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EY has prepared annotated versions of the 2022 Form 990 (Return of Organization Exempt from Income Tax), schedules and instructions; the 2022 Form 990-PF (Return of Private Foundation), schedules and instructions; and the 2022 Form 4720 (Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code) and instructions.

These annotated forms and instructions (attached to this Tax Alert) show what changes the IRS has made for tax year 2022 and highlight and explain changes from tax year 2021. The annotated Form 990 includes a Table of Contents from which a reader can hyperlink to parts of the form and specific schedules and instructions.

Changes to the 2022 Form 990, schedules, and instructions

Most of the changes to the 2022 Form 990, schedules and instructions are relatively minor clarifications and updates. Some of the more significant changes include:

• Form 990, short-period returns: All short-period returns must now be filed electronically, consistent with the Taxpayer First Act. Short-period filings that report a change in accounting period must now include the reason for the change. The Form 990 does not include a specific field to provide this information, so organizations will need to provide the reason for the accounting period change in Schedule O.
• Form 990, Part VII: The IRS changed the rule for determining common law employees, substituting federal law for state law as the basis for such determinations. Now a Form 990 filer must report payments to management companies, leasing companies and professional employer organizations (PEOs) as compensation to its own employees if the payments are for the services of the filer's own common law employees, as defined under federal law (not under state law, as in the prior 990 instructions).

The instructions reference IRS Announcement 2021-18, which clarifies that Form 990 filers can no longer rely on Announcement 2001-33 to deviate from the Form 990 instructions about compensation reporting. For instance, a Form 990 filer should report compensation it paid to a management company for the services of the filer's own common law employee as compensation to the employee, not to the management company.

• Form 990, Part XI, Line 3a: The Single Audit Act of 1984 and OMB Circular A-133 have been superseded by Uniform Guidance, 2 C.F.R. Part 200, Subpart F, which now requires states, local governments, and nonprofit organizations that spend $750,000 (previously $500,000) or more of federal awards in a year to obtain an annual audit.
• Schedule H, Part II: The instructions state that if community building activities also meet the definition of community health improvement services, the filer should report those activities' expenses as community benefit on Schedule H, Part I, line 7e, rather than as community building in Part II. This is a clarification rather than a substantive change, as the instructions previously referred to reporting such expenses as "community benefit" rather than the more specific "community health improvement service."
• Schedule H, Part II: The instructions provide examples of "other" types of community building reportable in Part II, line 9, in particular spending on food security and nutrition. This suggests that the IRS believes these social determinants of health meet the definition of community building, but not necessarily the definition of community health improvement services.

Changes to the 2022 Form 990-PF, schedules and instructions

Most of the changes to the 2022 Form 990-PF and instructions also are relatively minor clarifications and updates, including:

• The instructions reference IRS Announcement 2021-18, which clarifies that Form 990-PF filers can no longer rely on Announcement 2001-33 to deviate from the Form 990-PF instructions about compensation reporting. For instance, a Form 990-PF filer should report compensation it paid to a management company for the services of the filer's own common law employee as compensation to the employee, not to the management company.
• Form 990-PF, Part I, line 13 (Compensation of officers, directors, trustees, etc.): The IRS changed the rule for determining common law employees, substituting federal law for state law as the basis for such determinations. Now a Form 990-PF filer must report payments to leasing companies and professional employer organizations (PEOs) as compensation to its own employees if the payments are for the services of the filer's own common law employees, as defined under federal law (not under state law, as in the prior 990 instructions).
• For 2022, rounding amounts to the nearest whole dollar are now mandatory on Form 990-PF.

Changes to the 2022 Form 4720 and instructions

Similarly, most of the changes to the 2022 Form 4720 and instructions are relatively minor clarifications and updates. Some of the more significant changes include:

• IRS revised the instructions to emphasize IRC Section 4960 compensation excise tax reporting, and to clarify that the filing organization should only report its own IRC Section 4960 excise tax information in Parts I and III, not a disqualified person's excise tax information in Part II.
• Instructions clarify that private foundations' paper-filed Forms 4720 will be rejected, consistent with e-filing requirements. (Public charities may still file paper Forms 4720.)
• Instructions include a new section warning that private foundations must not pay a disqualified person's excise tax, as such payment would be prohibited self-dealing.
• Schedule D instructions note that a foundation manager who participated in a private foundation's investment knowing that it was a jeopardizing investment under IRC Section 4944 must complete a separate Form 4720 to report and pay the manager's separate excise tax.
• Schedule I, Part I instructions clarify that although the filing organization should report the tax on a disqualified person's excess benefit transaction in Schedule I, it should neither report that tax on Part II of the core Form 4720 nor pay that tax.

Implications

The updates to the 2022 Forms 990 and 990-PF, schedules and instructions continue to reflect guidance affecting tax-exempt organizations, as the IRS Tax Exempt and Government Entities division continues to focus on and refine its data-driven approach to exam case selection. Some of these updates promote uniformity among the IRS's tax-exempt returns and instructions.

The updates to the 2022 Form 4720 highlight and explain how the IRC Section 4960 compensation excise tax should be reported, underscoring the IRS's focus on IRC Section 4960 compliance as an enforcement priority.

Tax-exempt organizations should continue to complete Form 990-series returns, Forms 4720 (if required) and their associated schedules according to their instructions and in compliance with federal tax law. Organizations should consult their software providers early to confirm electronic filing ability of their Form 990-series returns (including short-year returns and returns reporting a change of accounting period) and any necessary attachments to the returns.

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

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RELATED RESOURCES

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

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Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor

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ATTACHMENTS

2022 990 Annotated Form combined

2022 990 Annotated Instructions combined

2022 990-PF Annotated Form

2022 990-PF Annotated Instructions

2022 4720 Annotated Form

2022 4720 Annotated Instructions