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EY has prepared annotated versions of the 2023 Form 990, Return of Organization Exempt from Income Tax, and its schedules and instructions; Form 990-EZ, Short Form Return of Organization Exempt from Income Tax, and instructions; Form 990-T, Exempt Organization Business Income Tax Return, and instructions.

These annotated forms, schedules, and instructions (attached to this Tax Alert) highlight changes the IRS has made for tax year 2023 and explain some of the more significant differences from the tax year 2022 forms, schedules and instructions. The annotated Form 990 includes a table of contents from which readers can hyperlink to parts of the form, specific schedules and instructions.

Key updates to the 2023 Form 4720, Return of Certain Excise Taxes on Charities and Other Persons Under Chapters 41 and 42 of the Internal Revenue Code, and instructions and Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private Foundation, and instructions are also summarized in this Alert.

Changes to the 2023 Form 990, schedules and instructions

Most of the changes to the 2023 Form 990, schedules and instructions are relatively minor clarifications and updates. Some of the more significant changes include:

1. Schedule A, Part I, Line 12e: The instructions clarify that a grantor to a supporting organization can rely on the supporting organization's IRS exemption determination letter, for the purpose of determining the supporting organization's type (e.g., Type I, Type II, Type III), until the IRS makes a public announcement that it qualifies as a different type of supporting organization.
2. Schedule A, Part 1, Line 12g: For 2023, if a supported organization is not specifically identified in its supporting organization's organizing document (e.g., Articles of Incorporation), the supporting organization must explain why in Part VI of Schedule A.
3. Schedule H, Worksheet 4 (Part I, Line 7e): Worksheet 4 of the Schedule H instructions, which is used to calculate community health improvement service expense to report as community benefit, has been revised to clarify that any activity meeting the definition of a community health improvement service is reportable as such on Part I, Line 7e, even if that activity is also required for licensure or accreditation.

Changes to the 2023 Form-EZ 990 and instructions

Most of the changes to the 2023 Form 990-EZ and instructions are relatively minor clarifications and updates. One of the more significant changes includes question-mark icons that appear throughout the form when it completed on the IRS platform. This feature enables pop-up help windows to assist the preparer in completing the form; it also helps small tax-exempt organizations file more complete and accurate returns, and reduces the risk that the IRS will reject a Form 990-EZ filing or contact the filer with additional inquiries.

Changes to the 2023 Form 990-T, schedules and instructions

Many of the more significant changes to the 2023 Form 990-T and instructions guide filers on making Inflation Reduction Act (IRA) tax credit elective payment elections under IRC Section 6417, and clarify how to report various taxes and payments in Part III of Form 990-T. These changes include:

1. Page 1, Header Box G: Includes a new 'organization type' selection of "6417(d)(1)(A) Applicable entity" for organizations filing Form 990-T only to make an elective payment election under IRC Section 6417. The instructions clarify that a filer should check this box only if no other checkbox applies.
2. Page 1, Header Box H: Includes a new box for the filer to check if it is filing only to claim the "elective payment amount from Form 3800" (General Business Credit).
3. Part II, Line 5: Explains that the IRA imposed a corporate alternative minimum tax (CAMT) under IRC Section 55. For tax years beginning after 2022, applicable corporations within the meaning of IRC Section 59(k), including tax-exempt organizations whose annual income exceeds a certain threshold, may be required to pay an alternative minimum tax. In prior years, this line specifically identified "trusts only," as the alternative minimum tax applied only to trusts.
4. Part III, Line 3: Includes multiple lines for reporting specific taxes that are reportable on other forms. The instructions outline when these lines must be checked, how to report the tax due and recapture related credits, and what information to include in supplemental statements (when applicable).
5. Part III, lines 6g-j: Adds a new line 6g for reporting the elective payment from Form 3800 and breaks out the credits, adjustments and payments previously listed in line 6g (i.e., payment from Form 2439, credit from Form 4136, other) to lines 6h-6j.

Changes to the 2023 Form 990-PF, schedules and instructions

Most of the changes to the 2023 Form 990-PF and instructions are relatively minor clarifications and updates, including:

1. 990-PF General Instructions, Part D: Explains additional purposes for which Form 8940 may be used; in particular, by government entities requesting voluntary termination of exempt status under IRC Section 501(c)(3), nonexempt charitable trusts requesting an initial exemption determination from the IRS, and Canadian charities requesting to be classified as a public charity and listed as a 501(c)(3) organization on IRS.gov.
2. 990-PF General Instructions, Part Q: Revises the end of the section, "Requirements Placed on the IRS," to delete references to the availability of Form 990-series returns on DVD, for public inspection at IRS offices, and via filing of Form 4506-A with the IRS. Instead, these instructions now clarify that Form 990-series returns are available online at IRS.gov/TEOS, and that filers can contact the IRS to obtain a copy of a return if it is not available online.

Changes to the 2023 Form 4720 and instructions

Most of the changes to the 2023 Form 4720 and instructions consist of minor clarifications and updates; changes of note include the following:

1. What's New (e-filing mandate): Requires all filers (other than private foundations) that file at least 10 returns of any type (e.g., Forms W-2, Forms 1099) during the calendar year ending with or within the tax year to file Form 4720 electronically. If the taxpayer must electronically file Form 4720 but instead submits a paper return, the IRS will treat the filer as having failed to file the form. However, the IRS may waive this electronic filing requirement for "undue hardship" on a year-by-year, form-by-form basis.
2. Schedule I Instructions (Initial Taxes on Excess Benefit Transactions (Section 4958)): Provides guidance on what constitutes an economic benefit for purposes of an excess benefit transaction and clarifies that no amount repaid to correct an excess benefit transaction involving a donor-advised fund can be held in any donor-advised fund.
3. General instructions: Provides website links to a series of IRS Technical Guides that explain various rules governing private foundations, such as excise taxes on self-dealing under IRC Section 4941, excise taxes on excess business holdings under IRC Section 4943, taxes on jeopardizing investments under IRC Section 4944, and excise taxes on taxable expenditures under IRC Section 4945.

Implications

Updates to the 2023 Form 990-series and Form 4720 returns, schedules and instructions reflect changes to federal tax law, clarifications, and guidance on how to accurately complete certain sections of the forms and schedules. Tax-exempt organizations should continue to carefully review and adhere to the instructions when completing the forms and schedules, particularly for tax and credit reporting and elective filer selections.

Tax-exempt organizations should continue to monitor and evaluate annual filing requirements for Form 990-series returns, Form 4720, and the associated schedules for compliance with federal tax laws. Organizations should consult their software providers to confirm electronic filing capability and compatibility of their Form 990-series returns and Forms 4720, and the ability to upload and e-file required attachments.

Please contact your Ernst & Young LLP tax professional with any questions.