Don’t Be Ambushed By The 2008 IRS Form 990 PCPA 2008 Conference October 7, 2008 Thomas E. Sweeney Tsoules, Sweeney, Martin & Orr, LLC 29 Dowlin Forge Road

Don’t Be Ambushed By The 2008 IRS Form 990

PCPA 2008 ConferenceOctober 7, 2008

Thomas E. SweeneyTsoules, Sweeney, Martin & Orr, LLC

29 Dowlin Forge RoadExton, PA 19341

Tel.: 610.423.4200Fax.: 610.423.4201

[email protected]

Copyright© 2008 Tsoules, Sweeney, Martin & Orr, LLC2

2008 Form 990?

Past Practices

Why the 2008 990 is Important

Policy and Practices


IRS Redesign Guiding Principles:

Enhancing transparency

Promoting compliance

Minimizing the burden on filing organizations

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Core Form Overview

The Core Form is eleven pages and divided into 11 parts: Part I, Summary Part II, Signature Block Part III, Program Service Accomplishments Part IV, Checklist of Required Schedules Part V, IRS Filings and Tax Compliance Part VI, Governance, Management and Disclosure Part VII, Compensation Part VIII, Statement of Revenue Part IX, Statement of Functional Expenses Part X, Balance Sheet Part XI, Financial Statements and Reporting

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PART IV: Checklist of Required Schedules

The redesigned core form is supplemented by 16 Schedules that should be completed based on the organization’s activities

Redesign

Schedule

Topic Applicable to Agencies?

A Public Charity Status Yes

B Contributions Yes

C Political Campaign and Lobbying Activity Possibly

D Supplemental Financial Statement Detail Yes

E Schools Maybe

F Foreign Activities No

G Fundraising and Gaming Probably

H Hospitals No

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PART IV: Checklist of Required Schedules

Redesign

Schedule

Topic Applicable to Agencies?

I Grants Maybe

J Compensation Maybe

K Tax Exempt Bonds Maybe

L Loans Maybe

M Non-cash Contributions Maybe

N Termination or Significant Disposition of Assets Maybe

O Supplemental Information Yes

R Related Organizations Maybe


Filing Requirements For Most Smaller Organizations

Form 990 or 990 EZ

Form 990 EZ Short Form may be filed by smaller organizations with gross receipts and total assets below certain amounts

Form 990 EZ – Fewer Changes to Form


Filing Requirements for Most Smaller Organizations: 2008- 2010

Form 990 EZ

FY G/Receipts Assets

2008 <$1,000,000 <$2,500,000

2009 <$500,000 <$1,250,000

2010 <$200,000 $500,000


Agenda

Parts I & III: Statement of Program Services PART IV: Checklist of Required Schedules

Schedule A: Public Charity Schedule B: Contributors Schedule C: Political Campaign Activities Excess Benefit Transactions

Part VI: Governance, Management and Disclosure

Part VII: Compensation Compliance Planning


Core FormPart III – Statement of Program Services

Briefly describe the Organization’s Mission – Line 1

New Program Services Not Listed Last Year – Line 2

Any Significant Changes in “conduct” of any Program Service – Line 3

Describe Exempt Purposes for three largest Program Services by Expense – Line 4


Corm FormPart IV – Checklist of Required Schedules

Overview of Part IV Line 1: Schedule A - Public Charity Status

Line 2: Schedule B – Contributions

Line 3: Schedule C – Political Campaign Activities, Lobby Activities


Schedule A: Public Charity Status and Public Support

What is Public Charity Status?

Part I – Reason for Public Charity Status

Supporting Organizations/Publicly Supported Organizations

What is Public Support?

Not Controlled by a “Disqualified Person”


Schedule B: Schedule of Contributors

General Rules: List every contributor who, during the year gave the organization, directly or indirectly, money, securities, or property aggregating $5,000 or more

Special Rules: >$5,000 or 2% Rule

Part I: List Contributors: > $1,000

Part II: List Non-Cash Contributors


Schedule C: Political Campaign and Lobbying Activities

Did the organization engage in direct or indirect political campaign activities on behalf or in opposition to candidates for public office? If “yes” complete Schedule C.


Schedule L: Transactions with Interested Persons

Excess Benefit Transaction. An excess benefit transaction is a transaction in which an applicable tax-exempt organization directly or indirectly provides to or for the use of a disqualified person an economic benefit the value of which exceeds the value of the consideration received by the organization for providing such benefit.



Interested Persons.

Directors, Officers, Trustees, Key Employees, 5 highest compensated employees

Disqualified Persons.

Regarding any transaction, is any person who was in a position to exercise substantial influence over the affairs of the applicable tax-exempt organization at any time during a 5-year period ending on the date of the transaction.

Persons who hold certain powers, responsibilities, or interests are among those who are in a position to exercise substantial influence over the affairs of the organization:

For Example, voting members of the governing body, and persons holding the power of: President, chief executive officers, or chief operating officers; treasurers and chief financial officers.



Duty to Report/Disclose

Loans to and from Interested Persons (officers, directors, key employees, 5 highly compensated employees)

Grants or Assistance Benefiting Interested Persons

Business Transactions Involving Interested Persons


Schedule R: Related Organizations

Purpose:

Provide information on Related Organizations

Certain transactions with Related Organizations

Certain unrelated partnerships



Part I requires identifying information on any disregarded entity (i.e., wholly owned entity that is not a separate entity for tax purposes)

Part II requires identifying information on related tax-exempt organizations

Part III requires identifying information on any related organization that is a partnership

(Continued)



Part IV requires identifying information on any related organization that is treated as a C or S Corporation or Trust

Part V requires information on transactions between the organization and related organizations (excluding disregarded entities)

Part VI requires information on an unrelated organization taxable as a partnership through which the organization conducted more than 5% of its activities.


Core FormPart VII: Compensation

Requires reporting on Compensation and other Financial Arrangements the organization has with its officers, directors, trustees, key employees, and independent contractors


Core Form Part VII: Compensation

List of individuals to include: Top 5 Highest Paid Employees with more than

$100,000 of reportable compensation Former Officers, Key Employees and Top 5

Highest Compensated Employees (going back 5 years) with more than $100,000 of reportable compensation

Former Directors and Trustees who received more than $10,000 of reportable compensation



Disclose total number of employees receiving compensation in excess of $100,000

Disclose Top 5 Most Highly Compensated Independent Contractors paid more than $100,000

List total number of independent contractors paid more than $100,000



Changes

Question regarding the rebuttable presumption of reasonableness for executive compensation

What is a “Rebuttable Presumption”

Question on business and family relationships


Part VI - Governance

Governing Body and Management Number of voting members and independent

members on board Business and family relationships among directors

and officers Delegation of control to a management company Changes to organizational documents Any material diversion of the organization’s assets


Part I and Part III

Statement of Program Services

Enter the Number of Voting Members of Governing Body (Part I: Line 2)

Enter the Number of Independent Voting Members of the Governing Body (Part I: Line 3)

Describe Mission or Significant Activities


Part I – Summary: Who is an Independent Voting Members of the

Governing Body A voting member of the governing body, if all three of

the following circumstances applied at all times during the organization’s tax year:

1. The member was not compensated as an officer or other employee of the organization or of a related organization.

2. The member did not receive total compensation or other payments exceeding $10,000 during the organization’s tax year from the organization or from related organizations as an independent contractor, other than reimbursement of expenses.

(Continued)



Governing Body

3. Neither the member, nor any family member of the member, was involved in a transaction with the organization (whether directly or indirectly through affiliation with another organization) that is required to be reported in Schedule L, Transactions With Interested Persons.



Governing Body A member of the governing body is not considered to

lack independence merely because of the following circumstances:

1. The member is a donor to the organization, regardless of the amount of the contribution;

2. The member has taken a bona fide vow of poverty and either (a) receives compensation as an agent of a religious order or a 501(d) religious or apostolic organization;

3. The member receives financial benefits from the organization solely in the capacity of being a member of the charitable or other class served by the organization in the exercised of its exempt functions.


Independent Board Members - Examples

Attorney on the Board

Employee related to Board Member


Business and Family Relationships

Business Relationship

Privileged Relationship Exception

Examples


Management Contracts

Use of a Management Company to perform duties customarily performed by officers, directors, etc.

Services include: hiring, firing, budgets, financial operations


Changes to Organizational Documents

In the organization’s exempt purposes or mission;

In the number, composition, qualifications, authority, or duties of the organization’s officers or key employees;

In the role of the stockholders or membership in governance;

In the distribution of assets upon dissolution In the provisions to amend the organizing or

enabling document or bylaws; (Continued)


Changes to Organizational Documents

In the quorum, voting rights, or voting approval requirements of the governing body members or the organization’s stockholders or membership;

In the policies or procedures contained within the organizing document or bylaws regarding; compensation of officers, directors, trustees, or key employees, conflicts of interest, whistleblowers, or document retention and destruction; and

In the composition or procedures contained within the organizing document or bylaws of an audit committee.


Material Diversion of Assets

Explain in Schedule O the diversion, amounts, circumstances

Diversion: any unauthorized conversion or use of an organization’s assets other than for exempt purposes, including theft or embezzlement

Authorized transfer for FMV is not a Diversion



Whether organization keeps minutes of board and committee meetings

Whether there are local chapters, branches or affiliates

Whether a copy of 990 is provided to governing board before it is filed – Schedule O – describe Board review process

Whether any director or officer can’t be reached through organization’s mailing address



Policies Conflict of Interest Policy Whistleblower Policy Document Retention and Destruction Policy Rebuttable Presumption for CEO, top

management, and other officers and key employees

Investments in Joint Ventures: partnership, LLC, other entitied treated as partnership Recap: 301, 7701 – 7701-3



Public Disclosures List how 990 is disclosed (own website, another

website, upon request) Describe how governing documents, conflict of

interest policy and financial statements are made available to the public


2008 Form 990 – Compliance Planning

Board Education Identify Individuals within Organization Inventory Policies Identify Key Employees and Compensation

Policies Adopt Best Practices – Policies Public Disclosure of 990 Board Approval