Form 990 Update for all nonprofit organizations provided by nonprofit accounting & CPA firm, Tate & Tryon.

1. Governance Issues Related to the
Form 990
May 12, 2011
Douglas Boedeker, CPA, CMA
g
Dboedeker@tatetryon.com
202-419-5106

2. Course Outline
 Form 990 Background
g
 Overall Good Governance Themes
 Compensation Policies – Schedule J
 Form 990, Part VI – The Governance Centerpiece
 Consideration of the other schedules
 Checklist of Required Schedules
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3. Background on the Federal Form 990
 Publicly available document, easily accessed via www.guidestar.org
 Significant redesign issued in 2008.
 The 990 now consists of a 12 page “core form” supplemented by various
supporting schedules.
 Major focal points for the redesigned form are transparency regarding
governance and compensation.
 The IRS believes that a well-governed organization is more likely to be a
compliant organization.
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4. Overall Themes of Good Governance per the 990
 The Organization’s best interest is always top priority.
 Have an engaged, independent Board.
 Understand the regulations regarding tax-exempt organizations.
 Have written policies and p
p procedures in p
place whenever p
possible.
 Transparency fosters compliance.
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5. Compensation – Schedule J
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6. Compensation – Schedule J
 Part I of Schedule J performs two functions:
- Increases Transparency of Executive Perks
- Helps the IRS Look for Likely Candidates for Intermediate Sanctions
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7. Schedule J – Let’s Talk Intermediate Sanctions
If an “Excess Benefit Transaction” takes place…..
I. Initial 25% excise tax is imposed on the disqualified person receiving the
benefit. (Tax is levied on the amount of the excess benefit.)
II. A 200% excise tax is then imposed on the disqualified person if the excess
benefit is not corrected on a timely basis.
III. Organization managers who knowingly participate in the excess benefit
transaction are subject to a 10% excise tax.
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8. Things to watch on Schedule J, Part I
 Line 1a: Be sure the organization can support why these benefits are
“reasonable”. Follow written policies regarding payment of these perks!
 Line 2: Be sure to have a policy in place so that you can check “Yes” to this
box.
 Line 3: The more boxes you check in this section, the better.
 Lines 5 & 6: These are potential traps – especially Line 6.
 Line 7: It is easier for the IRS to attack “non-fixed” payments
 Lines 8 & 9: If you can check these “Yes”, that’s a bonus!
y
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9. Schedule J – Governance Considerations
 Understand your organization’s compensation practices.
 The creation of a board-level Compensation Committee can help inject
independence into the process.
 Written compensation policies and procedures can save a lot of potential
angst.
 Remind folks that the potential excise taxes are levied on them!
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10. Form 990, Part VI – The Governance Centerpiece
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11. Form 990, Part VI - Most Talked About Policies
 Section B, Line 12a, b, & c: Conflict of Interest
- Is annual disclosure required?
- Does the entity monitor and enforce compliance?
 Section B, Line 13: Whistleblower Policy
 Section B, Line 14: Document Retention and Destruction Policy
 Section B, Line 10b: Do you have written policies governing the conduct of
your chapters?
 Section A, Line 8a & b: Do you keep meeting minutes?
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12. Form 990, Part VI – The Annoying Questions
 Section A, Line 2: Family & Business relationships with Board members and
key employees
- You only need to ask them, you can’t force them to respond!
- Don’t forget the “in the ordinary course of business” exception.
- Consider i
C id incorporating questionnaire i t annual conflict of i t
ti ti i into l fli t f interest policy
t li
certification.
 Section B, Line 11a & b: Have all members of the governing body received a
copy of the Form before it was filed? And, how does the organization review
the 990?
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13. Form 990, Part VI – The Trap Questions
 Section A, Line 1b: The number of “independent” voting Board members
 Section B, Line 15a & b: Was compensation for CEO and other key
employees set by independent persons?
- Really more of a trap for the CEO’s compensation, many organizations answer “No”
to Line 15b.
 S ti B Li 16 & b D you participate i j i t ventures with t
Section B, Line 16a b: Do ti i t in joint t ith taxable
bl
entities? If so, do you have written policies to evaluate the allowability of such
an endeavor?
 Section A, Line 5: Was there a “significant diversion” of assets?
 Part C, Line 18: Be sure to check at least one of the boxes!
C
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14. Schedule L – Transactions with Interested Persons
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15. Schedule L – Things to Consider
 Another “intermediate sanctions” trap!
 Disclosure is the key thing, not everything reported here is necessarily “bad”.
- An inadvertent omission can make something look much worse.
 Documentation and monitoring of these items is key.
 Involve the Board whenever possible.
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16. Grants and Assistance
Schedule F – Outside USA Schedule I – Inside USA
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17. Grants & Assistance
 Key concept is whether the entity maintains records to document:
1. The amount of the grants and assistance
2. The grantee’s eligibility for the grant or assistance
3. The selection criteria used to award the grants or assistance
 In addition, how does the organization monitor the use of grant or assistance
funds?
- Written d
W itt documentation is always b t
t ti i l best.
 Schedule F is subject to particular scrutiny.
 Concerns are private inurement, tax compliance, and illegal acts.
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18. Schedule M – Noncash Contributions
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19. Schedule M – A few things to consider
 Line 30 is designed to help detect valuation errors on the part of donors.
- Be wary of entering into any such arrangement.
 Line 31, Gift Acceptance Policy, is a good idea. If you don’t have a written gift
acceptance policy, consider i l
t li id implementing one.
ti
 Line 32a is designed to reveal improper fundraising arrangements. If you say
yes t this question, you likely should b filli out S h d l G S
to thi ti lik l h ld be filling t Schedule G, Supplemental
l t l
Information Regarding Fundraising or Gaming Activities.
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20. Schedule C – Political Campaign and Lobbying Activities
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21. Schedule C – Political Campaign and Lobbying Activities
 Remember, for 501(c)(3)’s, POLITICAL activity is prohibited.
 Lobbying for a 501(c)(3) organization is permitted, but it cannot be a
significant component of the entity’s activities.
 Schedule C gives you ample space to admit your sins!
 It’s a great idea to have documented policies regarding what governmental
affairs activity is permissible.
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22. Form 990, Two other points to watch
 Part IV, Line 36: For 501(c)(3) organizations, “Did the organization make any
transfers to an exempt non-charitable related organization?”
- Be careful about the flow of funds between related entities. Make sure payments
from a (c)(3) to a non-charity are for services rendered or cost reimbursements.
 Part XII, Line 2c: “Does the organization have a committee that assumes
responsibility for oversight of the audit, review, or compilation of its financial
s a e e s and selection of an depe de accountant?”
statements a d se ec o o a independent accou a
- Not a mandatory thing for IRS purposes, but often a great governance tool.
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23. Form 990 – Checklist of Required Schedules
 Read this on the very first day of
each quarter.
 This can be an excellent tool to
provide a heads-up if new
governance issues have arisen.
 Plus, it can make your 990 prep
easier if you know what information
you need to gather!
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24. Good Luck!
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