Form 990: Moving Beyond the Basics

• Chapter 1 - Governance, Management, and Disclosure (Form 990, Part VI)
  • Learning Objectives
  • Introduction
  • Government Accountability Office Testimony of Comptroller – Tax-Exempt Sector: Governance, Transparency, and Oversight
  • Good Governance
    • Helps Provide Assurance that a Tax-Exempt Entity Effectively Manages Funding and Programs
    • Transparency Complements Good Governance
    • Abuses Have Led to Support for Enhanced Governance Processes and Transparency
    • Concluding Observations
  • Section A – Governing Body and Management
    • Line 1a: Number of Voting Members of Governing Body
    • Line 1b: Independent Voting Members
    • Line 2: Relationships among Officers, Etc
    • Line 3: Delegation of Management to Management Company
    • Line 4: Changes to Organizational Documents
    • Line 5: Material Diversion of Assets
    • Line 6: Members or Stockholders
    • Line 7a: Election of Members of Governing Body
    • Line 7b: Approval of Decisions of Governing Body
    • Line 8: Documentation of Meetings and Actions
    • Line 9a: Local Chapters, Branches, or Affiliates
    • Line 9b: Policies and Procedures Governing Chapters
    • Line 10: Governing Body Review of Form 990
    • Line 11: Addresses of Officers, Directors, Etc
  • Section B – Policies
    • Line 12a: Conflict of Interest Policy
    • Line 12b: Annual Disclosure of Interests
    • Line 12c: Enforcement of Conflicts Policy
    • Lines 13 and 14: Whistleblower and Document Retention Policies
    • Line 15: Process for Determining Compensation
    • Line 16: Joint Venture Policy
  • Section C – Disclosure
    • Line 17: Form 990 Filings in States
    • Line 18: Public Availability of Forms 1023/1024, 990, and 990-T
    • Line 19: Public Availability of Other Documents
    • Line 20: Location of Books and Records
  • Conclusion
• Chapter 2 - Compensation Issues and Planning (Schedule J, Supplemental Compensation Information)
  • Learning Objectives
  • Introduction
  • Intermediate Sanctions
  • Section 4958 Tax
    • Explanation of Provisions
  • Taxes on Excess Benefit Transactions
    • Excess Benefit Transaction
    • Applicable Tax-Exempt Organization
    • Disqualified Persons
    • Rebuttal Presumption
  • Small Organizations
  • Documentation
  • Regulations
  • Correction of an Excess Benefit
  • Managers’ Payment of Tax
  • Definition of Applicable Tax-Exempt Organization
  • Certain Economic Benefits Disregarded
  • Current Trends in Intermediate Sanctions
    • The Strange World of Intermediate Sanctions
    • “Automatic” Excess Benefit Transactions
  • Compensation and Wages
    • Your Organization’s Compensation Practices
    • Excess Benefits for Disqualified Persons
  • Written Contemporaneous Substantiation
    • Timely Reporting of Benefits
    • Reasonable Cause
    • Other Written Contemporaneous Evidence
  • Accountable and Non-Accountable Plans
    • Certain Benefits Disregarded
  • Filing Requirements for Form 4720
  • Documents Subject to Review
  • Overview of Form 990 Part VII
    • Section A: Officers, Directors, Trustees, Key Employees, and Highest Compensated Employees Overview
    • Section B: Five Highest Compensated Independent Contractors
  • Overview of Filing Requirements of Schedule J
  • Schedule J – Compensation Information
    • Purpose of Schedule
    • Who Must File
    • Part I: Questions Regarding Compensation
    • Part II: Officers, Directors, Trustees, Key Employees, and Highest Compensated Employees
    • Part III Supplemental Information
  • Conclusion
• Chapter 3 - Fundraising or Gaming Activities (Form 990, Schedule G)
  • Learning Objectives
  • Introduction
  • Special Events
    • Charity Auctions
    • Gaming Activities
  • Who Must File
    • Part I: Fundraising Activities
    • Part II: Fundraising Events
    • Part III: Gaming
    • Form 990-EZ Filers
  • Specific Instructions
    • Part I: Fundraising Activities
    • Part II: Fundraising Events
    • Part III: Gaming
• Chapter 4 - Hospitals (Form 990, Schedule H)
  • Learning Objectives
  • Introduction
  • Community Benefit Standard
  • Schedule H
    • Purpose of the Schedule
    • Who Must File
  • Specific Instructions
    • Part I: Charity Care and Certain Other Community Benefits at Cost (Optional for 2008)
    • Part II: Community Building Activities (Optional for 2008)
    • Part III: Bad Debt, Medicare, & Collection Practices (Optional for 2008)
    • Part IV: Management Companies and Joint Ventures (Optional for 2008)
    • Part V: Facility Information (Required for 2008)
    • Part VI: Supplemental Information (Optional for 2008)
    • Worksheet 1: Charity Care at Cost (Part I: Line 7a)
    • Worksheet 2: Ratio of Patient Care Cost to Charges
    • Worksheet 3: Unreimbursed Medicaid and Other Means Tested Government Programs (Part I: Lines 7b and 7c)
    • Worksheet 4: Community Health Improvement Services and Community Benefit Operations (Part I: Line 7e)
    • Worksheet 5: Health Professions Education (Part I: Line 7f)
    • Worksheet 6: Subsidized Health Services (Part I: Line 7g)
    • Worksheet 7: Research (Part I: Line 7h)
    • Worksheet 8: Cash and In-Kind Contributions to Community Groups (Part I: Line 7i)
  • Conclusion
    • Form 990 Schedule H: Community Benefit Worksheets
• Chapter 5 - State Activity
  • Learning Objectives
  • Introduction
  • Mandatory Charity Registration
    • Registration
    • When to Register
    • Unified Registration Statement
    • Internet Solicitation
    • Charleston Principles
    • Actions to Enforce State Laws against Charitable Solicitation Fraud
    • Application of Registration Requirements to Internet Solicitation
    • Principles Related to Minimizing Regulatory Responsibilities for Multi-State Filers
    • Annotations to the Principles
    • Appendix
  • Other State Considerations
  • Conclusion
• Chapter 6 - Alternative Investments
  • Learning Objectives
  • Introduction
  • Definition of Alternative Investments
  • Supplementary Filing Requirements
    • Form 926, Return by a U
    • Form 8865, Return of U
    • Form 8886, Reportable Transaction Disclosure Statement
    • Form 5471, Information Return of U
    • Form 8621, Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund
    • Form TD F 90-22
  • Appendix – IRS Forms
• Chapter 7 - Filing Requirements for Form 990-PF, Return of Private Foundation
  • Learning Objective
  • Introduction
  • Organizations Required to File
  • Other Possible Filing Requirements
  • Use of Form 990-PF to Satisfy State Reporting Requirements
  • Accounting Period
  • Accounting Methods
  • Where to File
  • Extensions of Time to File
  • Amended Return
  • Penalty for Failure to File Timely, Completely, or Correctly
  • Penalties for Not Paying Tax on Time
  • Figuring and Paying Estimated Tax Penalty
  • Tax Payment Methods for Domestic Private Foundations
  • Public Inspection Requirements
  • Disclosure Regarding Certain Information and Services Furnished
  • Organizations Organized or Created in a Foreign Country or U
  • Liquidation, Dissolution, Termination, or Substantial Contraction
  • Filing Requirements during Section 507(b)(1)(B) Termination
  • Special Rules for Section 507(b)(1)(B) Terminations
  • Rounding, Currency, and Attachments
  • Completing the Return
    • Specific Instructions
  • Part I – Analysis of Revenue and Expenses
    • Column Instructions
    • Column (a) – Revenue and Expenses per Books
    • Column (b) – Net Investment Income
    • Column (c) – Adjusted Net Income
    • Column (d) – Disbursements for Charitable Purposes
  • Line Instructions
    • Line 1: Contributions, Gifts, Grants, Etc
    • Line 2: Certain Contributions from “Split-Interest” Trusts Described in §4947(a)(2)
    • Line 3: Interest on Savings and Temporary Cash Investments
    • Line 4: Dividends and Interest from Securities
    • Line 5a: Gross Rents
    • Line 5b: Net Rental Income or (Loss)
    • Line 6: Net Gain or (Loss) from Sale of Assets
    • Line 7: Capital Gain Net Income
    • Line 8: Net Short-Term Capital Gain
    • Line 9: Income Modifications
    • Lines 10a, b, c: Gross Profit from Sales of Inventory
    • Line 11: Other Income
    • Line 12: Total
    • Line 13: Compensation of Officers, Directors, Trustees, Etc
    • Line 14: Other Employee Salaries and Wages
    • Line 15: Contributions to Employee Pension Plans and Other Benefits
    • Lines 16a, b, c: Legal, Accounting, and Other Professional Fees
    • Line 18: Taxes
    • Line 19: Depreciation and Depletion
    • Line 20: Occupancy
    • Line 21: Travel, Conferences, and Meetings
    • Line 22: Printing and Publications
    • Line 23: Other Expenses
    • Line 25: Contributions, Gifts, Grants Paid
    • Net Amounts
  • Part II – Balance Sheets
    • Line 1: Cash – Non-Interest-Bearing
    • Line 2: Savings and Temporary Cash Investments
    • Line 3: Accounts Receivable
    • Line 4: Pledges Receivable
    • Line 5: Grants Receivable
    • Line 6: Receivable Due from Officers, Directors, Trustees, and Other Disqualified Persons
    • Line 7: Other Notes and Loans Receivable
    • Line 9: Prepaid Expenses and Deferred Charges
    • Lines 10a, b, and c: Investments – Government Obligations, Corporate Stocks and Bonds
    • Line 11: Investments – Land, Building, and Equipment
    • Line 12: Investments – Mortgage Loans
    • Line 13: Investments – Other
    • Line 14: Land, Building, and Equipment
    • Line 15: Other Assets
    • Line 16: Total Assets
    • Line 18: Grants Payable
    • Line 20: Loans from Officers, Directors, Trustees, and Other Disqualified Persons
    • Line 21: Mortgages and Other Notes Payable
    • Line 22: Other Liabilities
    • Lines 24 through 30: Net Assets or Fund Balances
    • Line 25: Temporarily Restricted
    • Line 26: Permanently restricted
    • Organizations That Do Not Follow SFAS 117
    • Line 27: Capital Stock, Trust Principal, or Current Funds
    • Line 29: Retained Earnings, Accumulated Income, Endowment, or Other Funds
    • Line 30: Total Assets or Fund Balances
    • Line 31: Total Liabilities and Net Assets/Fund Balances
  • Part III – Analysis of Changes in Net Assets or Fund Balances
  • Part IV – Capital Gains and Losses for Tax on Investment Income
    • Losses
    • Basis
  • Part V – Qualification under Section 4940(e) for Reduced Tax on Net Investment Income
    • Line 1, Column (b)
    • Line 1, Column (c)
  • Part VI – Excise Tax on Investment Income (§§4940(a), 4940(b), 4940(e), or 4948)
    • Rules for Tax on Investment Income
    • Foreign Organizations
  • Tax Computation
    • Line 1a
    • Line 2: §511 tax
    • Line 4: Subtitle A Tax
    • Line 5: Tax on Investment Income
    • Line 6: Credits/Payments
    • Line 8: Penalty
    • Line 9: Tax Due
  • Part VII-A – Statements Regarding Activities
    • Line 1
    • Line 3
    • Line 6
    • Line 8a
    • Line 9
    • Line 10: Substantial Contributors
    • Line 13: §4947(a)(1) Trusts
  • Part VII-B – Activities for Which Form 4720 May Be Required
    • Line 1a: Self-Dealing
    • Line 1b
    • Line 2
    • Line 3a
    • Line 4: Taxes on Investments That Jeopardize Charitable Purposes
    • Line 5: Taxes on Taxable Expenditures and Political Expenditures
    • Line 5b
    • Line 6: Personal Benefit Contracts
  • Part VIII – Information about Officers, Directors, Trustees, Foundation Managers, Highly Paid Employees, and Contractors
  • Part IX-A – Summary of Direct Charitable Activities
  • Part IX-B – Summary of Program-Related Activities
    • Line 1a: Average Monthly Fair Market Value of Securities
    • Line 1b: Average Monthly Cash Balances
    • Line 1c: Fair Market Value of All Other Assets
    • Line 1e
    • Line 2: Acquisition Indebtedness
    • Line 4: Cash Deemed Held for Charitable Activities
    • Line 6: Short Tax Periods
  • Part XI – Distributable Amount
    • Line 4a
    • Line 4b
    • Line 6: Deductions from Distributable Amounts
  • Part XII – Qualifying Distributions
    • Line 1a: Expenses, Contributions, Gifts, Etc
    • Line 1b: Program-Related Investments
    • Line 3: Amounts Set Aside
    • Line 5: Reduced Tax on Investment Income Under §4940(e)
  • Part XIII – Undistributed Income
    • Line 2b: Enter the Amount of Undistributed Income for Years Before 2007
    • Line 3: Excess Distributions Carryover to 2008
    • Lines 3a through 3e
    • Line 3f
    • Line 4a
    • Lines 4b and 4c
    • Line 4d
    • Line 4e
    • Line 5: Excess Qualifying Distributions Carryover Applied to 2008
    • Line 6c
    • Lines 6d and 6e
    • Line 7: Distributions out of Corpus for 2008 Pass-Through Distributions
    • Line 8: Outdated Excess Distribution Carryover
    • Line 9
    • Line 10: Analysis of Line 9
  • Part XIV – Private Operating Foundations
  • Part XV – Supplementary Information
    • Line 2
    • Line 3
    • Line 3a
    • Line 3b
    • Line 3c(3)
  • Part XVI-A – Analysis of Income-Producing Activities
    • Columns (a) and (c)
    • Columns (b), (d), and (e)
    • Comparing Part XVI-A with Part I
    • Line 1: Program Service Revenue
  • Part XVI-B – Relationship of Activities to the Accomplishment of Exempt Purposes
  • Part XVII – Information Regarding Transfers to and Transactions and Relationship with Non-charitable Exempt Organizations
    • Line 1: Reporting of Certain Transfers and Transactions
    • Line 1a: Transfers
    • Line 1b: Other Transactions
    • Line 1b(3)
    • Line 1b(4)
    • Line 1b(5)
    • Line 1b(6)
    • Line 1c
    • Line 1d
    • Line 2: Reporting of Certain Relationships
  • Signature
• Chapter 8 - Latest Developments
• Appendix A - IRS Forms

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Chapter 1 - Governance, Management, and Disclosure (Form 990, Part VI)

Learning Objectives

•  Learn what constitutes good governance/policies of the organization.
•  Discuss disclosures required to be made in tax filings.

Introduction

Part VI, which all organizations have to complete, serves two purposes. The first purpose is to provide required information about the organization. However, the form also gives organizations an opportunity to provide additional information that they feel is relevant. From the earliest discussions concerning the format of a new form, governance, visibility, and transparency have been key factors. “Schedule O is used to provide required supplemental information as discussed below and to provide any additional information that the organization considers relevant to this Part.”

Part VI requests information regarding an organization’s governing body and management, governance policies, and disclosure practices. Although federal tax law generally does not mandate particular management structures, operational policies, or administrative practices, every organization is required to answer each question in Part VI. For example, all organizations must answer line 10, which asks about the organization’s process, if any, for reviewing the Form 990, even though the governing body is not required by federal tax law to review the Form 990. This is actually a significant issue and one that requires additional analysis. It may be possible with smaller boards. However, many organizations have large boards and in some cases poor communication.

Even though governance, management, and disclosure policies and procedures generally are not required under the Internal Revenue Code, the IRS considers such policies and procedures generally to improve tax compliance. The absence of appropriate policies and procedures may lead to opportunities for excess benefit transactions, inurement, operation for non-exempt purposes, or other activities inconsistent with exempt status. Whether a particular policy, procedure, or practice should be adopted by an organization may depend upon the organization’s size, type, and culture. Accordingly, it is important that each organization consider the governance policies and practices that are most appropriate for that organization in ensuring sound operations and compliance with the tax law.

The following is a summary of testimony given by Comptroller General David M. Walker in April 2005 during the early formulation of the new Form 990. This is the information that eventually grew into the governance and transparency questions.

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