Center Voices
The New IRS Form 990 and Schedule H: What Trustees Need to Know
By Nicholas Wolter, M.D.
The Internal Revenue Service (IRS) recently released a revised version of Form 990--the reporting form all tax-exempt organizations must file--and 16 related schedules, including a new Schedule H to be completed by all hospitals or other organizations that provide medical care. Except for the required reporting of facility information, Schedule H is optional for tax year 2008, but the entire schedule is required for 2009.Form 990 is significantly redesigned, and some sections are meant specifically to provide the IRS with a picture of an organization’s governance structures. For example, IRS inquires about the independence of the board. Conventionally, a board member is considered “independent” if he or she: is not compensated by the organization as an officer or employee of the organization or of a related organization; did not receive more than $10,000 for the year as an independent contractor of the organization or a related organization; did not otherwise receive a material financial benefit from the organization or related organization; and did not have a family member that received compensation or other material financial benefits from the organization or a related organization. Organizations must disclose and explain any family or business relationships between board members, officers and key employees.
Additionally, the form asks whether board members, officers, and key employees are required to annually disclose possible interests that could give rise to conflicts. An organization also is required to report whether and how it regularly and consistently monitors and enforces compliance with its conflict of interest policy. The form also inquires whether the board was provided the Form 990 before it was filed and, if so, directs organizations to describe who is provided the form, when it is provided and the level of review undertaken.
In addition, IRS seeks compensation information for top management, officers, and “key” employees. As defined by IRS, a key employee is someone who has responsibilities, powers or influence over the organization as a whole that is similar to those of officers, directors or trustees; manages a discrete segment or activity of the organization that represents 5 percent or more of the activities, assets, income or expenses of the organization; or has or shares authority to control or determine 5 percent or more the organization’s capital expenditures, operating budget or compensation of employees. Persons whose compensation does not exceed $150,000 are not considered key employees. Many organizations have complained that this definition is overly broad, and the AHA and others will continue to advocate for changes to reduce the reporting burden on hospitals.
The form inquires about an organization’s process for determining high-level employee compensation. Specifically, the form asks whether the process includes: a review and approval by independent persons, compensation comparability data and written records of deliberation and decisions about compensation. Compensation information from related organizations and any unrelated entity that provided services to the reporting organization is required.
In addition, Schedule J asks filers to check a box if anyone in the organization was permitted: first-class or charter travel, travel for companions, a housing allowance or residence for personal use, payments for business use of a personal residence, tax indemnification and gross-up payments, health or social club dues or initiation fees, discretionary spending accounts, and the provision of personal services. The form provides an opportunity to explain any of these answers. It also inquires about severance or change in control payments; payments or participation in supplemental nonqualified retirement plans and equity-based compensation arrangements; and compensation contingent on revenues, net earnings or other nonfixed payments of the organization or any related organization.
The new Schedule H solicits information (mostly financial) about what a filer spends on services and programs it maintains to address the needs of its community. Specifically, it requires detailed numerical and financial information related to community benefit, management companies, and joint ventures. General information about health care needs assessment, emergency department policies and procedures and distribution of information about financial assistance also is requested.
In preparing to fill out this schedule, the board should review your existing community activities, including charity care and financial assistance policies, and whether or how the hospital prepares a community benefit report with more in-depth information about its range of community programs and services. This presents an opportunity to revisit your assessment of your community’s health care needs and your strategies for educating the public about the ways in which your organization benefits its community.
The new IRS form paints mostly a financial portrait of an organization and its services. It is critical that your community receives a complete and accurate picture of the benefits and services your hospital provides. If your organization does not have a communications plan that includes a more complete explanation of the services and benefits you offer to the community, you should plan to create one. The new IRS form offers you a chance to build on the financial information it provides to ensure your community hears firsthand about the myriad ways your organization is working to improve the health of the community.
Nicholas Wolter, M.D., is CEO of the Billings Clinic, Mont. He can be reached at nwolter@billingsclinic.org. For more information about the IRS Form 990 and its related schedules, please visit AHA’s Web site at www.aha.org.