The tax-exempt bond schedule in the proposed new Form 990 should be cross-referenced with information returns that municipal issuers already file each year, the American Bar Association’s tax section has told the Treasury and Internal Revenue Service. In comments sent to the two agencies last week, the ABA recommended several technical changes to the proposed revisions to the Form 990, which is the annual information return filed by exempt organizations.The new form, which the IRS unveiled in June, would require most nonprofit organizations to provide detailed information about their use of munis. The new “core” 10-page form asks exempt organizations if they: had any outstanding tax-exempt bonds in the previous tax year; invested proceeds beyond a temporary period exception; maintained any escrows; or acted as an “on behalf of” issuer during the year.If adopted as is, nonprofits with outstanding bonds in excess of $100,000 would also have to fill out the new Schedule K, which requires a detailed listing of each bond issue, the use of proceeds, and the elements of private use of bond-financed facilities, such as management contracts and research arrangements. It also would require a list of third parties, their roles, fees paid, whether the fees came out of bond proceeds, and whether the parties were selected through formal processes.The IRS has said it hopes to have the form ready for the 2008 tax year, meaning the new forms would be filed in 2009.Most exempt organizations will see an increase in the time they need to complete annual information return filings as a result of the redesign, particularly large hospitals, colleges, and universities, for whom the increase could be substantial, according to the ABA’s tax section. But for the vast majority of organizations, filing time should increase only “modestly” after the first year as they gain experience with the new form and adopt systems to collect the new information required, it said.In general, the ABA said, Schedule K contains a series of questions requesting information that is already reported to the IRS on Form 8038, the standard information return for private-activity bonds. To make the filing process easier for issuers and their counsel, the IRS could cross-reference the specific lines from Form 8038 where certain information can be found, the association said.Furthermore, if an issuer is expected to maintain filing date records, such a requirement should be effective only for bonds issued in the future, since a Form 8038 is typically filed by bond counsel, with an issuer potentially not receiving confirmation of the filing date.“If the [IRS] determines that this requirement should apply to existing bonds as well, transition relief in the form of a delayed effective date would be appropriate to allow organizations time to obtain the information,” the ABA said. “Moreover, it is not clear that organizations will, in all cases, be able to obtain this information. Thus, appropriate transition relief may also simply provide that this column need not be completed for bonds issued prior to a specified date.”The association also recommended that Schedule K allow for a range of dates for bond-financed projects, and that the IRS include plain-language definitions for certain terms, such as temporary period exceptions, bona fide debt service funds, and investment earnings on various funds. Many exempt organizations will not be familiar with such terms and their application, the ABA explained.The ABA recommended transition relief in the form of a delayed effective date for part three of the tax-exempt bond schedule, arguing that most exempt organizations do not have the tracking and monitoring mechanisms in place to gauge — and then properly report — post-issuance compliance.“A transition period of two or three years would provide organizations with the time necessary to develop systems to capture the relevant data,” the ABA said.
