EY has prepared annotated versions of the following 2019 federal forms, schedules and instructions:

• Form 990 (Return of Organization Exempt from Income Tax), schedules and instructions
• Form 990-T (Exempt Organization Business Income Tax Return), schedules and instructions

EY has also included a summary of the 2019 Form 990-PF (Return of Private Foundation) updates below, highlighting the expected changes to the 2019 forms and instructions. Due to the limited changes from 2018 to 2019, EY has not included annotations for the Form 990-PF or instructions.

The annotated forms and instructions show what changes the IRS has made for tax year 2019. These documents (which are attached) highlight and explain changes from tax year 2018. The annotated Form 990 includes a Table of Contents from which a reader can hyperlink to particular parts of the form and specific schedules and instructions.

Changes to the 2019 federal Form 990, schedules and instructions

Although most of the changes to the 2019 federal Form 990, schedules and instructions consist of minor clarifications and updates., changes of note include:

1. Due to the repeal of the qualified transportation fringe benefit tax under IRC Section 512(a)(7), references to unrelated business taxable income (UBTI) regarding IRC Section 512(a)(7) have been removed from the instructions.
2. Instructions to Form 990 were updated to explain the electronic filing requirement for tax years beginning on or after July 2, 2019. (See Tax Alert 2019-1255.)
3. Group returns: The instructions state that group ruling filers that include only some of their subordinates in a group return must attach an additional list of subordinate organizations (not on Schedule O) listing the name, address, and EIN of each subordinate organization not included in the group return, in addition to a list (not on Schedule O) showing the name, address, and EIN of each subordinate organization included in the group return. (See Reg. Section 1.6033-2(d)(2)(ii).)
4. Definition of interested person: To conform with the definition of "interested person" for purposes of Schedule L, Part II (Loans), this definition was modified throughout the Form 990, schedules and instructions to include: the creator or founder, a substantial contributor, a family member of an interested person, and a 35% controlled entity of any interested person(s); however language referring to contributing employers and sponsoring organizations of IRC Section 501(c)(9) voluntary employee beneficiary associations as interested persons was removed.
5. Part IV, Line 10: Due to new guidance under ASC 958-205, when listing qualifying types of endowment funds in the instructions, language has been updated from "temporarily restricted" and "permanently restricted" funds to "donor" and "board designated" funds.
6. Part VII, Section A: Additional guidance regarding the order of reporting compensation was included in the instructions. "List the persons required to be included in Part VII, Section A, in order from highest to lowest compensation based on the sum of columns (D), (E), and (F) for each person. When the amount of total compensation is the same, list the person in the following order: individual trustees or directors, institutional trustees, officers, key employees, highest compensated employees, and former such persons."
   

It should be noted that the instructions for Part VII, Section A, Column (A) have not yet been updated to reflect this new ordering rule. Rather, they continue to request that each individual be listed in the following order: individual trustees or directors, institutional trustees, officers, key employees, highest compensated employees, and former such persons. This conflicting instruction is likely an oversight, as the IRS's stated intention is for Form 990 filers to report individuals listed on Part VII in order of compensation from highest to lowest, regardless of their position.

Implications

The new compensation ordering rule for Part VII requires a significant change in presentation for larger tax-exempt organizations. The new ordering rule enables the IRS to more easily identify the highest-compensated individuals of each filing organization and determine whether and to what extent an organization is subject to the IRC Section 4960 compensation excise tax for the year.

Organizations that have historically filed paper versions of Form 990 but are not eligible to file Form 990-EZ will be required to e-file their returns for tax years beginning on or after July 2, 2019. The IRS is delaying mandatory Form 990-EZ filing for an additional year. Any affected organization should begin to evaluate what e-filing tools and options are available and will best suit its needs.

The updates to the 2019 Form 990 and instructions continue to reflect the IRS Tax Exempt and Government Entities Division's focus on using its data-driven approach to exam case selection. Thus, exempt organizations should continue to complete Form 990 and its associated schedules accurately, pursuant to the instructions, and ensure that Form 990 reporting reflects compliance with recent changes to the tax law.

Changes to the 2019 federal Form 990-T, schedules and instructions

Most of the changes to the 2019 federal Form 990-T, schedules and instructions consist of minor clarifications and updates. However, significant changes of note include:

• The line that was previously Part II, Line 20 (charitable contributions) has been moved to Part III, Line 34. Moving the charitable contribution deduction to Part III, Line 34, to offset gross UBTI reported on Part III, Line 32, simplifies the prior instruction that charitable contribution deductions may be allocated in any manner across separate unrelated trade or business activities. The instructions now clarify that the deduction may be taken for contributions, whether or not the contributions are directly connected to an unrelated trade or business.
• With the repeal of IRC Section 512(a)(7), which taxed qualified transportation fringe benefit expenses as UBTI, the instructions to Form 990-T now indicate to leave Part III, Line 33 blank. Because this repeal was retroactive, if an exempt organization previously filed Form 990-T and reported qualified fringe benefit expense as UBTI, it should follow the IRS guidance on amending its previously filed returns (e.g., file an amended Form 990-T to request a refund of tax paid). (See Tax Alert 2020-0190.)
• Part III, Line 35 was added to report the total amount of UBTI before deducting pre-2018 net operating losses and the $1,000 specific deduction.
• As the IRS continues to publish new forms and guidance related to The Tax Cuts and Jobs Act of 2017, the Form 990-T instructions continue to explain the new rules and their reporting implications. The 2019 Form 990-T instructions include:
• Descriptions of various forms that may relate to a Form 990-T filer including: Form 8978, Partner's Additional Reporting Year Tax, used to report adjustments shown on Form 8986; Form 8995 and Form 8995-A, Qualified Business Income Deduction Simplified Computation for Trusts; and Form 8997, Initial and Annual Statement of Opportunity Fund Investments
• The addition of organizations that offer qualified ABLE (Achieve a Better Life Experience) programs to the list of organizations that are liable for other taxes or recapture taxes. ABLE programs are specific to IRC Section 529 qualified tuition programs
• New instructions for how to attach additional forms for taxpayers that deferred a capital gain into a qualified opportunity fund. Qualified opportunity funds are related to tax benefits for investing in Qualified Opportunity Zones
• Reverting to the 2017 instructions, the instructions clarify that membership dues are deductible if they fall under certain specified parameters

Changes to the 2019 federal Form 990-PF, schedules and instructions

Although most of the changes to the 2019 federal Form 990-PF and instructions consist primarily of minor clarifications and updates, significant changes of note include:

1. Instructions to Form 990-PF were updated to include to explain the electronic filing requirement for tax years beginning on or after July 2, 2019.
2. Part II, Lines 24-25: The form and instructions state that net assets must now be broken out as either net assets without donor restrictions (line 24) or net assets with donor restrictions (line 25), pursuant to ASC 958-205, instead of the previous categories of unrestricted net assets, temporarily restricted net assets and permanently restricted net assets.

Reminder about the Taxpayer First Act and e-filing

The Taxpayer First Act, enacted July 1, 2019, requires tax-exempt organizations to electronically file information returns and related forms. (See Tax Alert 2019-1255.) Recently the IRS announced that Section 527 organizations will be required to electronically file Form 8872 (Political Organization Report of Contributions and Expenditures) for information reporting periods starting on or after January 1, 2020.

Political organizations can file electronically using the IRS website at IRS.gov/polorgs. To file electronically, the organization must have the username and password it received from the IRS after electronically filing its initial notice (Form 8871).

Please contact your Ernst & Young LLP professional for further information.

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ATTACHMENTS

Annotated Form 990

Annotated Form 990 Instructions

Annotated Form 990T

Annotated Form 990T Instructions