The Internal Revenue Service has released a draft of its new instructions for Form 990 and Schedule K, which public charities and other tax-exempt organizations are to use to report information relating to outstanding tax-exempt bond issues.

The IRS asked to receive public comments on the instructions by June 1.

In December, the IRS issued a final revised Form 990 with a new Schedule K that ask organizations for information about their outstanding bonds, including the use of proceeds.

The IRS is requiring exempt organizations with more than $100,000 of bonds outstanding to list any bonds issued after 2002 that are still outstanding for the 2008 tax year in forms to be filed in 2009. But the agency gave borrowers a one-year delay in responding to detailed questions about the bond issues in Part II-Part IV of Schedule K. Those questions must be answered for the 2009 tax year in forms to be filed in 2010. The IRS had said the detailed questions also would only apply to bonds issued after 2002.

However, IRS officials have indicated that the new requirements apply to refundings, which could include underlying bonds issued before 2003. That revelation led to concern among nonprofit organizations that they could lack necessary documents from bonds issued long ago.

Ed Oswald, a partner at Orrick, Herrington & Sutcliffe LLP, said the new draft does not contain any big surprises.

"As expected, the instructions make it clear that Part II of Schedule K (which first applies in the 2009 tax year) not only applies to new-money bonds issued after 2002, but also to any post-2002 bonds issued to refund pre-2003 bonds as well," he said. "This refunding rule will significantly increase the amount of bonds subject to information reporting. Given the complexity of the tax rules involved, nonprofit organizations would be well served to seek outside expertise to assist them with these matters including the preparation of Schedule K."

 

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