NJAIS Trustee Enrichment Day
The New 990:
What A Board Member Should Know
Richard Cohen, CPA
Marvin Ungar, CPA
November 8th, 2009
Redesigned Form 990
• First major redesign since 1979
• Effective for 2008 returns (filed in 2009)
• IRS Guiding Principles:
– Enhancing transparency to provide IRS and the
public with a realistic picture of the organization
– Promoting tax compliance by accurately reflecting
the organization’s operations
– Burden minimization on the filing organization for
many, but not all organizations
Bob Ottenhoff - President and CEO, Guidestar
July, 2008 Newsletter
• Over 10 years ago, when Guidestar first started,
transparency in the nonprofit sector was a revolutionary
concept. It was nearly impossible to find good-quality
nonprofit data. Posting IRS 990s on the Guidestar
website in 1999 caused a stir, with lots of angry phone
calls from nervous nonprofit leaders.
• Today, transparency is considered an essential
characteristic of a successful nonprofit organization.
Donors and stakeholders expect a nonprofit to be open
about its operations: informing us about mission,
programs, people, and finances. I tell inquiring reporters
that an organization that is unwilling—or sometimes
unable—to be transparent is not necessarily doing
something bad but probably requires further scrutiny,
because transparency is so expected.
Who Is Looking at Your 990?
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Individual Donors
Private foundations
Corporate donors
Watchdog groups
State regulators
Reporters
IRS
Redesigned Form 990
• Core Form–(11 Pages – Parts I to XI) applies to all
organizations
• Schedules–(16 Schedules – A through R) relevant only
to some organizations determined by:
– Activities
– Financial transactions
– Tax classification under Section 501(c)
2008 Form 990 Glossary
• IRS instructions include a 24-page glossary to help
preparers and users understand a variety of technical
terms used in the form.
Form 990-EZ
May file 990-EZ for:
If gross receipts are:
And if assets are:
2008 Form (generally filed
in 2009)
< $1,000,000
< $2,500,000
2009 Form (generally filed
in 2010)
< $500,000
< $1,250,000
2010 and later Forms
< $200,000
< $500,000
Three Main Parts Of Part VI
• Section A. Governing Body and Management
• Section B. Policies
• Section C. Disclosure
Governing Body and Management, Policies
and Disclosure
• Even though certain governance, management, and
disclosure policies and procedures may not be required
under the Internal Revenue Code, the IRS considers
such policies and procedures to generally improve tax
compliance.
• Therefore, answering questions is required.
Size of Governing Body
Governing Body and Management - # 1a
• Record the number of voting members at the end of the
year
• State law generally requires 3 or more directors
• The IRS believes Boards can be too small or too large
• Small boards may not represent broad public interest
and lack the required skills needed to adequately
govern
• Large boards may have a difficult time getting down to
business and making decisions
Independent Voting Members
Governing Body and Management # 1b
Member is independent if all three conditions are met:
1. Not compensated as an officer or other employee by
TEO or a related TEO
2. Not compensated as an independent contractor
exceeding $10,000 during the year by the TEO or
related TEO ( Director compensation or expense
reimbursement is not counted toward $10,000 )
3. Neither member nor family member was involved in a
Schedule L transaction, which includes loans to/from
TEO, grants or other assistance benefiting the person,
and certain business transactions.
Independent Voting Members
• IRS “Gold Standard” is an active, independent, and
engaged Board of Directors
• Independence generally not required by law
• Why? Related or compensated directors are not as
independent in their decision making
Family and Business Relationships among Officers, Directors
or Key Employees - Governing Body and Management #2
Answer “yes” if any family or business relationship exists.
• Family relationships include spouse, ancestors, siblings, children,
grandchildren, and respective spouses.
• Business relationship includes employment relationship where
one party is a sole proprietor, officer or greater than 35% owner.
• Business relationship includes two or more persons when each is
a director, officer, or greater than 10% owner in the same
business.
• Transacting business with one another okay if in the ordinary
course of business.
• Reasonable effort standard in obtaining information can be relied
upon.
• Privileged relationship exception for attorney-client, doctorpatient, priest-penitent.
Delegate Control Over Management Duties
Governing Body and Management #3
• Answer ‘yes” if organization used a management
company or other person to perform management
duties usually performed by or under direct supervision
of officers, directors, trustees or key employees.
• Such duties include hiring, firing, supervising
personnel, planning or executing budgets or financial
operations, supervising exempt operations or unrelated
trades or businesses.
• Such duties do not include payroll processing or
investment management.
Significant Changes to Organizational Documents Governing Body and Management # 4
• Refers to the “enabling document” by which it was
created such as articles of incorporation and/or bylaws
• Report changes since prior 990 or those not reported
on any prior 990
• Do not report changes outside of enabling document
that were adopted pursuant to resolution, such as
creation of Audit Committee.
Significant Changes to
Organizational Documents (cont.)
Examples to report include changes to:
• Organization’s exempt purpose or mission
• Number, composition, qualifications, authority or duties of the
governing body’s voting members, officers or key employees
• Role of stockholders or membership on governance
• Distribution of assets upon dissolution
• Provisions to amend the enabling document
• Quorum, voting rights or voting approval requirements of the
governing body members or stockholders/membership
• Policies or procedures contained within the organizing
document or bylaws regarding compensation of officers,
directors, or key employees, conflicts of interest ,
whistleblowers, or document retention and destruction
• Composition or procedures contained within the organizing
document or bylaws of an audit committee
Material Diversion of Assets
Governing Body and Management # 5
• Answer “Yes” if organization became aware of a material
unauthorized diversion during year, whether or not
diversion occurred during year.
• If “Yes”, explain nature, amounts or property involved,
corrective actions taken and circumstances in Sch. O
• Do not identify person or persons committing diversion
by name.
• Diversion of assets is often an embezzlement or theft.
• Diversion is considered material if gross dollar amount
exceeds lesser of $250,000 or 5% of lesser of gross
receipts or total assets.
Members or Stockholders
Governing Body and Management # 6 and #7
Answer yes if:
• Organization is a stock corporation, partnership, joint
venture or limited liability company; or a non stock non
profit with members (# 6) , and yes to # 7 if such
members:
• Elect governing body (a)
• Approve board decisions (b)
Meeting Documentation
Governing Body and Management # 8
• Use any means permitted by State law such as
approved minutes, e-mail strings.
• Document action taken, when it was taken, and who
made decision.
• Contemporaneous means by later of next meeting or
60 days after meeting or written action.
• If no, explain in Schedule O explain organization’s
practices re: documenting, if any.
Any Local Chapters, Branches, Affiliates?
Governing Body and Management #9
• Written policies and procedures needed to insure
consistency
• Written policies and procedures may include articles of
organization or bylaws, a manual, constitution or
similar document.
• If no, explain in Schedule O how main organization
ensures consistency.
Copy of 990 provided before filing?
Governing Body and Management # 10
• Answer “yes” if each voting member of Governing Body
member was provided either paper or electronic copy
before filing.
• Describe in schedule O the process by which officers,
board members or management reviewed the 990,
whether before or after 990 was filed.
• Note who conducted review, when conducted and the
extent of such review.
Mailing Address
Governing Body and Management #11
• IRS needs mailing address to contact officers, directors
and key employees
• Official mailing address of organization may be used.
Policies
Questions 12 -16
• Not required by law
• Adopt by year-end to answer “yes”
• Must be written policies
Conflict of Interest Policy
Policies # 12
• Arises when a person in a position of authority, such as
an officer, director, or manager, may benefit financially
from a decision he or she could make in such capacity,
including indirect benefits such as to family members or
businesses with which the person is closely associated
• Policy defines conflicts, identifies classes of people
covered, facilitates disclosure, specifies follow-up
procedures
• Are directors, officer and key employees required to
annually disclose interests that could give rise to
conflicts?
• Monitor and enforce compliance…if yes, describe how in
Sch. O
Whistleblower and Document Retention and
Destruction - Policies # 13 and #14
• Written Whistleblower Policy-Sarbanes Oxley-protects
rights of whistleblowers who report wrongdoing to
federal investigators.
• Written document retention and destruction policySarbanes Oxley makes it a crime to knowingly destroy,
conceal, falsify records to impede federal investigation.
• Answer yes if in place as of the last day of tax year.
Compensation Policy
Policies # 15
• Review and approval by independent persons., i.e., a
governing body or compensation committee
• Use of data as to comparable compensation for
similarly qualified persons in functionally comparable
positions at similarly situated organizations
• Contemporaneous documentation and recordkeeping
with respect to deliberations and decisions regarding
the compensation arrangement.
• Used for CEO, ED or top management official ?
• Used for other officers or key employees in
organization?
• Describe process in Schedule O.
Joint Venture Policy
Policies # 16
• Did organization participate in a joint venture with a
taxable entity during year?
• Did Org. adopt written policy to negotiate certain
safeguards to ensure exempt purpose is protected and
taken necessary steps to do so?
Safeguards include:
Controls over the venture sufficient to insure that it furthers
the exempt purpose; requirements that venture gives
priority to exempt purpose over maximizing profits; and
that activities would not jeopardize the organization’s
exemption.
Form 990 Filings in States
Disclosure #17
• Some states require or permit the filing of Form 990 to
fulfill State exempt organization or charitable solicitation
reporting requirements.
• Pennsylvania & New Jersey requires filing
Public Availability of Forms 1023/1024, 990 &
990-T - Disclosure # 18
• Must make Form 1023 or 1024 available except for
those filed before 7/15/87
• 990 must be available for a period for 3 years, starting
with filing date
• 501 (C) (3) must make 990-T available for 3 year
period.
• Explain in Schedule O if organization does not make
these documents available.
Public Availability of Other Documents
Disclosure # 19
• Explain in Sch. O how governing documents, COI policy,
and financial statements are made available?
• Use website.
• Copies can be provided if not available electronically.
• Inspection at organization’s office also okay.
Possession of books and records
Disclosure # 20
• Provide name of person, business address and
telephone number.
• If records are kept at personal residence, use
organization address.
• No requirement to provide address or telephone
number of a personal residence.
Next Steps
• Take time now to become more familiar with the full
set of forms
• Review all existing policies and begin a process to
develop additional policies to be adopted before year
end
• Conduct a “dry run” completion of the new form to see
how you look
• Take advantage of the opportunity to tell your story!
Schedules of disclosure
• Schedule A
– Public charity status and public support
• Schedule D
– Uncertain tax positions
– Art : Valuation of collection
– Endowment funds
• Schedule E
– Schools
• Schedule G
– Transparency related to fundraising activities
Schedules of disclosure
• Schedule I
– Grants and other assistance to organizations,
governments and individuals in the US
• Schedule M
– Non-cash contributions
Schedules of disclosure
• Schedule J
– Transparency of highly compensated individuals
• Schedule L
– Transaction with interested persons
• Schedule R
– Transparency of transactions with related
organizations
• Hidden activities with potential UBIT issues
•Source: Research Institute of America (RIA)
•Source: Research Institute of America (RIA)
•Source: Research Institute of America (RIA)
•Source: Research Institute of America (RIA)
•Source: Research Institute of America (RIA)
•Source: Research Institute of America (RIA)
Unrelated Business Income Tax
• Why does the IRS Care?
– Competition with for-profit organizations
– Is it truly not-for-profit?
Where is it reported?
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Form 990T
Part IV of form 990
New Schedule D
First page of 990
Sources of Income that are
not subject to tax
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Donations
Related Function Income
Interest
Dividends
Sale of Investments
Rents of Real Property
Definition of unrelated business taxable
income
• Trade or business
• Regularly carried on
• Not related to charitable function
Examples
• Tennis academy operated by school when not in session.
• Pet grooming offered by Society for Prevention of
Cruelty to Animals.
Exemptions
• Voluntary Labor/Thrift Shop
• Income from sale of merchandise of which 85% was
donated to organization
• Convenience of organization members, which includes
members, patients, visitors, officers,
employees/Laundromat at college
Taxable Income, Including
Debt Financed Income
• Rental of debt financed real property
• Income generated by investments purchased on margin
• Investment in partnerships passes through in kind
Reminder
The IRS and Donors not
only look to what funds are
being used for, they also
look to where funds are
coming from
Questions?
Thank you!
“The material contained in this presentation is for general
information and should not be acted upon without prior
professional consultation.”