mastering form 990 schedule r: reporting transactions with...

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Mastering Form 990 Schedule R: Reporting Transactions

With Related Organizations and Unrelated Partnerships TUESDAY, DECEMBER 8, 2015, 1:00-2:50 pm Eastern

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mailto:[email protected]

Dec. 8, 2015

Mastering Form 990 Schedule R

Angie Fidler

Moss Adams

[email protected]

Frank Giardini

Grant Thornton

[email protected]



Notice

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY

THE SPEAKERS’ FIRMS TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY

OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT

MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR

RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

You (and your employees, representatives, or agents) may disclose to any and all persons,

without limitation, the tax treatment or tax structure, or both, of any transaction

described in the associated materials we provide to you, including, but not limited to,

any tax opinions, memoranda, or other tax analyses contained in those materials.

The information contained herein is of a general nature and based on authorities that are

subject to change. Applicability of the information to specific situations should be

determined through consultation with your tax adviser.

Schedule R

Related Entities

5

Agenda

I. Overview of Schedule R, Related Organizations and Unrelated

Partnerships

II. Defining “control”

I. For-profit/Not-for-profit

II. Direct/Indirect

III. Reporting on Schedule R

I. Identifying relationship type

II. Reporting transactions

IV. Reporting on Form 990

I. Part IV, Checklist of Required Schedules

II. Part VII, Compensation

V. Identifying unrelated partnerships

6

Concepts

By the end of this presentation, you will be able to:

• Determine the standards for relatedness

• Identify information that must be reported on Schedule R

• Complete Part III and understand the Unrelated Partnership Standards

• Report relationships with other exempt organizations

• Report relationships and transactions with taxable partnerships

7

Core form –

Part IV: Checklist of Required Schedules: R

• Schedule R is required to capture information about the complex

organizational structures of tax-exempt organizations. Use Schedule

R to report your:

– Ownership of disregarded entities

– Relationships with any tax-exempt or taxable entities

– Relationships with 'controlled entities' (512(b)(13))

– Transfers to an exempt non-charitable related organization

– Conduct of more than 5% of your exempt activities through an

unrelated entity that is taxed as a partnership

8

Core form –

Part IV: Checklist of Required Schedules: R (AMF

addition)

9

Schedule R –

Related organizations

• Specific questions on each type of entity including income and end of year assets

– Identification of disregarded entities; Part I

– Related tax-exempt organizations; Part II

– Related taxable organizations taxable as partnerships; Part III

– Related taxable corporations or trusts; Part IV

– Disclose transactions with related organizations (as described in

§512(b)(13)) and non-charitable tax-exempt organizations; Part V

– Provide information about unrelated partnerships through which

the organization conducted over 5% of its activities; Part VI

10

Schedule R –


• Definition of related organization

– Parent; controls the filer

– Subsidiary; controlled by another filer or parent organization

– Brother/sister; controlled by the same person/entity or

persons/entities who control the filer

– Supporting/supported – relationships described under Section

509(a)(3)

– VEBA – includes sponsoring and contributing employers

• Transactions with disregarded entities do not need to be reported in

Part V of Schedule R

11

Schedule R –


• Definition of control for taxable entities; ownership of more than 50%

of:

– Stock by voting power or value of a corporation

– Profits or capital interest in a partnership or LLC

– The beneficial interest in a trust

• You are also related in these situations:

– Managing partner in a partnership or LLC that has three or fewer

managers

– One of three or fewer general partners in an Limited Partnership

– Sole member of a disregarded entity

12

Schedule R –


• Definition of control of nonprofit organizations

– Power to appoint, remove, replace (or veto the choice) a majority of directors or trustees

• Typically located within organizational documents (Bylaws)

– Majority of subsidiaries directors or trustees are also trustees, directors, officers, employees or agents of the parent organization (overlap by design or coincidence)

• Can be spelled out in organizational documents

• May need reviewed annually by comparing board listing

• Control under 512(b)(13): more than 80% control

13

Schedule R –


Example: Control by multiple persons

A B

C D

A and B each appoint 1/3rd of the board members of C and D.

• Separately, no control • Combined, A & B control C & D

Because C and D are controlled by the same persons, they are brother / sister to each other and therefore related. Note: A & B are not related to each other nor to C or D

14

Schedule R –

Related organizations Part II

Example: Control by multiple persons (cont’d)

15

Schedule R –

Related organizations Part V

Example: Control by multiple persons (cont’d)

16

Schedule R –


Example: Indirect Control

Multiply 100% x 51% = 51% B Controls C directly B Controls D indirectly B is related to both C and D

17

Schedule R –

Related organizations Part III & IV

Example: Indirect Control (cont’d)

(cont’d)

18

Schedule R –



Transactions for the reporting period:

1. Dividends received by B from C in the amount of $65,000.

2. C owns real estate and leases office space to B. The amount for the

year is $120,000.

3. D makes partner distributions of $35,000 to C.

4. D also rents space from C. Amount totals $240,000 for the year.

19

Schedule R –



20

Schedule R –



Multiply 80% x 60% = 48% X Controls Y directly X Does NOT control Z indirectly X and Y are related X and Z are NOT related

21

Schedule R –



(cont’d)

22

Schedule R –




1. Y has a loan outstanding from X for $100,000.

2. Annual interest paid on the loan from Y to X is $6,000.

3.Y pays dividends to X of $35,000.

23

Schedule R –



24

Schedule R –



Y controls Z through means other than ownership % (i.e. as 1 of 3 general partners) Multiplication of % not used X Controls Y directly X Controls Z indirectly X and Y are related X and Z are related

25

Schedule R –



(cont’d)

26

Schedule R –



27

Schedule R –



B & D – directly controlled by A C – indirectly controlled by A B, C, D = subsidiaries of A C = subsidiary of B B, C, D = brother / sister

relationship

28

Schedule R –

Related organizations Part II (AMF addition)


29

Schedule R –




1.B pays rent to A for $360,000 per year.

2.D pays B rent of $240,000 per year.

3.C makes a grant to B of $50,000.

4.B makes a grant to A of $100,000.

5.Employees, equipment and mailing lists are shared by all entities. Dollar

amount is $600,000 per year.

30

Schedule R –



31

Schedule R –


Example: Split Interest Trusts

A

Beneficial Interest: T1 = 51% T2 = 38% T3 = 27% T4 = 67% T5 = 100%

T5

T4 T1

T2

T3

32

Schedule R –

Related organizations Part IV

Example: Split Interest Trusts (cont’d)

33

Additional Form 990 Reporting

Part IV: Checklist of Required Schedules

34

Additional Form 990 Reporting

Part VII : Compensation

35

Identifying Unrelated Partnerships

1. Unrelated organization is treated as a

partnership for Federal tax purposes

2. The filing organization was a partner or

member at any time during the tax year

3. The filing organization conducted more than

5% of its activities, based on greater of total

assets at year end or total revenue for tax

year, through unrelated partnership

36

Comments?

Questions?

.

37

Thank you!

Frank D. Giardini – Tax Principal

East Region Not-for Profit & Healthcare Tax Leader

Grant Thornton LLP

2001 Market Street, Suite 700

Philadelphia, PA 19103-7080

Direct Tel. 215-656-3060

Fax Tel. 215-561-1066

Cell 610-909-4292

Email [email protected]

Angie Fidler CPA CGMA | MOSS ADAMS LLP

Tax Senior Manager

999 Third Avenue, Suite 2800

Seattle, WA 98104

D (206) 302-6385 | T (206) 302-6500

C (260) 797-9311 | F (206) 622-9975

38


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