demystifying the form 990: tips, tricks, and traps of the form 990
TRANSCRIPT
PRESENTED BY:
Demystifying the Form 990: Tips,
Tricks, and Traps of the Form 990
Virginia Gross, Shareholder –
Polsinelli, PC
Kansas City, MO
Dave Moja, Partner, Capin
Crouse LLP
Orlando, FL
Form 990 - Most Common Errors
Form 990 - Most Common Errors
• What we see
• IRS Top 10
• ACT Project / Questionnaire
IRS Form 990 – Top Errors
1. Return submitted with either missing or incorrect EIN. To avoid this
error, filers should ensure the EIN submitted belongs to the
organization and is correctly entered when submitting the return.
2. Name entered when filing the return. The filer needs to use the
name as shown on IRS Master File records or if a name change
occurred, check “name change” box and attach any required
documentation.
3. Tax Period does not agree with the month on the Entity Index File
and the filer is not submitting a short period return or a final return.
Error could be reduced if filer ensured they were filing for the tax
period on Master File/clearly indicates they are changing their tax
period.
IRS Form 990 – Top Errors
4. Missing Schedule O. Schedule O is required for all 990 filers. Filers
are confused by Line 38 and assume they have the option not to
include, since Line 38 is a yes/no checkbox. Future programming is
set to remove this line to avoid confusion. All 990 filers should
include a Schedule O.
5. Checking the final return box in error. Many filers check the final
box in error. This box should only be checked when the
organization has terminated, closed or ceased to exist. Checking
this box closes the organization’s tax-exempt status and filing
requirements causing problems for the filers when they attempt to
file future returns.
IRS Form 990 – Top Errors
6. Missing Schedule A. The filer is required to file a Schedule A in
certain circumstances. If it is missing we will correspond for the
missing schedule. The filer needs to be sure to include Schedule A
when required.
7. Math error when totaling the Functional Expenses (Part IX Line 25,
Column A). Addition of lines 1 – 24e should be verified to ensure
the total amount is accurate.
8. Math error when totaling Net Assets End of Year (Part X, line 33,
Column B). Calculation of lines 1 -32 should be checked to ensure
total amount is accurate.
IRS Form 990 – Top Errors
9. Math error when totaling Net Assets Beginning of Year (Part X, line
33, Column A). Calculation of lines 1 - 32 should be checked to
ensure total amount is accurate.
10. Math error when totaling Revenue. Calculation of lines for total
revenue (Part VIII, Lines 1a – 11e) should be checked to ensure
total revenue amount is accurate.
IRS Form 990-EZ – Top Errors
1. Return submitted with either missing or incorrect EIN. To avoid this
error, filers should ensure the EIN submitted belongs to the
organization and is correctly entered when submitting the return.
2. Name entered when filing the return. The filer needs to use the
name as shown on IRS Master File records or if a name change
occurred, check “name change” box and attach any required
documentation.
3. Tax Period does not agree with the month on the Entity Index File
and the filer is not submitting a short period return or a final return.
Error could be reduced if filer ensured they were filing for the tax
period on Master File or clearly indicates they are changing their
tax period.
IRS Form 990-EZ – Top Errors
4. Checking the final return box in error. Many filers check the final
box in error. This box should only be checked when the
organization has terminated, closed or ceased to exist. Checking
this box closes the organizations tax-exempt status and filing
requirements causing problems for the filers when they attempt to
file future returns.
5. Missing Schedule A. Schedule A is required for certain
organization. A complete Schedule A must be included when
required.
6. Filing a Form 990-EZ when required to file a Form 990 due to gross
receipts or filing a group return. If gross receipts are above the
threshold for filing a 990-EZ or if filing a group return for
subordinates, Form 990 must be used.
IRS Form 990-EZ – Top Errors
7. Math error when totaling Net Assets End of Year (Part I, Line
21. Addition of lines 18 - 20 should be verified to ensure the total
amount is accurate.
8. Math error when computing Total Expenses (Part I, Line 17).
Addition of applicable lines in Part I should be verified to ensure the
total amount is accurate.
9. Missing Schedule B. The filer did not submit a Schedule and the
return indicates they should have. The filers need to be reminded to
submit a Schedule B when required.
10. Not including a required schedule. If the answer in Part V, check
boxes is “Yes” the required schedule should be attached.
Form 990 – What to Watch For
• Part I, Line 4 – Non-independent Bd
• Part I, Line 6 - Volunteers
• Part I, Line 7 – Unrelated Business Income
• Part III, Line 1 - Mission
• Part III, Line 4a-d – Service
Accomplishments
• Part V, Line 4- FBAR!
Independent Board Member, defined
• Not compensated as an officer or other employee of the organization or of a related organization
• $10,000 compensation rule
• Family member compensation rule
• Not part of any transaction required to be reported on Schedule L
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Form 990 – What to Watch For
• Part VI, Line 11A – Copy of 990 to Bd?
• Part VI, Section B - Policies
• Part VII, Section A – Directors/Officers
• Part VII, Section A – Key Employees
• Part VII, Section A – Column (F)
($10,000)
• Part VII, Section A, Line 3
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Rebuttable Presumption
• The arrangement was approved by a board of directors or trustees (or a committee of the board) of an applicable tax-exempt organization that was composed entirely of individuals who were unrelated to, and not subject to the control of, the disqualified person or persons involved in the arrangement;
• The board obtained and relied on appropriate data as to comparability; and
• The board adequately documented the basis for its determination (Treas. Reg. §53.4958-6(a)).
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Page 7, Part VII – Compensation
Ordering of list
– Individual trustee or director
– Institutional trustees
– Officers
– Key employees
– Highest compensated employees
– Former persons in same order
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Page 7, Part VII – Compensation
• Calendar year data even for fiscal year
organizations
• If no compensation, check box
• No addresses
• NO SOCIAL SECURITY NUMBERS
• Check only ONE box - exceptions
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Form 990 Glossary
Compensation:
Unless otherwise provided, all forms of cash and
noncash payments or benefits provided in exchange for
services, including salary and wages, bonuses,
severance payments, deferred payments, retirement
benefits, fringe benefits, and other financial
arrangements or transactions such as personal vehicles,
meals, housing, personal and family educational
benefits, below-market loans, payment of personal or
family travel, entertainment, and personal use of the
organization’s property. Compensation includes
payments and other benefits provided to both
employees and independent contractors in exchange
for services.
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Reportable Compensation
What counts?
– Form W-2, Box 5
– Form 1099, Box 7
– Form 990, Part VII “Grid” benefits
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Thresholds Officers, directors and trustees: $0
TMO and TFO: $0
Key Employees: $150,000
Highly Compensated Employees: $100,000
Formers: $10,000/$100,000
Reportable Compensation
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“Officer” – New in 2008
New definition of officer – now includes:
• Top “management official” is the person
with ultimate responsibility for
implementing the decisions of the
governing body or for supervising the
management, administration or operation
of the organization.
• Top “financial officer” is the person with
ultimate responsibility for managing the
organization’s finances.
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“Officer”
Over-reported by many organizations!
Generally, only those “officers” enumerated in the
institutions “organizing documents”
In many cases, Form 990, Part VII compensation
reporting will involve fewer individuals than the pre-
2008 Form 990 reporting!
Make sure you don’t over-report
– Future “Former” O/D/T/KE/HCE reporting – 5 yrs
– Public Disclosure
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Key Employee - Definition
1. Had reportable compensation exceeding $150,000 for the year (the “$150,000 Test”);
2. Had or shared organization-wide control or influence similar to that of an officer, director, or trustee, or managed or had authority or control over at least 10 percent of the organization’s activities (the “Responsibility Test”); and
3. Were within that group of the organization’s top 20 highest paid employees for the year who satisfied both the $150,000 test and the Responsibility Test (“Top 20 Test”).
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Form 990 – What to Watch For
• Part VIII
• Line 1 vs. Line 2 - Government grants
• Line 8
• Part IX
• Part IX, Line 11a-g
• Part IX, Line 25, Column B (match with Part III)
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2014 Schedule A – Ch, ch, changes!
• Schedule A’s significant revisions address
supporting organizations (SOs).
• Schedule A will ask more questions and
request more information about SOs. - Extensive changes to the Form 990
instructions explain these changes.
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Schedule C – Lobbying & Political Activity
• Need to understand what YOUR organization
can do
• Lobbying activities – 501(c)(3) “no substantial
part” test or expenditure test (h election)
• What is lobbying?
• Political activity – prohibition for all 501(c)(3)’s
• Revenue Ruling 2007-41 – guide for political
activity
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Form 990 – What to Watch For
• Schedule D, Part V
• Schedule D, Part XIII (Part X, Line 2)
• Schedule J, Part I (explain on Part III)
• Schedule L, Part IV
• Schedule M, Column C
Form 990, Schedule D, Part XIII Disclosure
“FIN 48 (ASC 740) footnote. Every organization required
to complete Part X must provide the text of the footnote
to its financial statements, if applicable, regarding the
organization's liability for uncertain tax positions under
FIN 48 (ASC 740). This includes, for example, the
description of a liability for unrelated business income
tax, or tax that may be assessed as a result of the
revocation of exempt status.
Form 990, Schedule D, Part XIII Disclosure
“FIN 48 (ASC 740) footnote…
Provide the full text of this footnote in Part XIV, even if the
organization did not report any liability for uncertain tax
positions under FIN 48 (ASC 740) in the footnote. Any
portion of the FIN 48 (ASC 740) footnote that addresses
only the filing organization's liability must be provided
verbatim. The filing organization can summarize that
portion, if any, of the footnote that applies to the liability of
multiple organizations including the organization (for
example, as a member of a group with consolidated
financial statements), to describe the filing organization's
share of the liability.”
Schedule L – Interested persons
Interested persons. For purposes of Part I, an
interested person is a disqualified person under
section 4958. For purposes of Parts II-IV, an
interested person is one of the following:
**2. The creator or founder of the organization.
5. A family member of any of the above.
Schedule L - Updates
Purpose of changes
• Increase consistency
• Decrease confusion
• Decrease burden
Key change: more uniform definition “interested
persons” for Parts II-IV
Schedule L - Updates
Interested person definition:
• For Schedule L, Part I – no change
- Disqualified persons under Code Section 4958
• For Schedule L, Parts II-IV (expanded):
- The creator or founder of the organization
• And his or her family members
- Substantial contributors reported in Schedule B (expanded to Parts II and IV)
• And their family members
- 35% controlled entities of any of the above (expanded to Part II)
Schedule L - Updates
“Interested person” for Sch. L, Pts II-IV (removed)
• Removed (from Part II): highest compensated employees and
4958 DPs
• Removed (from Part II): contributing employers and sponsoring
organizations of VEBAs
• Removed (from Part IV): entity of which a current or former officer,
director, trustee, or key employee, or any family member thereof,
was serving as a
• Director, officer, or trustee; or
• Partner, member, or shareholder with a direct or indirect ownership
interest in a professional corporation or entity treated as a publicly
traded partnership, in excess of 5%
• Removed (from Part IV) non-stock orgs more that 35% controlled
by other interested persons
Schedule L - Updates
Other 2014 Schedule L instruction changes (draft):
• Uniform “reasonable efforts” definition that applies to all parts
(not just Parts III and IV)
• Part I (excess benefit transactions): identify in Part V
organization manager(s), if any, that knowingly participated in
the excess benefit transaction
• Part II (loans): clarification that split-dollar life insurance
arrangements described in Regs. 1.7872-15 are loans
reportable in Part II
• Part IV (business transactions): new reporting exception for
transactions with publicly-traded corporations in the ordinary
course of business, on the same terms as are generally offered
to the public
Family member/Family relationship…
Unless specified otherwise, the family of an
individual includes only his or her spouse,
ancestors, brothers and sisters (whether whole or
half blood), children (whether natural or adopted),
grandchildren, great grandchildren, and spouses of
brothers, sisters, children, grandchildren, and great
grandchildren.
Schedule R - Related Organizations
•Part I – Disregarded Entities
•Part II – Related Tax-Exempt Organizations
•Part III – Related Partnerships
•Part IV – Related Corporations or Trusts
•Part V – Transactions with Related
Organizations
•Part VI – Unrelated Partnerships
•Part VII – Supplemental Information
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Schedule H - Hospitals
• No significant changes to Parts I, II, III, or IV
• Changes to Part V, Section B reflect I.R.C
section 501(r) final regulations
– Group returns
– Timing on becoming a hospital
– New questions about Community Health
Needs Assessment (CHNA)
– Lines changed and added
– Line 15 adds new checkboxes
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2015 ACT Project – Questionnaire
This year’s report is focused on improving and enhancing the
effectiveness of the redesigned Form 990, which the nonprofit
community has been navigating since the 2008 filing
year. We developed a questionnaire to seek input from
members of the nonprofit community on their experiences
with the Form 990 (as filing organizations, preparers,
advisors, researchers and in other capacities).
• Provide meaningful input for the ACT's current project on
improvements to the Form 990, which will be presented to the
IRS Commissioner at a public meeting on June 17, 2015 and
published on the IRS website immediately thereafter.
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2015 Tax Facts
– Business Mileage Rate = 57.5 cents/mile
– Charitable Mileage Rate = 14 cents/mile
– “FICA” Wage limit = $118,500
– Annual Gift exclusion = $14,000
– Token exception =
Minimum gift = $52.50
Maximum cost = $10.50
Polsinelli and Capin Crouse provide this material for informational purposes only. The material provided herein is general and is not intended to be legal or tax advice. Nothing herein should be relied upon or used without consulting a lawyer to consider your specific circumstances, possible changes to applicable laws, rules and regulations and other legal issues. Receipt of this material does not establish an attorney-client relationship.
Polsinelli and Capin Crouse are very proud of the results we obtain for our clients, but you should know that past results do not guarantee future results; that every case is different and must be judged on its own merits; and that the choice of a lawyer or accountant is an important decision and should not be based solely upon advertisements.
© 2014 Polsinelli PC. In California, Polsinelli LLP.
Polsinelli is a registered mark of Polsinelli PC
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Thank you.THANKS!
Virginia Gross, Shareholder
Dave Moja, Tax Partner
©CapinCrouse LLP 2014