Draft 2013 Form 990 Instructions clarify Schedule B reporting 

September 27: The IRS has posted draft instructions to the Form 990, Return of Organization Exempt From Income Tax, for tax years beginning in 2013. The IRS states that the draft instructions are being provided as a courtesy and usually have at least some changes before being officially released. With this caveat in mind, the proposed changes, nevertheless, offer some insight into the changes expected in the final version.

The draft 2013 Form 990 instructions [PDF 4 MB] list approximately 20 “significant changes” in the “What’s New” section. One of the more interesting proposed changes is a requirement that an organization filing Schedule B, Schedule of Contributors, can limit the contributors it reports on Schedule B using the “greater-than-$5,000/2% threshold only if it completes Schedule A, Public Charity Status and Public Support, Part II and checks the box for Line 13 (first five years), 16a (33 1/3 % support test – 2013), or 16b (33 1/3% support test – 2012), demonstrating that it met the 33 1/3% public support test of the regulations under sections 509(a)(1) and 170(b)(1)(A)(vi).

Generally, most organizations that file Form 990 and Form 990-EZ must file Schedule B. The general rule is that these filers must report any contributor that contributed $5,000 or more, whether in property or money, during the tax year. However, there is a special rule available for certain section 501(c)(3) organizations that permits the organization to limit the contributors it reports to those that made a contribution of the greater of $5,000 or 2% of the total gifts, grants, or contributions received. In order to take advantage of this special rule, the organization generally must have received at least 33 1/3% of its total support from contributions from the general public.

KPMG Observation

Many section 501(c)(3) organizations that meet the requirements of the special rule and file Schedule B accordingly do not complete Schedule A, Part II because they are, for example, schools (section 170(b)(1)(A)(ii)). The proposed change would require these organizations to complete Schedule A, Part II in order to continue utilizing the special rule for Schedule B. As a result, these organizations will check Schedule A, Part I, Line 7 (“An organization that normally receives a substantial part of its support from a governmental unit or from the general public described in section 170(b)(1)(A)(vi).”) rather than, for example, Line 2 (schools) or Line 3 (hospitals).

Checking a different box on Schedule A will not affect the organization’s public charity classification. In the 2012 Form 990, Schedule A instructions, the IRS clarifies that if an organization believes that there is more than one reason why it is a public charity, it should check only one box in Schedule A, Part I, which can be the same as stated in the organization’s determination letter from the IRS or it can be different. The organization can explain the other reasons it qualifies for public charity status in Schedule A, Part IV, Supplemental Information. The instructions also state that the IRS will not update its records on an organization’s public charity status based on a change the organization makes on Schedule A.

The IRS requests that any comments on the draft instructions be submitted on the IRS.gov page titled Comment on Tax Forms and Publications.

For a discussion of final 2013 Form 990-series schedules see TaxNewsFlash – Exempt Organizations: Form 990 schedules – 2013 Schedules G, J, N and R

For more information, contact:

Rick Speizman, Partner-in-Charge of KPMG's Washington National Tax Exempt Organizations Tax group

+1 (202) 533-3084

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