CUNA Comment Letter
Form 990 Revision
June 1, 2008
Internal Revenue Service
Draft 2008 Form 990 Instructions
1111 Constitution Avenue, NW
Washington, DC 20224
The Credit Union National Association (CUNA) appreciates the opportunity to comment on the Internal Revenue Services draft instructions and schedules to the redesigned Form 990, Return of Organization Exempt from Income Tax. By way of background, CUNA is the largest credit union trade organization in this country, representing approximately 90 percent of our nations approximately 8,300 state and federal credit unions, which serve more than 90 million members.
Summary of CUNAs Views
The proposed changes to the draft instructions for completing IRS Form 990 reflect the recent changes to that form. The draft instructions include a general overview of the form and schedules explaining their purpose, description of who must file a particular schedule, and line-by-line explanations. The draft instructions also contain new information including a comprehensive glossary of terms, a compensation table, and illustrative examples.
We appreciate the need for the Internal Revenue Service (Service) to update the instructions consistent with the new form. However, we have a number of concerns regarding the draft. A summary of CUNAs views is addressed below.
- The instructions for compensation will result in filers reporting inflated figures that reflect certain reimbursements not generally considered to be compensation.
- The thresholds for reporting employee compensation is too low and would include employees without sufficient authority or control at the workplace.
- The requirement to itemize specific data on group returns is unnecessary, and the information should be provided on a consolidated basis as permitted in the Internal Revenue regulations.
- Also for group returns, parent organizations should be permitted to change the method of filing without having to receive IRS consent. Providing a notice of change to the Service should be sufficient.
- The definition of key employee is overly broad and could result in unintentionally including the personal salaries of department heads, middle-managers and other employees who do not have the responsibilities, power or influence of key personnel.
Discussion of CUNAs Views
Reporting Executive Compensation
CUNA is concerned that the requirement to report nontaxable expense reimbursements and fringe benefits will result in filers having to report figures that inflate compensation and do not reflect what most individuals consider to be compensation. We urge the Service to develop instructions that reflect reporting requirements that do not unintentionally result in compensation that is exaggerated. In that connection, nontaxable expense reimbursements and fringe benefits should not be included as compensation. Also, we suggest setting compensation thresholds that are adjusted geographically to reflect differences in cost of living.
Part VII of the Core Form must be completed regarding an organizations current officers, directors, and trustees regardless of the amount of compensation they receive as well as its five current highest compensated employees who receive reportable compensation of more than $100,000. Schedule J must be completed for any current individual whose reportable compensation was greater than $150,000.
While we appreciate the Service raising the threshold for reporting the five highest compensated employees from $50,000 to $100,000, we believe this step does not go far enough to prevent the inclusion of unintended employees. At a minimum, the threshold should be consistent with that of key employee, which is set at $150,000. Also, as suggested above for executive compensation generally, we believe the threshold should account for the geographical differences in cost of living.
Group 990 Filings
Appendix E has been added to the draft instructions, which details instructions directed to group filers. It clarifies that when an organization files a group return (the central organization) on behalf of a group of entities (the subordinates), it must aggregate data unless it is otherwise instructed to list individual data for each subordinate.
Appendix E further states that when listing the five highest compensated employees (Core form, Part VII, line 1a), the central organization may not aggregate the data and must include the five highest compensated employees for each subordinate.
We believe that a central organization should be permitted to aggregate this information regarding its subordinates. IRS rules regarding group returns state that when a central or parent organization provides information on the names, addresses and compensation of officers, directors, trustees, key employees and the five highest compensated employees of subordinates, it can provide the information on a consolidated basis for all subordinates. 26 CFR 1.6033-2(d)(5)(ii).
In our view, if the Service wishes to change this policy, it must do so only after a notice and comment procedure under the Administrative Procedure Act (APA).
Appendix E contains special instructions regarding the compensation section of the Core form (Part VII) and the compensation of individuals reported in Part II of Schedule J. The central organization must select a method of filing its group return, either filing separately these parts for itself or filing a single consolidated form. Once a method is adopted it can be changed only with IRS consent.
Parent organizations should be permitted to change the process they use to file their returns without having to receive IRS consent. We do not believe the Service has provided sufficient explanation for requiring advance permission and question why prior IRS approval is required. We believe providing a notice of change to the Service in advance of filing should be sufficient.
Concerns with Some Proposed Changes
The Service modified the definition of key employee in an effort to include those individuals who have executive authority, but do not fall under the Services definitions of director, officer, or trustee.
We have concerns that the proposed definition is overly broad and would result in unintentionally including non-crucial employees who do not have the kind of authority that would justify reporting their compensation.
We believe the five percent threshold is too low and would require organizations to include the individual salaries of department heads, middle-managers and other employees that do not have the level of responsibility, power or influence that warrants the reporting of their compensation. Additionally, it may be difficult for smaller organizations, such as credit unions, to identify and assign discrete activities to individual employees since functions often overlap within departments, and employees may share responsibilities.
Lastly, we appreciate the Services clarification of reporting other liabilities on Group 990 returns (Schedule D Part X), by stating that an organization may summarize the portion of the FIN 48 footnote that applies to the liability of multiple organizations. However, we disagree with the overall requirement to provide the text of the organizations FIN 48 footnote in Part VII of Schedule D.
To our knowledge, this requirement does not exist on other tax forms, and does not serve the purpose for which Form 990 is intended, which is to provide an accurate picture of the organization allowing stakeholders to compare it to similar organizations, and to correctly reflect the organizations operations and use of assets for tax purposes as stated by the IRS. Organizations must already report any unrelated business income on Form 990 and 990-T. Requiring the text of its FIN 48 footnote incorporates duplicate line-items which would likely be confusing to the general public.
Thank you for the opportunity to express our views on the proposed changes to the draft instruction to Form 990. If you have questions about our letter, please do not hesitate to give Lilly Thomas, Assistant General Counsel or me a call at 202-508-6736.
Mary Mitchell Dunn
SVP and Deputy General Counsel