The Internal Revenue Service has significantly revised the Form 990 for 2008 with several goals in mind. The goals include promoting compliance through improved usability and additional reporting, and to enhance transparency and accountability by tax-exempt organizations.

The new form focuses on several areas about which the IRS has expressed concerns in the past. The IRS is relying on the redesigned Form 990 to provide transparency in those areas, including executive compensation. How executive compensation is determined has been a top concern of the IRS in the past, and will likely continue to be so in the future.

In the governance section of the new form, the organization must indicate whether it meets the "rebuttable presumption" that compensation is reasonable. IRS regulations provide that compensation is presumed to be reasonable if the following conditions are met:

• The compensation arrangement is approved in advance by the organization's governing body (or a committee thereof) that is composed of persons who do not have a conflict of interest with respect to the arrangement. The mere disclosure of a conflict will not satisfy the conflict of interest requirement
  
• The governing body relies on appropriate comparable data in deciding whether to approve the compensation
  
• The governing body adequately documents its actions at the time they are taken

Additional changes to the Form 990 that should be pointed out as well are:

• Part VI, Section B, Question 15a asks if the determination of compensation of the top management official meets the "rebuttable presumption" steps listed above
  
• Question 15b asks if the compensation of other officers and key employees was determined using the "rebuttable presumption" steps
  
• The organization is now required to describe on Schedule O the process that it used to determine compensation of officers and key employees

An exempt organization may find it impractical to fully implement each step above for all officers and key employees, but it is recommended that as many of the steps as possible be implemented in order to substantiate the reasonableness of compensation.