Starting and Managing a Nonprofit Organization: A Legal Guide

By Bruce R. Hopkins | Go to book overview

CHAPTER NINE
Braving Annual Reporting

Nearly all tax-exempt organizations are required to file an annual information return with the IRS. This is nothing new; exempt entities have had to file these returns for decades. In late 2007, one of the most significant developments in the law affecting nonprofit organizations occurred: The IRS radically redesigned and expanded the basic annual information return. The ramifications of the revised return are enormous; what the IRS did is equivalent to the passage of a major law or the issuance of massive tax regulations.

This development has stunned the nonprofit community. Management of taxexempt organizations have been generally appalled. Lawyers and accountants are delirious with joy. On the day after the draft of this revised return was issued, the executive director of a large public charity was heard to say: “If this is the annual return we will have to file, we don’t want to be tax-exempt anymore.”

By contrast, the then-Commissioner of Internal Revenue, in mid-2007, said: “The tax-exempt sector has changed markedly since the [annual information return] was last overhauled more than a quarter of a century ago. We need a [return] that reflects the way this growing sector operates in the 21st century. The new [return] aims to give both the IRS and the public an improved window into the way tax-exempt organizations go about their vital mission.” In early 2008, the successor Commissioner said: “Tax-exempt organizations provide tremendous benefits to the people and the communities they serve, but their ability to do good work hinges upon the public’s trust. The new Form 990 will foster this trust by greatly improving transparency and compliance in the tax-exempt sector.”

The refurbished Form 990 (that organizations begin filing in 2009) is no longer an ordinary government form. This is a complex and extraordinary document. It is, in many ways, a work of art, in that it captures the requirements of a large amount of federal tax and other law, much of it recently enacted. At the same time, because of its size and complexity, many organizations will be engaging in considerable effort (time and money) to create needed documents, maintain records, and properly prepare and timely file the return.

From a law perspective, the new return has, as noted, enormous implications for tax-exempt organizations for two reasons. (1) The form in various places and ways has the effect of creating much new law. A dramatic example of this fact is the portion on governance (see Chapter 8). (2) The form is designed to induce certain behavior by the management of nonprofit, tax-exempt organizations by in essence forcing organizations to check “yes” boxes (or avoid checking “no” boxes). The import of this “shaming technique” can been seen, for example, in the requirements as to

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