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Reporting Compensation on the New Form 990

Who is a Key Employee for Form 990 reporting purposes? For 2008 the rules have all changed.

April 27, 2009
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Reporting Compensation on the New Form 990

The IRS in the past has required nonprofit organizations to report compensation amounts for officers, directors, trustees and certain “key” employees. These amounts were reported on Part V of Form 990. Compensation was deemed to include salaries, allowances, and contributions to employee benefit plans. In addition the five highest paid 501 (c) (3) employees making more than $50,000 was required to be listed on Schedule A, Part 1. For 2008 the rules have all changed.

So Who Is a Key Employee?

The IRS has historically defined a “Key” employee as “any person having responsibilities, powers, or influence similar to those of officers, directors, or trustees. The term includes chief management and administrative officials of the organization.” The new guidelines provided in the instructions to form 990 are more expansive and definitive. These guidelines provide that a key employee is anyone who (other than an officer, director, or trustee) has reportable compensation of more than $150,000 and:

  • Has responsibilities , powers, or influence over the organization as a whole that are like those of officers, directors, or trustees (similar to the language of the 2007 instructions);
  • Manages a discrete segment or activity of the organization that represents 5 percent or more of the organization’s total activities, assets, income, or expenses; or
  • Has or shares authority to control or determine 5 percent or more of the organization’s capital expenditures, operating budget, or compensation for employees.

Disregarded Entities

Disregarded entities (such as a limited liability company that is wholly owned by the organization and not treated as a separate entity for federal tax purposes) are treated as part of the organization rather than as a related organization for purposes of Part VII.

Related Organizations

Compensation reportable in Part VII of the 2008 Form 990 includes compensation paid to an individual by a “related organization.”

Summary of Compensation Reporting

All filers must complete Part VII of the 2008 Form 990. A new Schedule J must also be completed for any person listed in VII-A who:

  • Receives more than $150,000 in current compensation counting both reportable compensation and other compensation;
  • Is a former officer, director, trustee, key employee or highest compensated employee listed in Part VII-A and who receives more than $100,000 of reportable compensation from the organization and any relate organizations;
  • Is a former director or trustee who received, in that capacity, more that $10,000 of reportable compensation from the organization and any related organizations; or
  • Receives or accrues compensation from any unrelated organization for services rendered to the organization as an officer, director, etc. under certain circumstances.

For purposes of Schedule J, a current officer, director, etc., is a person who was an officer, director, etc., at any time during the tax year. A former officer, director, etc., is a person the organization reported (or should have reported) as an officer, director, etc., on any of it s previous five year’s Forms 990, 990-EZ, or 990-PF, applying the instructions in effect for those years.

The IRS has estimated that only about 5 percent of all filers will have to complete Schedule J. The proper completion of Schedule J requires a thorough understanding of when a person must be listed there and they new data required by the schedule.

From the CPE & Training Solutions Monthly e-newsletter from the Tax & Accounting business of Thomson Reuters, March 2009. To subscribe to this free, informative newsletter, visit trainingcpe.thomson.com or click here.