Reporting Paycheck Protection Program (“PPP”) Proceeds on the Federal Form 990 and Other Changes You Can Expect on the 2020 Form

There have been several changes to the 2020 Form 990.

For tax years beginning on or after July 2, 2019, tax exempt organizations filing a federal Form 990 are required to do so electronically. IRS Notice 2010-13 established criteria under which tax-exempt organizations can request waivers of the electronic filing requirement. The criteria include circumstances where the exempt organization cannot meet electronic filing requirements due to technology constraints; or where compliance with the requirements would result in undue financial burden on the exempt organization. Additional information regarding the limited exceptions can be found within the IRS instructions. 

The instructions for Part VII of the Form 990 have always called for compensation to be disclosed as reported on a Form W-2 or 1099 for individuals that fall within the criteria. Starting in tax year 2020, Form 1099-NEC was introduced to report nonemployee compensation, which was historically reported on Form 1099-MISC. Nonemployee compensation included in box 1 of Form 1099-NEC should be reflected as reportable or other compensation on the Form 990 in accordance with the IRS guidelines.

On March 27, 2020, Congress enacted the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The Paycheck Protection Program (“PPP”), established by the CARES Act and implemented by the Small Business Administration (“SBA”), provided businesses, including certain tax exempt organizations, with funds to pay payroll and other costs during the Coronavirus outbreak. Under accounting principles generally accepted in the United States of America (“U.S. GAAP”), there are two acceptable methods for accounting for the PPP funds received under the CARES Act. Organizations can elect to treat the funds as a debt under Accounting Standards Codification (“ASC”) 470 or as a conditional contribution under ASC 958-605. In order to record the PPP money as a contribution within U.S. GAAP financial statements, the organization would need to demonstrate that it incurred qualifying expenditures prior to its fiscal year-end, but it is possible that approval of its application of forgiveness occurs subsequent to its year-end. The instructions to the IRS Form 990 state that these funds may only be reported on Part VIII, line 1e as a contribution from a governmental unit in the tax year that forgiveness is received. Accordingly, for tax organizations who elect to treat the PPP funds as a conditional contribution and who have received PPP forgiveness in the subsequent year, this will result in a book-to-tax difference in the current year’s filing, as well as in the subsequent year’s filing.

The complete 2020 Form 990 instructions can be located at the following link:

2020 Instructions for Form 990 Return of Organization Exempt From Income Tax (irs.gov)