990’s DO Matter!. All materials here have been developed (and are presented) by: Eve Borenstein Borenstein & McVeigh (BAM!) Law Office LLC Eve Rose Borenstein, LLC [prior permission is required for reprint/use] Funding for this presentation has been generously provided by
All materials here have been developed (and are presented) by:
Borenstein & McVeigh (BAM!) Law Office LLC
Eve Rose Borenstein, LLC
[prior permission is required for reprint/use]
Funding for this presentation has been generously provided by
The Otto Bremer Foundation
*there is a major exception: 501(c)(3)’s with private foundation status file the Form 990-PF
number of pages (especially for c3 filers).
Redesign process of IRS initiated 2006; draft-for-public-comment released June 2007. ‘Final’ (meaning-post comment period) released late December 2007.
This ‘final’ Form is one in use on tax years begun in 2008.
The Redesigned 990 takes existing Form’s 9 pages[&
Sched. A (for 501(c)(3)’s only) & Sched. B (info on donors)]
Replaces samewith –
11 page “Core Form” and 16 Schedules
Financials? last 3 pages
new/changed/ended program activities; ‘did not comply’ or public relations explanations; myriad of governance “our circumstances”; explanation of late filing; details if return is amended
Sample return’s Form 990?narratives
Figure out WHO this is . . . Form 990?
Entry here is from filer’s 2005 Form 990, Part III and demonstrates that YES, folks sometimes do use small font and get their descriptions solely on this Page/Part . . .
Education: Conducted six snowmobile safety classes (12 hours of instructions over 3 evenings) in five municipalities spread out over the county. Total number completing class to certification, 36.
Youth sports: Ran 3 youth hockey teams over course of 12 week season, 15 10 year olds, 18 11 year olds, 20 12 years olds rostered each team. Total ice-time in practices and games per team: 300. Each team had coach and assistant coach present for all practices and games. In addition, open skate for teams sponsored with trainer present weekly throughout the season – 3 hours per week.
Community Building: Undertook the sponsorship of weekly socials (36 during year) at organization’s facility, open to the public; printed and distributed 200 newsletters quarterly to most households in town; via newsletters successfully solicited 18 volunteers to chaperone school age children at town’s annual picnic.
Community Service: 10 members each provided 26 hours of visits to township’s senior center and assisted living community room; 6 members staffed community information booth at area arts festival and at seasonal highway rest stop for total of 780 hours.
II-b. 21 Form 990?st Century Challenges that MUST be overseen for 990 reporting!
Program Service Accomplishments (Part III, page 2) continues to, as with 2007 and prior years’ Forms, report ‘outputs’ and ‘achievements’. However, as of the Redesign, Part III now starts out first requiring input of the organization’s mission (no longer 3 inch line to input “primary exempt purpose”), and as already noted, also asks if activities are new, changed, or have been terminated:
Not in 2008 Same as in prior years NEW in 2008
. . . but that language does NOT mean that answering this Part is optional!
A voting member of the governing body IS independent IF at all times during the tax year they were NOT:
That last factor requires one to journey to Schedule L’s complex reporting upon the fact of interested persons having been connected to the filer (or a related organization in certain cases) via:
1) “excess benefit transactions” 2) being provided grants/assistance
3) business transactions 4) loans
We’ll assume that knowing when 1, 2, or 4 apply is self-evident. But “business transaction” reporting thresholds/definitions ARE complex, and when the issue is the independence of voting members of the Board, the pertinent inquiry need be whether they OR their family members OR “certain organizations” (i.e., those connected to the director in specific ways) would be required to be reported on Schedule L for having engaged in a “business transaction”.
“Certain organizations” are comprised by those:
1st issue is whether there WAS a “business transaction” undertaken; these are: ● a contract or performance of services (or payment) regardless of when the underlying obligation was initiated; or
● joint ventures when the profits or capital interest of the organization and of the interested person each exceed 10%*
(note that it is NOT a “business transaction” when one charges membership dues!)
* a third category of “business transaction” is irrelevant when testing Directors’ independence – that category picks up transactions with a management company in which a former TDOKE (regardless of whether they are required to be listed in Part VII!) is a direct or indirect 35% owner or serves as a TDOKE
2nd issue is, when a “business transaction” is found, did it exceed the Schedule L reporting thresholds …
The Schedule L “business transaction” reporting thresholds are as follows:
Presenter is fond of saying “t-doh-key’s” / IRS spits same out in the Forms as “odd-t-key’s” – either way they are the same:
T = Trustees O = Officers
D = Directors D = Directors
O = Officers T = Trustees
K = Key K = Key
E = Employees E = Employees
You’ll continue to hear presenter use the egyptian-sounding “FARO” instead of the IRS’ mouthful, “filer or a related organization” or “filer and related organizations”
determining compensation for the CEO, ED, or top management officials that includes review and approval by independent persons, use of comparability data and written contemporaneous substantiation ? (same Q is asked re setting comp for all other officers & key employees).
Obvious, isn’t it, that running a checklist of “suggested good practices” and/or pushing “behavior modification” is the IRS’ goal in asking each of these questions?
A wonderful enunciation of the IRS’ posture about what governance practices are expected of exempt entities is found in Board guidelines the IRS’ Exempt Orgs Office released in February 2008. These may be accessed at:
On November 20, 2008, IRS TE/GE Commissioner Steve Miller gave a speech explaining the IRS’ interest/goals with respect to encouraging good governance; same was posted to the IRS’ charities web-page immediately (in the speech the preceding document is cited), at:
Question first. . . . Will ability to employ narrative in Schedule O to explain one’s practices make any of the policies/procedures inquired of less a presumptive or de facto standard? Only time will tell.
Suggested planning steps or goals:
Hearts of Gold?
X-ray into TDOKE’s
Hearts of Gold?
The “current” Form 990, at Part V, has long asked for info on TDOKEs serving in the filing year. As of the 2005 Form, the reach of asks expanded to include FORMER TDOKEs as well, with no limits in terms of how long ago they served or for remunerative amounts. The Redesigned 990 continues to ask for FORMERs, but with a five year look-back and with remunerative thresholds.
The “current” Form 990 required only of 501(c)(3) public charities reporting of “High 5” employees. The Redesigned 990 requires High 5’s BE DISCLOSED BY ALL, and the threshold for who is a “High 5” has been raised from >$50k total remuneration (by filer in the tax year) to >$100k reportable-on-Part-VII as having been paid by FARO (filer and related organizations).
“Reportable compensation” is picked up in Part VII’s Columns D and E (together those columns report pay
by “FILER” AND * “RELATED ORGANIZATION(s)” (=FARO)).
Use amounts reportable in Box 5, W-2 (medicare taxable wages) or Box 1, 1099.
* There is an exclusion which ignores each “related org’s” compensation for input to Column E if it is $10,000 or less
(EXCEPT when reporting on a former T/D!)
Value of benefits provided by FARO are in Column F.
Other types of benefits provided are ONLY to be have amounts included in Col. F if their value exceeds $10,000.
D. In spite of having noted that Part VII situates all compensation reporting in the Core Form, certain filers will find they are indeed required to provide additional comp detail on specific individuals (and answer inquiries re their compensation-setting practices overall). This occurs via Schedule J, “triggered” when Part VII includes:
Who Gets Reported on Part VII?
“Reportable Comp” Threshold Category(i.e., columns (D) & (E))
Filing year (i.e., “current”) officers, directors/trustees no threshold; [now includes CEO, CFO] report ALL
Filing year (i.e., “current”) key employees – top 20 who >$150,000
meet “responsibilities test” & exceed this threshold
Current five highest compensated employees >$100,000
Also, and we will discuss this soon:
Former officers, key and five highest employees >$100,000
Former directors/trustees > $10,000*
*comp’d that amount in capacity as a former director or trustee
All of above = currentTrustees/Directors/Officers/Key Employees
This last pool = currentHigh 5’s
Value of benefits provided by FARO are in Column F. Rules for input are as follows:
2nd trigger has biggest reach (and note that all Key Employees thus hit this trigger as their D+E alone is >$150k)
as the accompanying slides’ “headers” detail:
Insider Loans Disclosed
Business Transactions Disclosed
Important note: the IRS has added to the Schedule L Part IV mix of rules the “constructive ownership” standards from Code section 267(c) to measure an individual’s partnership/professional corporation interests or entity-ownership. Section 267(c)(2) picks up the ownership interests of one’s “family members” as one’s own!
As a result, if a Board member’s child is a 5.25% profits-partner at the law firm providing services to the filer, the law firm IS an “interested person” per the prior slide’s 2nd point as one of the filer’s trustees/directors is, under 267(c)(2), imputed to be a 5% or greater partner at the law firm (this result is indeed the fact pattern behind Examples 2, 3 in Part IV’s Instructions).
However, “business transactions” do NOT include the charging of membership dues!
Line 5 – receivables from current and former officers, directors, trustees, key employees or other related parties
Line 6 – receivables from other disqualified persons as defined under section 4958(f)(1)* and persons described in section 4958(c)(3)(B)
Line 22 – payables to current/former TDOKE’s, High 5s, and disqualified persons
* Code Section 4958(f)(1) “disqualified persons are those “in substantial influence” anytime last 5 year period (automatically Directors, CEO & CFO, facts & circ’s otherwise) AND their family members AND 35%-owned entities
ACTION ITEMS re LOANS in light of Part II -- view all to determine reporting and consider modifications, if any, as prudent . . .
Ensure arrangements are in writing
Consider requiring Board approval of all existing loans to/from interested persons
Consider adding Board approval as a condition for future loan transactions with interested persons
Monitor any loans/advance balances to determine whether they can be eliminated prior to year-end
Communicate with interested persons regarding disclosures that will be required
Instructions do not adopt “substantial contributor” definition from the private foundation rules, but instead create one for Part III purposes:
“Related persons” reached by this Part of Schedule L are:
Which grants or assistance are excluded from Part III reporting?
duesequiv. to gifts (1b) dues as earned revenue (2_)
Furthermore, Line 1c corresponds to the “memo” entry within Line 8a’s header . . .
Memo line for gift capture
Exchange portion line
By NOT including gifts upon Line 8a (a treatment identical to that employed upon prior years’ Forms 990), that Line solely reports fundraising sales’/events’ “exchange portion” (i.e., representing fair market value sale of items/services provided).
Gross receipts from fundraising sales/events are represented by totaling Lines 1c + 8a: a total of $15,000 or more is a trigger to Schedule G’s Part II!
Delete bingo (which goes to Schedule G, Part III):
-20,000 0 -20,000 -20,000 0
____ ____ ____
$21,500 $24,000 $-2,500
Parts II and III (Gaming) both have “forced lines” for expenses, separately listing prizes (both cash and noncash), rent/facility costs, and bundled all other costs (i.e., direct expenses).
Part II requires input for two largest events AND then all others aggregated in third column
Part III requires separate input (by columns) for bingo (513(f)-definition) versus pull-tabs operation (and a third column for all other gaming). Specific questions for gaming operators:
Part I makes the following inquiries:
Fundraising events typically involve two undertakings:
1a. “Getting” non-cash contributions (e.g., property such as food for dinner, items to be raffled) or cash contributions such as sponsorships prior to holding the event. Solicitation costs/expenses for these are NOT direct event expenses (recordable on Revenues Line 8b), but stand-alone expenses reportable in Part IX in the “fundraising” column. Contributions get recorded on Revenues’ Line 1(f) [property contributions also listed again in memo Line 1(g)]
1b. Fundraising related to having people attend or getting donors/sponsors (e.g., sending out invitations, solicitations). These costs also are NOT direct event expenses, but stand-alone “fundraising” expenses.
2. The event’s conduct brings in its own in-flows and out-flows, reportable all on line 8, as follows:
Thus, fundraised items that will be sold (or otherwise expended) in fundraising events are treated as follows:
Silent auction items, e.g. TV’s
Upon the SALE of those items at the event, “sale” proceeds realized then need be itemized as attributable to the property’s fmv (thus leading to Line 8a entry) versus an overpay (leading to Line 1c entry). The value of the disposed-of items is an expense of the fundraising event that need be entered upon Line 8b.
Results: $16000 Line 1 [15000 Line 1f/1g (TVs), 1000 on Line 1c (overpays)]
($1000) Line 8c result ($14000 Line 8a, $15000 Line 8b xp-ing TVs)
Net Lines 1 & 8c = $15000 (ties to cash realized from TVs at auction!)
Schedule M starts off first with the employ of a chart requiring filers to itemize by type of property received, show revenue totals per type, number of contributions of each type, and method of determining value for each type
C. Schedule I’s Part III is where one reports grants to individual grantees. The disclosures here are actually much less than on the predecessor Forms, only:
a.records substantiating eligibility and selection
b. monitoring procedures for use of grant funds
In addition to Schedule O, of the Big 10 Schedules (the most-likely to apply) we have addressed five so far:
Which leaves us 5 more:
how 501(c)(3)’s are in public charity (rather than private foundation) status
(supplemental financial statements)
Schedule A Part II: grid inputting data for first of two “public support tests” – this for 509(a)(1)/170(b)(1)(A)(vi) ‘test’
year advance ruling period (new c3’s automatically qualify as public charities in that period this per 9/9/08-released Regs)
Schedule A Part III: grid inputting data for second of two “public support tests” – this for 509(a)(2) ‘test’
Schedule A’s last Section applies when one is not a private foundation by virtue of being classified as a 509(a)(3) “supporting organization”. For these groups, the following questions vest:
Part I: Identify each disregarded entity (=100% LLC)
Part II: Identify/provide EIN of each related exempt entity (=>50% controlled)
Part III/IV: Identify (and provide EIN) each related (=>50% controlled) entity taxed as a partnership or as a corporation, respectively
Part V: Describe “details” of each transaction with a related entity
Part VI: Identify (and provide EIN) UNRELATED entity taxed as partnership that accounts for >5% of activities of organization
Locus for disclosures on assets IRS is “studying” or monitoring:
Works of art/historical treasures
Beyond that, this Schedule also holds the traditional “unstructured attachments” filers were required to use to detail mostly asset-side balance sheet items: LBE, program-related investments, “other” securities, “other” assets (and also “other” liabilities). Floors now apply to moot having to detail “other” assets or other “securities” below a 5% level.
Schedule C is “triggered” by a yes answer to any of these Part IV Questions:
3. Were campaign activities engaged in?
4. If filer is a 501(c)(3) organization, were lobbying activities engaged in?
5. If filer is a 501(c)(4), (5) or (6) organization, were lobbying activities engaged in and organization one that is subject to Code section 6033(e) notice/reporting for “proxy tax”?
Part I-A for ALL: describe activities (in Part IV) and provide amount of expenditures and volunteer hours!
Part I-B (“Bonus”?) for 501(c)(3)’s only: report excise tax assessed under Code section 4955 on organization AND managers
Was Form 4720 filed on this year in regards to these amounts?
Describe correction if any made (in Part IV)
Part I-C for all BUT 501(c)(3)’s: more info on expenditures – spending direct versus indirect, was Form 1120-POL filed for the year?, chart out 527 organizations who received organizations contributions or payments.
501(c)(3)’s Engaged in “Lobbying” (= “Attempts to Influence Passage of Legislation”) complete . . .
Part II-A for Code section 501(h) electors (equivalent to 2007/prior years’ Schedule A, Part VI-A)
Part II-B for those NOT making 501(h) election (equivalent to 2007/prior years’ Schedule A, Part VI-B – with one MAJOR addition:)
2a is asking organization to make determination if its lobbying activities were “substantial”!
501(c)(4), (5), (6) with PROXY TAX reporting obligation complete:
Questions here basically track 2007/prior years’ 990 Part VI, Q. 85
Activities outside the U.S. – grantmaking, fundraising, offices and/or employees, agents, program operations – are what this Schedule “picks up”. [Note that “agent” does NOT include volunteers!]
Grantmaking to non-U.S. organizations and governments, grantmaking to individuals “who live or reside outside the U.S. at the time the grant is paid or distributed” (e.g., to a U.S. resident who at the time is living in France).
1st Trigger: Revenues or expenses >$10,000 from grantmaking, fundraising, business, and program service activities outside the U.S. (Part IV, Q. 14b) [14a asks if filer maintained office, employees, or agents outside of the U.S. “Yes” is NOT a trigger on its own!]
2nd Trigger: Part IX, Line 3 reports grants/assistance of >$5,000 to organizations/entities outside the U.S. (Part IV, Q. 15)
3rd Trigger: Part IX, Line 3 reports grants/assistance of >$5,000 to individuals located outside the U.S. (Part IV, Q. 16)
Final instructions supply the “Regions” (countries in each) which are the basis for reporting each “area” in which operations have been conducted (Part I seeks that info)
Reporting grants in Part I does not obviate need to also report on those in Parts II / III as applicable.
Note Part II does NOT have info on recipient organization entered (for 2008 Form) – concern is protecting recipients from attack. Columns a/b thus NOT used!
Both Parts II and III use grant reporting columns as in Schedule I – with one add-in for “manner of cash disbursement” (wire transfer, cash, etc.)
There are 5 left (having already addressed Schedule O, and the “Big 10” – A, C, D, F, G, I, J, L, M, R). Quick notes on those:
5. H . . . Hospitals, ignored here completely!
Thrust of inquiries go to how valuation of assets was made, and whether State regulator (AG typically) was notified in advance of liquidation, dissolution or any “significant disposition of assets” (defined as 25% or more value of assets transferred). Part I is completed for liquidations, termination (of exempt status) or dissolution -- documentation MUST accompany such instances (merger articles, articles of dissolution, plan of liquidation, or IRS action). Part II details outcomes with “significant disposition of assets” (including “wind-up” in contemplation of dissolution).
Both Parts ask if any TDOKE will be a TDOKE, employee, owner, independent contractor for a successor or transferee organization or if TDOKE has received or become entitled to compensation as a result of the filer’s demise
Most of form delayed one year
Only applies to issuances since 2002
Detailed questions on bond proceeds
Series of questions on potential private use – management contracts, research agreements and safe harbors
Table on arbitrage reporting and compliance concerns
Gross receipts <$500K and total assets <$1.25m
NOTE THAT Gross Receipts <$25K for most groups = 990-N
990-EZ has also had 4th page added to require 501(c)(3)
filers to report High 5’s (using new >$100k threshold but
“old” definition for employees) [unanswered challenge at this point will be how 990-EZ filers on later years’ 990’s test for former High 5s as 990-EZ here is using different comp measures (not the calendar year comp/ W-2 reporting 2008 full 990 implements) AND only makes 501(c)(3)’s report]