Detailed Guide to the New Form 990

IRS Form 990, officially called the Return of Organization Exempt From Income Tax, is the report that must be filed in one of its three versions each year with the Internal Revenue Service by all tax-exempt organizations. In addition to being required by the IRS, many state agencies that regulate charitable solicitations also require charities to file the Form 990 as part of their annual report.

In August, the IRS released revised instructions for the redesigned Form 990 for the 2008 tax year, along with additional background documents to help nonprofits make the transition to the new form. Adjustments were made in several areas, including narrowing the definition of key employee and the standard for determining independence of board members. The new form consists of an 11-page core form and 16 related schedules. Schedule D contains revised reporting requirements for conservation easements.

The complete redesigned Form 990, schedules and instructions can be found here. Each section heading below links to that part of the IRS instructions. All land trusts filing a Form 990 should read the current instructions to the form very carefully and consult with a knowledgeable attorney or financial advisor.

Who Needs to File?

All nonprofit organizations are now required to file some version of the Form 990 each year. For 2008, the filing requirements are:

Organizations with gross receipts of more than $1 million or total assets of more than $2.5 million must file the Form 990.
Organizations with gross receipts of less than $1 million and total assets less than $250,000, may file Form 990-EZ.
Organizations with annual gross receipts of $25,000 or less must file the e-Postcard (also called the Form 990-N). Read more about the e-Postcard here.

These thresholds will change for the 2009 tax year (returns filed in 2010). At that time, organizations with gross receipts of $500,000 or more or total assets of $1.25 million will be required to file the Form 990. Beginning with the 2010 tax year, the filing thresholds will be permanently set at $200,000 gross receipts and $500,000 total assets, and the IRS will increase the filing threshold for organizations required to file the e-Postcard from $25,000 to $50,000.

The Core Form

The core Form 990 provides summary information about an organization’s mission, finances and fundraising expenses, and includes new sections with questions on governance, compensation and expenses. Trigger questions on the core form direct organizations to fill out more detailed schedules.

Land trusts should take special note of the following parts of the core form:

Part I – Summary

The first page of the new form – the first item any reader will see – allows organizations to provide a succinct statement of their mission or most significant activities. In addition, land trusts will need to indicate the total number of:

Voting board members (not advisory members who do not vote)
Independent voting board members (those who are not employees or contractors of the organization or a related party)
Employees
Volunteers (a reasonable estimate is adequate)

Part III – Statement of Program Service Accomplishments

This section requires reporting regarding an organization’s program services and exempt purpose achievements. Land trusts should be prepared to describe any new, significant program services or program services that have changed since they last filed their Form 990, and to describe their three largest program services based on expenses. For most, but not all, land trusts, this section will be limited to their land protection activities.

Part IV – Checklist of Required Schedules

This section guides the organization to particular schedules it must complete (see below). Note particularly line 7 regarding conservation easements and line 29 regarding non-cash contributions (which include gifts of land in fee).

Part V – Statements Regarding Other IRS Filings and Tax Compliance

This section provides a useful guide to the other tax forms a land trust may need to complete, as well as specific tax compliance questions regarding notification of donors who received goods or services in exchange for their contributions, unrelated business income and the filing of Form 8282.

Part VI – Governance, Management, and Disclosure

All organizations filing the core form must complete Part VI. It is divided into three sections requiring information on an organization’s governing body and management, governance policies and disclosure practices. While many of the questions address policies and practices that are not required by law, the IRS considers such policies and procedures “generally to improve tax compliance” and most are required by Land Trust Standards and Practices (see Note below). According to the IRS, “the absence of appropriate policies and procedures may lead to opportunities for excess benefit transactions, inurement, operation for non-exempt purposes, or other activities inconsistent with exempt status.”

Section A – Governing Body and Management

Organizations must report:

The number of independent voting members of their governing board.
Whether any officer, director or key employee has a family or business relationship with another officer, director or key employee.

The IRS defines a key employee as one who meets all three of the following tests:

Is compensated more than $150,000
Has responsibilities or influence similar to those of the board; manages a discrete segment of the organization that represents 10 percent or more of the “activities, assets, income, or expenses of the organization;” or has authority to determine 10 percent or more of the organization’s capital expenditures, operating budget or employee compensation
Is one of the 20 employees that meet 1 and 2 with the highest reportable compensation

Whether the organization kept minutes of meetings or of written actions taken by the board or committees authorized to act on behalf of the board (such as the executive committee). In line 8, contemporaneous means within 60 days of the meeting or action or by the time of the next meeting of the board or committee, whichever is later.
If the organization has chapters or affiliates, whether it has written policies and procedures governing its activities.
Whether the organization provided a copy of its Form 990 to its governing board before it was filed. Is so, the organization must explain in Schedule O the 990 review process or state that no review was conducted.

Section B – Policies

Organizations are required to disclose whether or not they have certain policies, but they are not required by the IRS. These policies include:

Conflict of interest policy – required by Practice 4A of Land Trust Standards and Practices
Whistleblower policy
Document retention and destruction policy – required by Practice 2D of Land Trust Standards and Practices
Process for determining compensation of the organization’s executive director or top management official – see Practice 7G of Land Trust Standards and Practices

An organization must also describe on Schedule O its practices for monitoring and managing conflicts of interest and its process for determining compensation for key employees.

Section C – Disclosure

In this section, the organization must:

List the states in which it is required to file a Form 990. Depending on state law, this may include states in which the land trust is located, conducts business or raises funds.
Indicate whether and how it makes its Forms 990 and 1023 (Application for Recognition of Exemption) available to the public. All tax-exempt organizations must make copies of its past three returns available to anyone who asks.
Describe on Schedule O whether and how it makes its governing documents, conflict of interest policy and financial statements available to the public. Land trusts are not required to make these items available, but many organizations have found it helpful to post these documents on their websites as part of their efforts to be accountable to donors and the public.

Part VII – Compensation of Officers, Directors, Trustees, Key Employees, Highest Compensated Employees, and Independent Contractors

Part VII requires the listing of the organization’s current or former officers, directors, trustees, key employees, and highest compensated employees, and current independent contractors and reporting of certain compensation information relating to those people.

Part VIII – Statement of Revenue

Revenues are now combined into a single section that is divided into three parts:

Contributions
Program service revenue
Other revenue

The new Form 990 separates contributions into six categories:

Contributions from the public received through federated campaigns
Membership dues
Fundraising events
Contributions from related organizations
Grants from governmental units
All other contributions

Any noncash contributions reported as part of the above must also be reported separately on line 1g and, if the total exceeds $25,000, the organization must complete Schedule M. Land trusts should report gifts of land and conservation easements here if they do not use the zero-value approach. See below for further discussion.

Part IX – Statement of Functional Expenses

Use your land trust’s normal accounting method to complete this section. It has been reorganized to group expenses more clearly. Expenses are still to be separated into three columns:

Program services
Management and general
Fundraising expenses

The instructions provide detailed information on the expenses that should be allocated to each column. New categories or areas that may be of particular interest to land trusts include:

Advertising expenses (line 12) – includes amount for print and electronic media advertising. Also includes internet site link costs, signage costs and advertising costs for an organization’s in-house fundraising campaigns.
Office expenses (line 13) – this line groups together the old lines for office supplies, telephone and postage and shipping, and is also to be used for bank fees and similar costs. There is no longer a separate line for printing and publications; costs for printing items of a general nature should be included here. Printing costs related to fundraising items should be included with advertising (line 12).
Information technology (line 14) – this new line is to be used for hardware, software and support services, and for infrastructure support, such as website design, virus protection and other information security program and services.

Part X – Balance Sheet

The balance sheet is again divided into assets, liabilities and net assets or fund balances with a few changes and new categories. See below for a discussion of how land trusts might treat conservation easements on their balance sheets.

Part XI – Financial Statements and Reporting

This section asks for the type of accounting method used to prepare the Form 990, whether the organization’s financial statements were compiled or reviewed, or audited by an independent accountant and, if so, whether the organization has a committee that is responsible for oversight of the audit or review and selection of an independent accountant.

Sixteen Schedules

One of the biggest changes to the Form 990 is found in the schedules. A few schedules include familiar questions or attachments from the old Form 990 that have been moved or rearranged, while other schedules are completely new.

All land trusts completing the core form are also required to complete:

Schedule A – Public Charity Status and Public Support

Now includes more detailed questions about how the organization qualifies as a public charity

Schedule B – Schedule of Contributors

Other schedules that a land trust may be required to complete based on its activities include:

Schedule C – Political Campaign and Lobbying Activities

If the land trust conducts lobbying or advocacy activities, it must complete this schedule. The instructions provide a very thorough description of lobbying, advocacy and political activities. For more information, see Lobbying 101 for Land Trusts.

Schedule D – Supplemental Financial Statements

This schedule must be completed by land trusts that have conservation easements or endowment funds.

Schedule D – Part II – Conservation Easements

Part II includes nine questions on conservation easements. In addition to easements, land trust must also report on other real property interests that have “similar attributes to an easement (e.g., a restrictive covenant or equitable servitude).”

Line 1. Purposes of conservation easements held by the organization.

Lines 2a-d. Total number and acreage of easements, number of easements on historic structures and the number of those acquired after August 17, 2006.

Line 3. Number of conservation easements modified, transferred, released, extinguished or terminated during the year. An easement is modified when the terms of the easement are amended. An easement is transferred when the land trust assigns the easement, with or without consideration. An easement is released or terminated when it is condemned, extinguished by court order, transferred to the landowner or in any way rendered void and unenforceable.

For more information on easement amendments, see Practice 11I of Land Trust Standards and Practices and the Alliance research report “Amending Conservation Easements: Evolving Practices and Legal Principles” (see Note below).

Line 4. Number of states where property subject to conservation easement is located.

Line 5. Whether the organization has a written policy regarding the periodic monitoring, inspection, violations and enforcement of the easements it holds. If the land trust answers yes to this question, it must summarize its policies in Part XIV (Supplemental Information). Monitoring means that the land trust investigates the use or condition of the easement property to determine if the landowner is adhering to the restrictions imposed by the terms of the easement to ensure that the conservation purpose of the easement is being achieved. Inspection means an onsite visit to observe the property to carry out a monitoring purpose. Enforcement of an easement means action taken by the land trust after it discovers a violation to compel a property owner to adhere to the terms of the easement, including communications with the landowner to explain his or her obligations with respect to the easement, arbitration or litigation.

For more information see Practices 11C and 11E of Land Trust Standards and Practices.

Line 6. Staff or volunteer hours devoted to monitoring, inspecting and enforcing easements during the year.

Line 7. Amount of expenses incurred in monitoring, inspecting and enforcing easements during the year.

Line 8. Whether easements on historic structures acquired after August 17, 2006 satisfy the special rules with respect to buildings in registered historic districts [see 170(h)(4)(B)(i) and170(h)(4)(B)(ii)].

Line 9. How the organization reports conservation easements in its revenue and expense statement and balance sheet (see below).

Schedule D – Part V – Endowment Funds

This section asks organizations to provide the estimated percentage of their year-end balances that were held as board-designated or quasi-endowment, permanent endowment or term endowment. Initially, organizations will only need to report 2008 information, but eventually this section will include a four-year look-back period.

Schedule G – Supplemental Information Regarding Fundraising or Gaming Activities

This schedule must be completed by land trusts that received $15,000 or more in gross income (including contributions) from fundraising events or paid more than $15,000 to outside professional fundraisers. Organizations must provide detailed information on fundraising activities conducted by outside individuals and firms and fundraising events.

Schedule J – Compensation Information

The land trust must complete Schedule J if it listed any officer, director, key employee or highest compensated employee on Part VII (see above); if any individual received reportable and other (non-taxable) compensation greater than $150,000; or if any listed person received or accrued compensation from an unrelated organization for services rendered to the organization.

Schedule L – Transactions with Interested Persons

This schedule must be completed if the organization engaged in any of the following transactions with an officer, director, key employee or substantial contributor or to a family member of one of those individuals (all of whom are known as “interested persons”):

Excess benefit transactions (in which the compensation exceeded the fair market value of the service or product provided)
Loans, grants or other assistance
Business transactions (such as the purchase or sale of goods and services, including land or conservation easements) with interested persons or their companies

Any land trust that may engage in such transactions with interested persons should read the instructions to Schedule L carefully before completing the Form 990. See also Practice 4C, Transactions with Insiders, of Land Trust Standards and Practices.

Schedule M – Non-Cash Contributions

This schedule must be completed by land trusts that reported more than $25,000 of aggregate noncash contributions, or that received gifts of land or conservation easements, regardless of whether it reported any revenues for such contributions on the core form. The schedule asks organizations to indicate the number of contributions, revenues reported and the method for determining revenues for 24 specific types of non-cash contributions. In addition, the schedule asks several questions related to contributions of property that must be held for at least three years, whether the organization has a gift acceptance policy and whether the organization uses third parties or related organizations to solicit, process or sell noncash contributions.

How Should a Land Trust Account for Its Conservation Easements?

The question of how land trusts should value their easements for purposes of Form 990 reporting is not an easy one to answer. In general, land trusts use two overall approaches:

Zero valuation
Most land trusts value their easements at zero or assign a nominal value ranging from $1 to $50. They reason that a typical conservation easement provides the land trust with no affirmative rights except to monitor and enforce the easement, and thus constitutes a liability. Some accountants also believe that donated conservation easements meet the definition of a collection under FASB 116 and, therefore, it is proper to not recognize their contribution as revenue. For a land trust that attracts substantial easements but little cash, this approach is helpful because meeting the IRS requirements for adequate public support may be difficult otherwise. In one case of a land trust using this approach, the IRS examining agent’s report simply states that “it was further determined that conservation easements donated to the organization have no market value in the hands of the organization and will not be considered as support.”

Fair market value
Some land trusts record their easements at their appraised value. Land trusts that use this approach often book them as both income and expenses in the same year, but how easements are then shown on the balance sheet varies widely. Some maintain them as assets at their original value (or cost, if purchased), some write down the value greatly and assign a nominal or zero value and others carry them as liabilities.

There is no published IRS guidance or ruling on this issue. A land trust should work with an accountant well versed in nonprofit issues to establish the best method for the organization to value its easements. Once a method is chosen, the land trust should generally stay with that approach.

More Resources

Land Trust Standards and Practices, the research report on conservation easement amendments and related materials are available on The Learning Center to board, staff and volunteers of member land trusts and partner organizations and to individuals joining at the $250 level and above. All materials are also available through purchase from the publications catalog.

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