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December 20, 2021

IRS tells exempt organizations to follow Form 990-series instructions, revokes old guidance providing alternative for reporting compensation paid to management companies

In Announcement 2021-18, the IRS has revoked 20-year-old guidance (Announcement 2001-33) that provided a reporting alternative for tax-exempt organizations that pay for the services of officers, directors, trustees or key employees through a management services company.


Most tax-exempt organizations must file an annual information return (Form 990, Return of Organization Exempt From Income Tax; Form 990-EZ, Short Form Return of Organization Exempt From Income Tax; and Form 990-PF, Return of Private Foundation) with the IRS, showing items of gross income, receipts, disbursements and certain other information (IRC Section 6033(a)(1)). Treas. Reg. Section 1.6033-2 lays out the categories of information that must be provided on these Forms 990-series returns, including (1) names and addresses of all officers, directors, trustees and foundation managers; (2) names and addresses of key employees, highly compensated employees (HCEs) and independent contractors; and (3) the amount of compensation paid to each of these individuals. Failure to include any requisite information on the Form 990-series returns can lead to the IRS assessing penalties for incomplete or inaccurate filing (IRC Section 6652(c)(1)(A)).

In 1999, the IRS revised the Form 990-series return instructions to add: "If you pay any other person, such as a management services company, for the services provided by any of your officers, directors, trustees, or key employees [or foundation managers for private foundations] ("ODTKEs"), report the compensation and other items as if you had paid them directly." This instruction was added to ensure that compensation paid through third-party management companies was properly disclosed.

Since this initial change in 1999, the Form 990-series return compensation instructions have continued to change as tax-exempt entities provided comments on compensation-reporting requirements. The current Form 990 instructions have two crucial elements pertaining to management companies:

  1. If the exempt organization's current or former ODTKEs or HCEs are paid by a related management company to provide services for the exempt organization, the exempt organization must report the compensation separately.
  2. If management duties are delegated to a management company or other third-party, the exempt organization must report the details on Form 990, Schedule O, including the names of any current or former ODTKEs or HCEs who were paid under the arrangement and how much they were paid for services provided to the exempt organization.

Revoking Announcement 2001-33

The IRS has determined that it is no longer appropriate for tax-exempt organizations to rely on Announcement 2001-33 rather than follow the Form-990 series instructions. Therefore, Announcement 2001-33 is revoked, effective for the Form 990-series returns required to be filed for tax years beginning on or after January 1, 2022.


This announcement, which closes a potential Form 990 reporting loophole, likely will have little impact on Form 990-series compensation reporting, as the Form 990-series instructions have been and continue to be the authority for Form 990-series reporting. For instance, the redesigned Form 990 instructions for tax year 2008 effectively superseded Announcement 2001-33. Under those instructions, a Form 990 filer should report any compensation to a management company (or to an employee-leasing company or professional employer organization) for the services of a Form 990 filer's own common-law employee as compensation from the filer to the employee — not to the management company — on Part VII Section A, column (D), if the employee is the filer's ODTKE or HCE. The filer should report the compensation on Part VII, Section A, column (E) as compensation from a related organization if (1) that management-company employee is an officer or director but not a common-law employee of the filer, and (2) the management company is a related organization to the filer. If the management company is an unrelated organization and its employee is not the filer common-law employee, then the filer should report the compensation to the management company as compensation to an independent contractor on Part VII, Section B, if the management company is among the filer's five most highly compensated independent contractors paid over $100,000. Accordingly, Form 990 filers that utilize management companies should carefully review the Form 990, Part VII, Section A instructions to be certain they are properly reporting all required compensation of management companies.

Announcement 2021-18 also highlights the need for organizations to identify their common-law employees, which is especially important now that tax-exempt organizations are subject to IRC Section 4960 and required to identify their top five highest-compensated employees each year as "covered employees." Like the Form 990 instructions, IRC Section 4960 defines "highest-compensated employees" as the organization's top five most highly compensated common-law employees for each calendar year ending with or within the organization's tax year.



— For more information about EY's Tax-Exempt Organization Services group, visit us here.


Contact Information
For additional information concerning this Alert, please contact:
Tax-Exempt Organization Services
   • Stephen Clarke (
   • Melanie McPeak (
   • Kristen Farr Capizzi (
   • Bridget O’Connell (