IRS to Release Amended Form 990 That May Delay Schedule K

The Internal Revenue Service next month will release an amended version of its Form 990, the annual information return filed by tax-exempt organizations, officials said last week. While the agency plans to keep the form’s content and structure mostly intact as proposed earlier this year, officials are considering significant changes that could include a delayed effective date for Schedule K, the new part of the form that would be required of exempt organizations with more than $100,000 in outstanding municipal bonds.The new “core” 10-page form asks exempt organizations if they had any outstanding tax-exempt bonds in the previous tax year, as well as whether proceeds were invested beyond a temporary period exception, any escrows were maintained, or they acted as an “on behalf of” issuer during the year.Schedule K, which issuers would have to fill out in addition to the core form, requires a detailed listing of each bond issue, the uses of proceeds, and 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 and whether the fees came out of bond proceeds, and whether the parties were selected through formal processes.Market participants have argued that the new form’s bond schedule would force exempt organizations to implement detailed compliance policies and procedures. Groups such as the National Association of Bond Lawyers, the American Bar Association, and the National Association of Health and Educational Facilities Finance Authorities have submitted comment letters to the IRS recommending technical changes and transition relief for exempt organizations that must file Schedule K.An IRS spokesman yesterday directed inquiries to remarks made by Steven T. Miller in October, when the tax-exempt and government entities division director said the agency is taking public comments into account and using them to make decisions about what transition relief it should provide, where certain explanations belong in the new form, and whether some of the “more burdensome” schedules should be reformatted.Miller said one of the transition-related items it is considering is whether to make certain schedules optional for the first year or two. “The best example here is the bond schedule,” he said.“We very much want to design the 990 in a way that will enable an ordinary reader to make a meaningful, apples-to-apples comparison of two different organizations,” he added. “This is turning out to be more difficult to accomplish than we ever imagined.”Despite the changes, the IRS still believes that implementation in the 2008 tax year is achievable, officials say. Tax analysts reported Monday that the agency will only take comments on whether there are any mistakes after releasing the new draft, as it is on a tight schedule for the 2009 filing season.