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IRS Issues Form 990 Implementing Regulations

By Bruce R. HopkinsOctober 22, 2011 | Print

(Originally published in the November issue of Bruce R. Hopkins Nonprofit Counsel, available electronically to subscribers on publication.)

The IRS issued final regulations, generally effective September 8, to implement the redesigned Form 990 (T.D. 9549). These regulations, applicable with respect to tax years beginning on or after January 1, 2008, reflect the IRS’s elimination of the advance ruling process, formally change the public support computation period for publicly supported charitable organizations, and clarify that public support must be reported using organizations’ overall method of accounting.

The regulations restate the public support computation rules for donative-type publicly supported charities (those described in IRC §§ 170(b)(1)(A)(vi) and 509(a)(1)) and service-provider publicly supported charities (those described in IRC § 509(a)(2)). The principal change in this regard is the computation period, which is a five-year period ending with the tax year being tested. An organization that meets the public support test for a year is treated as a publicly supported entity for that year and the immediate subsequent year.

An organization that fails a public support test for two consecutive tax years is to be treated as a private foundation as of the beginning of the second year of failure only for certain purposes (IRC §§ 507, 4940, and 6033). An organization will be regarded as a private foundation for all purposes beginning on the first day of the third consecutive tax year.

As to the donative-type publicly supported charity rules, these regulations retain the facts-and-circumstances test, although the criteria have been slightly rewritten. Also, the rules concerning unusual grants (for both categories of supported entities) have been restated, as have the rules for community foundations.

Also restated are the termination rules (IRC § 507), by which private foundations make substantial transfers to, or become, public charities. An organization’s public support is determined under the method of accounting on the basis of which the organization regularly computes its income in keeping its books (IRC § 446). [27.2]

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