The passing of the Tax Cuts and Jobs Act (the Act) has incited the addition of two questions to the IRS’s draft of the 2018 Form 990 for tax-exempt organizations.
New Questions Are Added
Recently, the IRS released an updated draft of Form 990 that addresses new excise tax on compensation greater than $1 million and on educational institution’s net investment income. The first part of this two-question form addition relates to not-for-profit organizations and governmental entities, and the second addresses an educational institution’s net investment income.
Part One: Not-for-Profit, Government and Tax-Exempt
Not-for-profit organizations and governmental entities that pay any covered employee more than $1 million (excluding medical professionals receiving compensation for services) can expect a change in this year’s Form 990. Employers that fall under this umbrella pay a flat 21 percent tax on compensation higher than $1 million to the top five highest earning employees, and the form has been adapted to address this excise tax.
Part Two: Educational Institutions
Furthermore, the IRS’s updated draft includes a question on educational institution’s net investment income, as institutions that meet a number of requirements have to pay a 1.4 percent excise tax on their net investment income. These requirements mandate that:
- over half of the institution’s students are located in the U.S.,
- the entity had 500 students at minimum enrolled in the prior year,
- the educational institution is not a state university or college,
- and that the cumulative fair market value of their assets (other than those used in carrying out their exempt purpose) from the prior year is $500,000 or more per student.
The two new questions appear in Part V of Form 990’s draft.
While this form is only a draft and tax-exempt organizations must wait for guidance, we recommend that not-for-profit and governmental entities take a close look at the IRS’s updates. Our experts are available to answer any questions or to advise next steps to tax-exempt organizations.