The Internal Revenue Service has essentially wrapped up its revised Form 990 project with the release on Aug. 19, 2008 of the "final" instructions for the Form 990 annual return used by most tax-exempt organizations to report information about their operations and finances. These final instructions, once formatted by the IRS, will be used for the redesigned Form 990 that tax-exempt hospitals and other healthcare organizations will file for their 2008 tax year (returns filed in 2009). The IRS has also provided three new background documents explaining the new Form 990 and instructions.
Significant public comments were submitted to the IRS on the
"draft" Form 990 instructions that were released
earlier in the year, including comments from several hospital
associations and similar interested organizations. The IRS has
been somewhat receptive to making changes to certain parts of
the instructions in order to address the public's
concerns. While the final Form 990 instructions do not
incorporate all of the comments and requested changes from the
healthcare community, the IRS has indicated it will continue to
study certain areas for possible changes in later tax
years.
Particularly noteworthy for hospitals and healthcare systems
are the following changes:
- The definition of "key employee" has been
narrowed to include only those persons (other than officers,
directors, and trustees) who (a) had compensation exceeding
$150,000 for the year ("$150,000 test"); (b) had or
shared organization-wide control or influence similar to that
of an officer, director, or trustee, or managed or had
authority or control over at least 10 percent of the
organization's activities ("responsibility
test"); and (c) were within that group of the
organization's top 20 highest paid persons for the
year who satisfied both the $150,000 test and the
responsibility test.
- The previously proposed "material financial
benefit" test for determining independence of a voting
member of the organization's governing body has been
replaced with a new test which looks to whether the voting
member (or a family member) was involved in a transaction or
relationship that was reportable on the current
year's Form 990 Schedule L (Transactions with
Interested Persons).
- Specific separate reporting requirements and examples
have been provided on how an organization may satisfy the
"reasonable efforts" standard to obtain information
required from interested persons or third parties.
- Compensation reporting for Part VII and Schedule J
(Compensation Information) has been clarified with
definitions and examples of "reportable
compensation" and "other compensation."
- Schedule H (Hospitals) specifies that the Form 990 is to
be completed by an organization that operates at least one
facility that is, or is required to be, licensed, registered,
or similarly recognized by a state as a "hospital"
(the IRS notes that some states do not have a licensing
procedure for hospitals and this change is intended to
encompass licensing-equivalents in those states).
- A revised definition of "facility" has been
included for the purposes of completing Part V (Facility
Information) in Schedule H. Organizations will be required to
list in Part V each hospital or other facility that is
licensed, registered, or similarly recognized by a state as a
healthcare facility, including facilities other than licensed
hospitals. This change does not, however, alter the
definition of "hospital" for the purpose of
determining whether the organization must complete Schedule
H.
Note: The IRS earlier in the year provided relief for the 2008 tax year return by only requiring Part V of Schedule H to be completed (all other parts of Schedule H are optional for 2008). The entire Schedule H requires completion beginning with the 2009 tax year return.
- Schedule H instructions also clarify (i) that physician
clinics and skilled nursing facilities will also be eligible
for treatment as a "subsidized health service"
under the reporting rules for subsidized health services;
(ii) the reporting of information from foreign hospitals;
(iii) the definition of health profession education costs;
(iv) the reporting of the cost of research; and (v) the
reporting of Medicare-related costs and revenues.
- Schedule K (Supplemental Information for Tax-Exempt
Bonds) instructions now provide relief for refunding bonds
issued after 2002 to refund pre-2003 bonds, by exempting such
refunding bonds from having to be reported in Part III
(Private Business Use). All other parts of Schedule K must be
completed with respect to such refunding bonds under the
generally applicable rules.
Note: Earlier transition relief provided by the IRS for Schedule K requires completion of only Part I (Bond Issues) of Schedule K for the 2008 tax year.
The IRS has previously stated that its goals with the new Form 990 are to enhance transparency, promote tax compliance and minimize the burden on filers. The IRS is looking to the instructions to the Form 990 to play a key role in meeting these goals. Although this significant IRS project is nearing completion, the IRS has indicated that down the road the responses provided by organizations on the redesigned Form 990 may lead to additional compliance projects in certain areas.
The redesigned Form 990, final instructions and background papers can be found at this link.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.