The IRS appears unable to update the 2018 Form 990 to accommodate recent changes to the classifications of net assets. How shall we then report?
Marathon Bible College (MBC) is a private college exempt under Internal Revenue Code section 501(c)(3) and 170(b)(1)(A)(ii). They are required to file Form 990 annually.
MBC’s Accounting Team met with us to discuss changes wrought by ASU 2016-14 upon their financial statements. In the conversation, they said, “We understand that the IRS may not update Form 990 to reflect the change to two net asset classifications (“net assets without donor restrictions” and “net assets with donor restrictions”). Is it true that the Form 990 will still show three classes of net assets? If so, how do we report our net assets?”
We tell them that these are timely questions as the IRS just released a DRAFT of the 2018 Form 990 Instructions. It appears that Form 990, Part X will not be updated. However, the IRS gives guidance in the new draft instructions about how to report net assets under the new FASB rules.
For MBC, we suggest they report “net assets without donor restrictions” on Form 990, Part X, Line 27 and “net assets with donor restrictions” on Part X, Line 29. Then, we will include narrative on Schedule O (Form 990) – which includes information from the net assets footnote from MBC’s audited financial statements – explaining the methodology used for Form 990 reporting of net assets.
DRAFT 2018 Form 990 Instructions (Part X, Net Assets and Fund Balances, page 50):
Effective for reporting years ending after December 15, 2017, ASC 958-205, Not-for-Profit Entities–Presentation of Financial Statements (ASC 958), addresses reporting of donor-restricted endowments and board-designated (quasi) endowments. Further, a number of states have enacted the Uniform Prudent Management of Institutional Funds Act (UPMIFA). If the organization is subject to UPMIFA or ASC 958, it may affect the amounts reported on lines 27 through 29.
Line 27. Unrestricted net assets. Enter the balance per books of unrestricted net assets. For years ending after December 15, 2017, ASC 958 refers to “unrestricted net assets” as “net assets without donor restrictions.” Unrestricted net assets are neither permanently restricted nor temporarily restricted by donor-imposed stipulations. All funds without donor-imposed restrictions must be classified as unrestricted, regardless of the existence of any board designations or appropriations.
Line 28. Temporarily restricted net assets. For years ending after December 15, 2017, ASC 958 does not use the term “temporarily restricted net assets.” However, this line can be used to show the balance per books of net assets with donor-imposed restrictions that may require resources to be used after a specified date (time restrictions), or used for a specified purpose (purpose restrictions), or both. Organizations may also opt to leave Line 28 blank and report all net assets subject to donor-imposed restrictions on Line 29.
Line 29. Permanently restricted net assets. Enter the balance per books of net assets with donor restrictions. If net assets with donor-imposed restrictions for time or purpose of expenditure are shown on Line 28, do not include those items in the balance shown on Line 29. (Underlines added.)
- For years ending after December 15, 2017, ASU 2016-14 (ASC 958) changes net assets from three classifications to two.
- The IRS is unable to update the Form 990 to accommodate these changes.
- However, it appears from the 2018 Draft Instructions that the IRS’ remedy is to give guidance on where and how to report “net assets without donor restrictions” and “net assets with donor restrictions.”
- It will likely make sense for institutions to provide narrative on Schedule O (Form 990) regarding their reporting of net assets on Form 990, Part X, Lines 27 – 29.
Specific questions? Email Dave Moja
The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.
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