September 2007

Dear Friend:

There are less than two weeks left to file your comments with the IRS about the proposed changes to the Form 990.

Here at GuideStar, we are putting the finishing touches on our own comments before submitting them next week. [Update, September 14, 2007: You can now read GuideStar's comments.] We applaud the IRS for undertaking the difficult task of revamping the 990 and commend the service for the countless hours of work it has put into revising the form. In a sense, this is a historic moment: it is the first time since 1979 that the 990 has been completely overhauled. In the intervening 28 years the sector has changed dramatically. It's much larger, more diverse, under more pressure from clients and supporters, and subject to greater scrutiny from the general public.

We believe the new Form 990 should result in nonprofit reporting that is complete, accurate, and filed in a timely manner. Unfortunately, the current draft would require more information from many organizations filing it, and GuideStar believes it will likely result in more information that is inaccurate and incomplete. The complexity of the new form is likely to result in organizations requesting more extensions to file it and is likely to increase compliance costs for many groups.

GuideStar's comments are based on our role as a provider of nonprofit data—only some of it from the 990—to a broad array of millions of users, including individuals, board members, media, and service providers, as well as highly sophisticated nonprofit experts. From our perspective, the data found in the 990 are often confusing and misleading. Plus, the 990 is only one way people learn about a nonprofit organization, since there is a growing marketplace of voluntary disclosures.

Rather than providing a line-by-line analysis, our comments focus on the larger picture and present four key points:

1. Less Is More.
   Form 990 should be simplified, and the highest priority should be placed on collecting data that are useful, complete, accurate, and timely.
   
   
2. Minimize the Burden on Filers.
   The costs of compliance with the proposed form need to be balanced against the utility and accuracy of the information gathered. The proposed form's increased complexity will also work against improving the timeliness of the returns. GuideStar's own auditors have told us the cost of preparation will soar 50 to 100 percent in the first year of the proposed new form, or nearly $5,000. Multiplied across the entire sector, we think this is an unreasonable burden to impose on the nonprofit sector.
   
   
3. Help Decision Makers.
   As a public disclosure form, the Form 990 (and the Summary Page) must present an accurate picture of the finances and activities of a nonprofit; the current draft does not meet this objective. In fact, it creates an inaccurate picture by presenting financial ratios and compensation data out of context.
   
   
4. Don't Rush.
   Changing the 990 will affect the sector for years to come. GuideStar urges the IRS to take the time to gather the data needed to create the most effective return possible.
   
   Utility, accuracy, and timeliness can only be achieved in consultation with the organizations that file the 990 and the diverse audiences that use it. Many have already shared their feedback on the proposed form. The service should take further advantage of nonprofits' and the public's sincere desire to help the IRS achieve its goals.

What do you think? What will the new 990 mean to your organization? I'd like to hear your comments and suggestions.

Sincerely,

Bob Ottenhoff
President and CEO
president@guidestar.org