New Forms, New Headaches

A bigger, more complicated Form 990 and a six-section Schedule H could mean higher outlays for disclosure.

Beginning in the 2008 fiscal year, nonprofit hospitals will have to fill out a much more complicated Form 990, the tax return nonprofit institutions are required to file with the Internal Revenue Service. It's not a simple matter of dotting i's and crossing t's. The information you provide in this form, and for 2009, the required Schedule H, is intended to give the federal government a more complete picture of whether your institution has a grasp on internal processes—and perhaps more important, whether you're fulfilling your institution's charitable mission.

That means you can't entrust this job to a back-end functionary. That's especially true for Schedule H. In 2009, all six sections will be required, but for 2008, only one of those is required. "That will be very basic information that everyone will have access to," says Jim Sowar, national healthcare provider tax leader at Deloitte & Touche LLP. "The sections that pertain to whether they have charity care, community benefits, bad debt, joint ventures, or other business arrangements, that's optional for 2008."

But that doesn't mean you shouldn't be ready to fill it out now.

"There are a couple reasons you would want to consider filling out the entire form," Sowar says. One is to be ahead of the curve, and a leader with respect to disclosures. Second, the main crux of Schedule H (for hospitals) is to educate the reader on what types of charity care policies you have and what kind of community benefit activities you're undertaking.

Sowar says the CEO, CFO, and COO will want to be comfortable with the disclosures, but responsibility for the schedule will likely fall to the COO's and CFO's departments in most organizations, Sowar says. "The VP of finance or the controller might be responsible, but someone in finance and someone in operations, and perhaps the general counsel's office, should be involved."

The scope of this form is vast, but there are land mines, says Sowar. "In particular on management and disclosure, there are various governance questions that I believe are leading questions that you will want to answer yes, because a no answer would be a red flag."

One example would be whether you have a written document retention and destruction policy or written whistleblower policy, Sowar says. "You wouldn't want to say no, though it doesn't mean you necessarily have a problem if you answer no."

The bottom line is that these forms will certainly add cost to the process, Sowar says.

"All organizations understand there will be an extra cost. Maybe not in hiring, but they know they will have to pay extra for consultation."