By Janne Gallagher, Vice President and General Counsel, Council on Foundations
The Internal Revenue Service released the revised 2008 Form 990 and accompanying schedules on December 20, 2007 . However, the release did not include the instructions on how to complete the form, which makes analysis of some changes difficult. The IRS initially promised that the instructions would be made public early this year; however, an official said more recently that the instructions would be available some time before September 30, the close of the IRS' fiscal year. The requirements described below affect only public charities. The IRS has not proposed changes to Form 990-PF, the return filed by private foundations.
New to the core Form 990 is a checklist, the answers to which will determine which of the sixteen possible schedules a filer must to complete. Questions 14 through 16 in Part IV of the core form, cover international activities and grantmaking. A "yes" answer to any of the questions will require the filer to complete Schedule F, "Statement of Activities Outside the United States." Organizations that have an office, employees or an agent outside the United States must complete Part I of the schedule if they have aggregate revenue or expenses from overseas activities that exceeds $10,000, an increase from the $5,000 threshold originally proposed. Responding to concerns about privacy and safety raised by the Council and other commenters, the form has been changed to require reporting by region rather than by country. U.S. organizations that made more than $5,000 in grants to organizations outside the United States will complete Part II of Schedule F. Filers will be required to list individually, by name, all grantees that received more than $5,000 during the tax year. One of the issues the Council raised in its comments was that the draft instructions required filers to report grants to U.S. organizations on this schedule if the grant was earmarked for use abroad or if the recipient conducted more than half its activities overseas. We will not know how the IRS addressed this comment until the instructions are made public. Filers must also report the number of grantees that "are recognized as charities by the foreign country or for which the grantee or counsel has provided a section 501(c)(3) letter," an improvement in clarity over the discussion draft, which asked filers to report the "total number of 501(c)(3) organizations.” The Council and others had pointed out that the number of foreign organizations determined by the IRS to be described in section 501(c)(3) was very small. Part III is similar to Part II except that filers will use Part III to report grants and assistance to individuals outside the United States if total aggregate payments exceeded $5,000. The discussion draft did not require filers to identify individuals by name and the final does not either. Consistent with the changes to Part I, filers will report grants to individuals based on regions rather than country by country.
In the draft proposed for comment, a question on Schedule F asked whether any recipient (individual or organization) of grants or assistance was related to any person "with an interest" in the organization, and identified those persons as "donors," as well as directors or trustees, officers, the organization's founder, highly-compensated employees, and "members of the selection committee." The Council's comments on this question noted the near impossibility of determining, for example, whether grant recipients were related to any donor to an organization. The final modified this question somewhat -- the question now describes "persons of interest" as "substantial contributors" (those who give more than 2 percent of the organization's support) rather than all donors and omits the reference to members of the selection committee -- and moved it to Part IV of the core form where it is question 27. A "yes" to question 27 will require the filer to complete Part III of Schedule L, "Transactions with Interested Persons." Without the instructions, we do not know whether filers will be permitted to exclude grants or assistance provided to a person of interest solely as a member of the charitable class the organization serves, but it seems unlikely that such an exclusion will be allowed. Readers should consider what systems they need to put in place to capture the information required to be reported.
Finally, the IRS dropped two questions that had appeared in the discussion draft of Schedule F. The dropped questions were question 3, whether the filer made grants directly or indirectly to support political or lobbying activity outside the US , and question 4, whether (and how) the organization made public information about its foreign activities or grantmaking.
Voices from the South- An article by Ceri Oliver-Evans on the Joint EFC-Council Working Group Meeting in Cape Town, South Africa, to gather feedback from African partners and grantees on the draft principles of accountability in international philanthropy.