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The New IRS Form 990

On June 14, 2007, the Internal Revenue Service (IRS) released a proposed new Form 990 for reporting the income of tax-exempt organizations. The proposed Form represents a complete overhaul of Form 990. If implemented in its current form, it will affect all charities and especially affect charitable hospitals.
A. IRS Goals
The New Form 990 is intended to accomplish the following:
1. Enhanced Transparency. The old Form 990 has not been comprehensibly modified since 1979. As a result, it has become obsolete by failing to ask the right questions regarding issues that have arisen during the last 28 years, and by asking questions that are no longer relevant to most tax-exempt organizations. The new Form 990 is designed to give the IRS, and a tax-exempt organization's stakeholders, a realistic picture of the organization and its operations.
2. Promote Compliance. Asking the new questions on the new Form 990 will more accurately reflect the tax-exempt organization's operations and use of assets so that the IRS can more efficiently assess the risk of non-compliance and audit accordingly.
3. Eliminate Unnecessary Reporting. Many of the questions on the old Form 990 applied to all tax-exempt organizations but were only relevant to the operations of a tiny minority. The new Form 990 attempts to place more of the questions in schedules that must only be completed by a subset of the reporting tax-exempt organizations.
B. Impact on Hospitals
While the new Form 990 contains many changes, three are particularly important to tax-exempt hospitals as follows:
1. Schedule J - Executive Compensation. All charities will have to fill out a new Schedule J, which will provide significant details in regard to the compensation of employees, including the non-qualified deferred compensation of such employees. Basically, the reporting threshold is any present or former (last five years) director, officer or employee with management functions who is receiving more than $150,000 in taxable compensation, or more than $250,000 in taxable and non-taxable benefits, as well as the five highest compensated, purely clinical employees who meet those dollar thresholds.
2. Part III - Governance. All charities will have to fill out Part III of the new Form 990, which requires details about the tax-exempt organization's governance. Part III includes many "Sarbanes-Oxley" like questions, including the following:
Do you have a conflict of interest policy?
How many conflict of interest transactions were reviewed?
Do you have a document retention policy?
Did your governing body review your completed Form 990 before it was filed with the IRS?
3. Schedule H - Community Benefit. Tax-exempt organizations operating hospitals will have to complete a new Schedule H that is designed to disclose the public benefit created by the hospital. More particularly, Schedule H is divided into five parts.
Part I of Schedule H deals with the hospital's provision of free and subsidized services.
Part II of Schedule H concerns billing and collection practices, including pricing strategies with respect to insured versus uninsured patients.
Part III of Schedule H asks for a list of management companies and joint ventures in which the organization is involved.
Part IV seeks information about other charitable activities, including emergency room services and the hospital's attempt to assess and meet its local community's health needs.
Finally, Part V calls for the identification of all medical facilities and organizations that the tax-exempt entity operates.
C. Timetable
The proposed Form 990 is still in draft form, but many believe that the draft is close to being in final form. Further, it is presently anticipated that tax-exempt organizations will have to start using the new Form 990 for fiscal years that begin on or after January 1, 2008.

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Date

09.23.07

Type

Publications

Authors

Rosen, Barry F.

Teams

Tax
Health Care