IRS Expands Compensation Reporting Requirements for Tax-Exempt Organizations
The IRS has revised and expanded Form 990, which is filed annually by tax-exempt organizations. The new form must be used for calendar year 2008 reporting. It requires extensive disclosure of management compensation amounts and the processes by which those compensation amounts were determined.


    COLUMBIA, SC, November 16, 2008 /South Carolina News Articles/ -- The Internal Revenue Service has revised Form 990, the form which is filed annually by tax-exempt organizations. The new form must be used for calendar year 2008 reporting (to be filed in 2009). It requires extensive disclosure of management compensation amounts and the processes by which those compensation amounts were determined.

The IRS has focused on compensation amounts paid by tax-exempt organizations for years, and these new disclosure requirements are intended to help them quickly identify organizations which may have the most potential for abuse.

Economic Research Institute estimates that the expanded form will require disclosure of compensation information from approximately 400,000 more organizations than before.

Each tax-exempt organization filing Form 990 must complete the new Part VI, which asks specific questions about the organization's governance, management policies, and disclosure practices. Although no particular structure or policies are required, the IRS believes that the absence of appropriate structure or policies may lead to "excess benefit transactions," such as the payment of unreasonable compensation to top employees. Therefore, many of the new questions ask about the independence of directors, documentation of meetings and actions, conflicts of interest, whistleblower policies, and compensation practices. For example, one new question asks:

"Did the process for determining compensation of the following persons include a review and approval by independent persons, comparability data, and contemporaneous substantiation of the deliberation and decision?
The organization's CEO, Executive Director, or top management official?
Other officers or key employees of the organization?
Describe the process in Schedule O (see instructions)."

Schedule O of the Form 990 asks for a narrative description of the compensation-setting process.

All organizations filing Form 990 will also be required to complete the new Part VII - Compensation of Officers, Directors, Trustees, Key Employees, Highest Compensated Employees, and Independent Contractors. Questions here ask for the names of these individuals and the number of hours each one worked. They also ask for compensation amounts paid by the organization (and by related organizations) to each current and former officer, director, trustee, key employee and highest compensated employee. Names and amounts of compensation paid to the five highest paid independent contractors must also be listed.

Although the IRS does not require tax-exempt organizations to follow any prescribed format in setting pay levels, they do encourage them to meet the following four standards:

1. Compensation amounts reviewed and approved by the Board,
2. Any person with a conflict of interest excluded from compensation decisions,
3. Comparable data (amounts paid by similar organizations for similar positions) be collected and used to make decisions, and
4. Documentation of decisions when they are made.

For more information on these four IRS standards, please see Internal Revenue Code section 4958 and the regulations under that section or www.CompensationOpinion.com.

An officer of the organization must sign the completed Form 990 under the penalties of perjury.

As in the past, copies of the completed Form 990 must be made open to public inspection. Therefore, details disclosed on the form will be available to the organization's employees, donors, state regulators, and the media.

More information about the new disclosure requirements on Form 990 is available from the IRS at www.IRS.gov. Click on the tab labeled "Charities & Non-Profits."

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