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Managing Your Organization’s Future: Strategies and Structures for 21 st Century Nonprofits Part I – The “New” Form 990

Managing Your Organization’s Future: Strategies and Structures for 21 st Century Nonprofits Part I – The “New” Form 990 May 6, 2010 Robert S. Knychalski, Esq. Three-Part Seminar Series May 6, 2010 - A Review of the “New” IRS Form 990 for Nonprofits

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Managing Your Organization’s Future: Strategies and Structures for 21 st Century Nonprofits Part I – The “New” Form 990

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  1. Managing Your Organization’s Future: Strategies and Structures for 21st Century Nonprofits Part I – The “New” Form 990 May 6, 2010 Robert S. Knychalski, Esq.

  2. Three-Part Seminar Series May 6, 2010 - A Review of the “New” IRS Form 990 for Nonprofits August 31, 2010 – “Make Up” of a 2010 Board of Directors November 30, 2010 - An Overview of Employment Issues PLDW/United Way – 2010 Seminar Series

  3. First redesign in over 30 years IRS response to the Sarbanes-Oxley Act of 2002 Redesign based on three primary principles: Enhancing transparency Promoting tax compliance Simplifying the filing process and minimizing the burden of filing Public disclosure document – transparency and accountability for donor public Effective for the 2008 taxable year (i.e., filing 2009) The “New” Form 990 - Background

  4. Twelve (12) page core form filed by all “Summary” page to summarize the organization’s activities, governance, revenue and expenses Statement of organizations mission and public service accomplishments New governance, management and disclosures section with additional governance related questions throughout Description of governing body and management Disclosure of internal policies Description of Form 990 review process Disclosure of officer/employee compensation and financial information Sixteen (16) supporting schedules as necessary Structure of the “New” Form 990

  5. “Major” Changes 1) New “summary” page 2) “Checklist” for required schedules 3) Tax compliance questions 4) New governance section 5) Revised reporting for compensation (i.e., directors, officers and key employees) 6) Financial statements grouped together 7) Old “Schedule A” broken down into 4 schedules 8) New reporting requirements

  6. Impact on Nonprofit Organizations • “Themes” to consider – How will the changes impact your organization? • Simplification of filing process or administrative burden? • Establishment and implementation of new policies • Chief executive compensation • Conflicts of interest • Document retention and destruction • Whistleblower protection • Increased complexity and cost of doing business • Adjust now – decrease burden in future years

  7. Phasing In For Smaller Nonprofits • IRS is phasing in the new filing requirements to assist smaller organizations in the filing process • Also a “phase in” for certain schedules • 2009 (Tax Year 2008) • Organizations with Gross Revenues < $1,000,000 and Total Assets < $2,500,000 permitted to file Form 990 or 990-EZ • 2010 (Tax Year 2009) • Organizations with Gross Revenues < $500,000 and Total Assets < $1,250,000 permitted to file Form 990 or 990-EZ • 2011 (Tax Year 2010) • Permanent filing thresholds of $200,000 in Gross Revenue and$500,000 in Total Assets established as criteria for filing Form 990 • “E-Postcard” (Form 990-N) for organizations with Gross Receipts < $50,000 • $25,000 threshold for this year

  8. Addressing the “New” Form 990 • How to tackle the Form 990? • Varies from organization to organization • Review the document and supporting schedules early! • Create an internal procedure specific to your organization!

  9. Form 990: “Summary” or “Snapshot” Page Basic information about the Organization: 1) Schedule R will address information regarding related entities and control 2) Officers, directors, etc. listed later in “core” form. Mission statement/Organization’s most significant activities Information regarding the Organization’s governing body, employees, volunteers, etc. Financial Information: revenues, expenses, assets, liabilities, etc. Permission to speak with paid preparer

  10. Form 990: Program Service Accomplishments Organization’s Mission Statement required Requires a report on the Organizations new and ongoing exempt purpose achieves and revenue and expenses related thereto. 501(c)(3)’s required to report the Organization's 3 largest programs and report: (1) grants and allocations to others, (2) total expenses, and (3) revenue. * Program should be described to give enough information about he program to the reader

  11. Form 990: Checklist of Required Schedules • Part IV of the core documents includes a checklist of 38 questions to determine whether certain schedules are required to be filed with the Form 990 • Arranged by subject matter and alphabetically by schedule • Many replace old attachments • Old Schedule A broken down to four (4) separate schedules • New schedules for political campaign and lobbying activities, private schools and related organizations • Other new schedules added to disclose compensation issues, transactions with interested parties, foreign activities, foreign activities, etc. • Important for Organization’s to review these schedules early to determine identity filing requirements and to determine necessity of filing schedules

  12. Form 990: Checklist of Required Schedules

  13. Schedule A – Public Charity Status and Public Support Schedule B – Schedule of Contributors Schedule C – Political Campaign and Lobbying Activities Schedule D – Supplemental Financial Statements Schedule E – Schools Schedule F – Statement of Activities Outside the US Schedule G – Supplemental Information Regarding Fundraising or Gaming Activities Schedule H - Hospitals Schedule I – Grants and Other Assistance to Organizations, Governments and Individuals in the US Schedule J – Compensation Information Schedule K – Supplemental Information on Tax-Exempt Bonds Schedule L – Transactions with Interested Persons Schedule M – Noncash Contributions Schedule N – Liquidation, Termination, Dissolution or Major Disposition of Assets Schedule O – Supplemental Information to Form 990 Schedule R – Related Organizations and Unrelated Partnerships Form 990: Sixteen (16) Schedules

  14. Form 990: IRS Compliance Reports Organization’s compliance with other IRS reporting requirements Yes/No? All Organizations 1) Employment tax returns 2) Unrelated business income 3) Accounts in foreign countries 4) Tax shelters 5) Non-deductible contributions If Applicable 1) Charitable contributions 2) Donated property 3) Donor advisory funds 4) Support organization 5) Others

  15. Form 990: Governance and Disclosure Yes/No? • 3 Sections • Every Organization must complete ALL sections • All questions relate to tax year • This is the “best practices” section; not all forms and practices are mandated • Independent = not offer/employee, no material financial benefits, no material benefits to family members • Spouse, sibling, child, etc. • Employee, owner, officer, etc. Questions regarding governance and management – relationships, governance changes (documents and organizational), member approvals, voting, etc. Internal Governance Policies (if in place at the end of the year) – (1) Conflicts of Interest, (2) Form 990 Review, (3) Whistleblower, (4) Document Retention and Destruction, and (5) Executive and Employee Compensation. Disclosure of Information to public – Form 990 and other IRS documents, internal governance policies, etc.

  16. Form 990: Compensation Information Requires list compensation information for: (i) All current officers, directors, trustees – no minimum compensation (ii) Current employees with over $150,000 of reportable compensation (iii) 5 highest current employees other than (i) and (ii) with over $100,000 of reportable compensation (iv) Former officers, key employees, and highest compensated employees with over $100,000 of reportable compensation (v) Former directors and trustees with over $10,000 reportable compensation) * Schedule J for former employees with >$150,000 and accrued compensation Definitions 1) Director or Trustee - Member of Organization’s governing body - Voting Rights - Tax year based - No compensation threshold 2) Officer - Elected/appointed to manage Org’s operations - Top management official - Tax year based - No minimum compensation threshold 3) Key Employee - Calendar year based - 3 tests: compensation, responsibility and “top 20”

  17. Form 990: Financial Information • Part VIII of the core documents requires a detailed statement of revenue • Includes new information relating to federated campaigns, revenue from relating organizations, royalties and income from gaming activities • Part IX of the core documents requires a detailed statement of functional expenses • Includes new expenses for lobbying efforts, investment management fees, advertising, IT, insurance, etc. • Part X of the core documents includes a balance sheet • Part XI summarizes financial statements and reporting details – i.e., accounting method and independent accountant

  18. Form 990-EZ: Overview • Form 990-EZ has also been revised, but not as much as Form 990 • Four (4) page core form to be completed by all • Seven (7) potential schedules – Schedules A, B, C, E, G, L, N • Same Form Schedules as Form 990 • Previously two (2) schedules and additional attachments; now broken down into more schedules and attachments, but highly unlikely Organizations will file all of them • Three-year phase in period for smaller organizations – permanent threshold after 2010 tax year

  19. Form 990-EZ: Summary Page Similar summary revenue, expenses and assets disclosures to Form 990. More comprehensive relating to revenues to meet Form 990-EZ requirements Form 990-EZ threshold – whether Organization can file the Form 900-EZ

  20. Form 990-EZ: Program Accomplishments;List of Officers and Key Employees Primary exempt purpose (Form 990 requires mission statement) Similar to Part III of Form 990 regarding Statement of Program Service Accomplishments Similar to Part VIII of Form 990 regarding List of Key Employees and compensation disclosure

  21. Form 990-EZ: Other Information & Schedules Changes to organizational documents – add appendices Yes/No? Additional tax form/compliance information Additional schedules for interested person transactions and disposition of assets Disclosure information Additional Form 990-EZ exemptions

  22. Form 990-EZ: Other Information 501(c)(3)’s -questions regarding campaign, lobbying and other transactions List highest compensated employees and independent contractors ($100,000 threshold) Additional schedules for campaign contributions, lobbing and private schools

  23. What Should Nonprofits Do Now? • Review and become familiar with the “New” Form 990 and its reporting requirements • Review with internal personnel, auditor, attorneys, etc. • Review Organization’s existing policies and procedures • Ensure board and committee activity is properly documented • Opportunity to review and improve governance and management practices • Use the Form 990 for the Organization’s advantage • Be prepared for greater transparency and detailed disclosure of Organization’s practices • “Draft” Form 990 and have internal review policies and procedures • More than just “tax return”  a “best practices” and compliance guide – tell your story!

  24. questions and discussion Contact Us 317 Iron Horse Way, Suite 301 Providence, Rhode Island 02908 T: 401.824.5100 F: 401.824.5123 www.pldw.com

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