“O” No! The IRS Has A Few Questions For You

I can already hear some of your sarcasm…

“Tell me something I don’t know!”

“You’re kidding!  The IRS?  Really?”

Point taken.  It seems like the IRS always wants to know a thing or two about you.  Whether it is your personal tax situation, your business or your nonprofit organization, the Internal Revenue Service seems to always be there.  We’ve spent a great deal of time educating you about the seriousness of the 2008 changes to IRS Form 990 and what they mean to your nonprofit.  Well, the screws are getting tighter with the recent release of additional changes for the 2009 return.  Specifically, it is the changes to the Schedule O that have the potential to shake things up pretty dramatically.

What is Schedule O? The name of the schedule, Supplemental Information to Form 990, sounds harmless enough.  It was introduced in 2008 as part of the overhaul to Form 990 that added Schedules C – R to what had previously been just Schedules A & B.  The purpose of the schedule is to provide the IRS with…wait for it…supplemental information about the activities of nonprofit organizations that is not captured elsewhere on the return.  What is new for the 2009 tax year is that Schedule O is required of all Form 990 filers.  This is where the game begins to change…

What is the IRS looking for? Simply put, changes to your approved purpose and programs.  While Schedule O is designed to capture a variety of information, it is these changes that the IRS is really interested in.  It is helpful here to briefly mention the way it used to be.

Prior to now, if a 501(c)(3) or other IRS approved tax-exempt organization had significant changes to its purpose or programs, it was supposed to request a formal IRS “re-determination”.  Significant means things that change the nature of your nonprofit.  For example, if the IRS approved your nonprofit to be an after-school tutoring program, you could not just change course and start running a homeless shelter without getting IRS approval for the new program.  For more minor changes, such as adding an in-home tutoring service, the organization could simply inform the IRS by checking a box on Form 990 and attaching an explanation.  No big deal…or so it seemed.  The problem was that relatively few nonprofits were bothering to keep the IRS informed of major or minor changes.  In fact, many tax-exempt organizations are operating programs that don’t even resemble the plans approved by the IRS.  Congress, watch-dog groups and the IRS itself has had enough of that.  Enter Schedule O.

Schedule O’s introduction last year ratcheted up the level of detail the IRS is looking for, but the filer was left to determine whether or not it needed to be filed and the “re-determination” process stayed intact for major changes.  Not anymore!  For the 2009 return, Schedule O is required.  The re-determination process has essentially been replaced by Schedule O .  Why is that a game changer?

They seriously want to know what you are doing. The IRS means business.  They intend to ensure that tax-exempt organizations operate in compliance with the law and that they (the IRS) knows exactly what your nonprofit is doing.

Your signature under penalty of perjury. Every time you sign an IRS form, you do so under penalty of perjury.  What that means for nonprofits is that failure to disclose material changes to your nonprofit’s purpose, programs and structure is a willful act of perjury.  In other words, it now constitutes a crime.  Nonprofit leaders would be wise to understand the ramifications.  The old days of “forgiveness is easier than permission” no longer applies.

For those who continue to believe that Form 990 is no big deal, they do so at their own risk.  The IRS is playing for keeps!