demystifying the form 990: tips, tricks, and traps of the form 990

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.


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.


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.


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.


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.


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

real challenges. real answers. sm



• 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


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)).

http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=41b4abffce9b96961fc8d49dd2d26e25&rgn=div8&view=text&node=26:17.0.1.1.3.11.1.8&idno=26


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


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


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.


Reportable Compensation

What counts?

– Form W-2, Box 5

– Form 1099, Box 7

– Form 990, Part VII “Grid” benefits


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


“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.


“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


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”).


• 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)


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.


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


• 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


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)


“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


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


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


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.


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


Thank you.THANKS!

Virginia Gross, Shareholder

[email protected]

Dave Moja, Tax Partner

[email protected]

©CapinCrouse LLP 2014

mailto:[email protected]

mailto:[email protected]

demystifying the form 990: tips, tricks, and traps of the form 990

Government & Nonprofit

final return box

tax period

errorsmath error

schedule o

final box

irs master file records

master file o

errorsmissing schedule