised Form allows organizations to describe their exempt purpose and accomplishments on the first two pages of the Form, and that the IRS has made many of the improvements we requested in financial, compensation, and governance information, as well as in other specific schedules."

According to the IRS's overview of their Form 990 redesign, the major changes to the Discussion Draft include:

• A revised summary page that eliminates the ratios, percentages, and other metrics included in the draft, and incorporates a two-year summary of financial information comparing the current and prior years;
• A reordered core form that moves the organization's description of its program service accomplishments to page 2, immediately after the summary;
• A new checklist of schedules that shows which schedules the filing organization must complete;
• More opportunity throughout the form to provide supplemental information;
• Retention of group returns for affiliated groups with a joint exemption;
• Revised governance and compensation sections;
• Modified schedules for hospitals, tax-exempt bonds, non-cash contributions, and supplemental financial statements; and
• Reduced burden throughout the form and schedules, including increased or new reporting thresholds for several of the schedules.

It is surprising the speed with which the IRS proceeded to make changes to the annual tax form. Many organizations wrote to IRS that it should proceed slowly, testing proposed changes. The IRS took comments on its draft until Sept. 14, 2007, but had announced that it intended to publish a final version by the end of the year. Given the complexity of Form 990, some hoped that the IRS would provide a second round of comments. But it was rumored that the IRS staff needed to make quick decisions if they hoped to move the form into electronic formats. The information technology staff within the IRS had a limited opening to work on the Form, forcing the agency to finalize action by the end of 2007 or wait several years before staff could digitize the form.

The next step will be to review instructions on how to fill out the form. IRS has said the instructions will be coming shortly, possibly in installments.