T.D. 9549: Final Regulations Implementing Form 990 Redesign

By Elizabeth Carrott Minnigh, Esq.  

Buchanan Ingersoll & Rooney PC, Washington, DC

On September 8, 2011, the Treasury Department and the IRS issued final regulations (T.D. 9549, 76 Fed. Reg. 55746) under §§170(b), 507, 509(a), 6033 and 6043, necessary to implement the redesigned Form 990, Return of Organization Exempt From Income Tax. The final regulations generally adopted the temporary and proposed regulations with minor but important modifications.

On December 20, 2007, the IRS released a redesigned Form 990. Prior to this redesign, Form 990 had not been significantly revised since 1979. On September 9, 2008, the Treasury Department and the IRS issued temporary and proposed regulations (T.D. 9423, 73 Fed. Reg. 52528) to implement the redesigned Form 990. Generally, the temporary and proposed regulations:

  •  Eliminated the advance ruling process and requirement to file Form 8734, Support Schedule for Advance Ruling Period, for new publicly supported charities.
  •  Changed the computation period for public support from a four-year period, comprised of the four years prior to the current tax year to a five-year period that includes the current tax year.
  •  Clarified that the public support must be computed using the same accounting method used by the organization in keeping its books and records rather than using the cash method.
  •  Permitted donors to rely on an IRS determination or ruling that an organization was a public charity until a notice of change in status was provided to the public, unless the donor was responsible for, or aware of, the act or failure to act that resulted in the organization's loss of public charity status.
  •  Provided for new threshold amounts for reporting compensation;
  •  Required that exempt organizations report on Form 990 compensation of officers, directors, trustees, and certain employees and contractors on a calendar year basis rather than on either a calendar year or annual accounting period basis.

The final regulations adopt the proposed and temporary regulations with minor but important changes. Among the changes are the following:

  •  An organization that fails the public support test for a period of two consecutive years will be treated as a private foundation as of the beginning of the second year of failure for purposes of §§507 (Termination of Private Foundation Status), 4940 (Excise Tax Based on Investment Income) and 6033 (Returns of Exempt Organizations). However, the organization will not be treated as a private foundation for purposes of §170 (Charitable Etc. Contributions and Gifts) or the other private foundation excises taxes under Chapter 42 until the first day of the third consecutive tax year.
  •  For purposes of the excise tax provisions of §4966, sponsoring organizations of donor advised funds may rely on an IRS determination or ruling, to the same extent as other donors, that (i) an organization is a public charity or (ii) a grant to such an organization is an unusual grant.
  •  Donors may rely upon a written statement from the grantee organization that a particular donation will not result in the loss of the grantee organization's classification as a publicly supported organization. The preamble to the final regulations states that this reliance provision was inadvertently deleted from the proposed regulations.

The final regulations are effective on September 8, 2011, and generally apply to tax years beginning on or after January 1, 2008.

With the issuance of the final regulations, the Treasury Department and the IRS have formally implemented the changes in public charity reporting first introduced in the 2007 redesign of the Form 990. The final regulations also provide important procedural clarifications.

 For more information, in the Tax Management Portfolios, see Webster, 452 T.M., Tax-Exempt Organizations: Reporting, Disclosure and Other Procedural Aspects,  and in Tax Practice Series, see ¶6810, Private Foundation Status, ¶6850, Termination of Private Status, and ¶7010, Maintaining Exemption.