COPYRIGHTED MATERIAL. Contents. About the Authors Preface xxi

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1 Hopkins_NF_FM_1 11/13/ Contents About the Authors Preface xxi xix Chapter One: Part I Overview of New Form Form 990 Basics 2 (a) Various Forms 2 (b) Filing Exceptions 2 (c) Filing Due Dates 3 (d) Penalties 3 (e) Disclosure Requirements IRS Guiding Principles Import of New Form New Form 990 Introduction Summary of Parts of New Form (a) Part I (Summary) 8 (b) Part II (Signature Block) 9 (c) Part III (Program Service Accomplishments) 10 (d) Part IV (Schedules) 10 (e) Part V (Other IRS Fillings) 10 (f) Part VI (Governance) 10 (g) Part VII (Compensation) 10 (h) Parts VIII to XI (Financial Information) Law and Policy as to Summary 11 (a) Mission Statements 11 (b) Governing Instruments 12 (c) Organizational Test 12 (d) Statement of Purposes 12 (e) Primary Purpose Rule 13 (f) Independent Members of Governing Body 13 (g) Unrelated Business 13 (h) Program Service Revenue 14 (i) Professional Fundraising Expenses Preparation of New Form 990, Part I Summary of New Form 990 Schedules 15 (a) Schedule A 16 (b) Schedule B 16 (c) Schedule C 16 (d) Schedule D 16 COPYRIGHTED MATERIAL n v n

2 Hopkins_NF_FM_1 11/13/ (e) Schedule E 16 (f) Schedule F 16 (g) Schedule G 17 (h) Schedule H 17 (i) Schedule I 17 (j) Schedule J 17 (k) Schedule K 18 (l) Schedule L 18 (m) Schedule M 18 (n) Schedule N 18 (o) Schedule O 19 (p) Schedule R Form 990-EZ Transition Rules Draft Instructions 19 Chapter Two: Part III Program Service Accomplishments Law and Policy 21 (a) Primary Purpose Rule 21 (b) Articles of Organization 22 (c) Operational Test 22 (d) Mission Statement 22 (e) Charitable Purposes and Activities 22 (f) Other Exempt Purposes and Activities 23 (g) Recognition of Exemption 24 (h) Program Service Accomplishments Preparation of New Form 990 Part III 25 (a) Statement of Mission 25 (b) Changes in Program Services 26 (c) Program Service Accomplishments New Form 990 Compliance Tasks 27 Chapter Three: Part IV Checklist of Schedules Law and Policy 29 (a) Line 1 (Public Charities and Split-Interest Trusts) 29 (b) Line 2 (Contributors) 29 (c) Line 3 (Political Campaign Activities) 30 (d) Line 4 (Lobbying Activities) 30 (e) Line 5 (Notice, Reporting, Proxy Tax) 30 (f) Line 6 (Donor-Advised Funds) 31 (g) Line 7 (Conservation Easements) 31 (h) Line 8 (Works of Art, etc.) 31 (i) Line 9 (Credit Counseling, etc.) 31 n vi n

3 Hopkins_NF_FM_1 11/13/ (j) Line 10 (Endowments) 32 (k) Line 11 (Assets and Liabilities) 32 (l) Line 12 (Audited Financial Statements) 32 (m) Line 13 (Schools) 32 (n) Line 14a (International Activities) 32 (o) Line 14b (International Revenues, Expenses) 32 (p) Line 15 (International Grantmaking to Organizations) 32 (q) Line 16 (International Grantmaking to Individuals) 32 (r) Line 17 (Fundraising Activities) 33 (s) Line 18 (Fundraising Events) 33 (t) Line 19 (Gaming) 33 (u) Line 20 (Hospitals) 33 (v) Line 21 (Domestic Grants to Organizations) 33 (w) Line 22 (Domestic Grants to Individuals) 33 (x) Line 23 (Compensation of Former Officers, etc.) 33 (y) Line 24a (Outstanding Bond Issues) 33 (z) Line 24b (Tax-Exempt Bonds Investments) 34 (aa) Line 24c (Tax-Exempt Bonds Defeasements) 34 (bb) Line 24d ( On Behalf of Issues) 34 (cc) Line 25a (Excess Benefit Transactions) 34 (dd) Line 25b (Prior-Year Excess Benefit Transactions) 35 (ee) Line 26 (Loans to Interested Persons) 35 (ff) Line 27 (Assistance to Interested Persons) 35 (gg) Line 28a (Business Relationships) 35 (hh) Line 28b (Business Relationships) 35 (ii) Line 28c (Business Relationships) 35 (jj) Line 29 (Noncash Contributions) 35 (kk) Line 30 (Noncash Contributions) 36 (ll) Line 31 (Dissolutions, etc.) 36 (mm) Line 32 (Substantial Contractions, etc.) 36 (nn) Line 33 (Disregarded Entities) 36 (oo) Line 34 (Related Entities) 36 (pp) Line 35 (Controlled Entity) 36 (qq) Line 36 (Transfers to Noncharitable Organizations) 36 (rr) Line 37 (Use of Entities Taxed as Partnership) Preparation of New Form 990 Part IV 37 (a) Line 1 (Public Charities and Split-Interest Trusts) 37 (b) Line 2 (Contributors) 37 (c) Line 3 (Political Campaign Activities) 37 (d) Line 4 (Lobbying Activities) 37 (e) Line 5 (Notice, Reporting, Proxy Tax) 37 (f) Line 6 (Donor-Advised Funds) 38 (g) Line 7 (Conservation Easements) 38 (h) Line 8 (Works of Art, etc.) 38 n vii n

4 Hopkins_NF_FM_1 11/13/ (i) Line 9 (Credit Counseling, etc.) 38 (j) Line 10 (Endowments) 38 (k) Line 11 (Assets and Liabilities) 38 (l) Line 12 (Audited Financial Statements) 39 (m) Line 13 (Schools) 39 (n) Line 14a (International Activities) 39 (o) Line 14b (International Revenue, Expenses) 39 (p) Line 15 (International Grantmaking to Organizations) 39 (q) Line 16 (International Grantmaking to Individuals) 39 (r) Line 17 (Fundraising Activities) 39 (s) Line 18 (Fundraising Events) 40 (t) Line 19 (Gaming) 40 (u) Line 20 (Hospitals) 40 (v) Line 21 (Domestic Grants to Organizations) 40 (w) Line 22 (Domestic Grants to Individuals) 40 (x) Line 23 (Compensation of Former Officers, etc.) 40 (y) Line 24a (Outstanding Bond Issues) 41 (z) Line 24b (Tax-Exempt Bonds Investments) 41 (aa) Line 24c (Tax-Exempt Bonds Defeasements) 41 (bb) Line 24d ( On Behalf of Issues) 41 (cc) Line 25a (Excess Benefit Transactions) 41 (dd) Line 25b (Prior-Year Excess Benefit Transactions) 42 (ee) Line 26 (Loans to Interested Persons) 42 (ff) Line 27 (Assistance to Interested Persons) 42 (gg) Line 28a (Business Relationships) 42 (hh) Line 28b (Business Relationships) 42 (ii) Line 28c (Business Relationships) 42 (jj) Line 29 (Noncash Contributions) 42 (kk) Line 30 (Noncash Contributions) 42 (ll) Line 31 (Dissolutions, etc.) 43 (mm) Line 32 (Substantial Contractions, etc.) 43 (nn) Line 33 (Disregarded Entities) 43 (oo) Line 34 (Related Entities) 43 (pp) Line 35 (Controlled Entity) 43 (qq) Line 36 (Transfers to Noncharitable Organizations) 43 (rr) Line 37 (Use of Entities Taxed as Partnership) New Form 990 Compliance Tasks 43 Chapter Four: Part V Other IRS Filings and Tax Compliance Law and Policy 45 (a) Form 1096 Rules 45 (b) Form W-2G Rules 45 (c) Backup Withholding Rules 45 (d) Form W-3 Rules 45 n viii n

5 Hopkins_NF_FM_1 11/13/ (e) Federal Employment Tax Returns 45 (f) Electronic Filing Requirements 46 (g) Form 990-T Rules 46 (h) Form TD F Rules 46 (i) Prohibited Tax Shelter Transactions 47 (j) Nondeductible Contributions 47 (k) Quid Pro Quo Contributions 47 (l) Form 8282 Rules 48 (m) Personal Benefit Contracts 48 (n) Contributions of Intellectual Property 48 (o) Contributions of Vehicles 49 (p) Excess Business Holdings Rules 49 (q) Donor-Advised Funds 52 (r) Social Clubs 54 (s) Mutual Organizations 54 (t) Nonexempt Charitable Trusts Preparation of New Form 990 Part V 55 (a) Various Information Returns 55 (b) Unrelated Business Income 56 (c) Foreign Bank Account(s) 56 (d) Prohibited Tax Shelter Transactions 56 (e) Nondeductible Contributions 57 (f) Quid Pro Quo Contributions 57 (g) Form (h) Personal Benefit Contracts 57 (i) Contributions of Intellectual Property 57 (j) Contributions of Vehicles 57 (k) Excess Business Holdings 58 (l) Donor-Advised Funds 58 (m) Social Clubs 58 (n) Mutual Organizations 58 (o) Nonexempt Charitable Trusts New Form 990 Compliance Tasks 59 Chapter Five: Part VI Corporate Governance Law and Policy 61 (a) Creation and Governance of a Tax-Exempt Organization 62 (b) Board Size 62 (c) Board Composition 63 (d) Independent Board Members 63 (e) Board Functions and Fiduciary Responsibility 65 (f) Duties of Directors 66 (g) National Developments in Nonprofit Governance 67 (h) State Acts on Charitable Accountability 70 n ix n

6 Hopkins_NF_FM_1 11/13/ (i) Corporate Policies 71 (j) Document Disclosure Rules 75 (k) Reporting Material Changes to the IRS 76 (l) Filing a Copy of the Form 990 with State Authorities Preparation of New Form 990, Part VI 77 (a) Section A (Governing Body and Management) 78 (b) Section B (Policies) 83 (c) Section C (Disclosure) New Form 990 Compliance Tasks 86 Chapter Six: Part VII and Schedule J Compensation Law and Policy 89 (a) Private Inurement 90 (b) Excess Benefit Transactions and Intermediate Sanctions 100 (c) Private Benefit Preparation of New Form 990, Part VII and Schedule J 112 (a) Section A (Compensation Information) 112 (b) Section B (Independent Contractors) 122 (c) Schedule J (Additional Compensation Information) Part VII and Schedule J Compliance Tasks 133 Chapter Seven: Part VIII to IX Revenue, Expenses, and Balance Sheet Law and Policy 135 (a) Introduction of Issues Addressed Elsewhere in Book 135 (b) Unrelated Business Income 136 (c) Sarbanes-Oxley and Its Progeny Preparation of New Form 990, Parts VIII XI 171 (a) Part VIII (Statement of Revenue) 171 (b) Part IX (Statement of Functional Expenses) 178 (c) Part X (Balance Sheet) New Form 990 Compliance Tasks 195 Chapter Eight: Schedule A Public Charity Status Law and Policy 199 (a) Private Foundation Defined 199 (b) Concept of Public Charity 200 (c) Institutions 201 (d) Donative Publicly Supported Organizations 204 (e) Service Provider Publicly Supported Organizations 210 (f) Comparative Analysis of Publicly Supported Charities 213 (g) New Publicly Supported Charities 213 (h) Supporting Organizations 214 (i) Public Safety Testing Organizations 223 n x n

7 Hopkins_NF_FM_1 11/13/ (j) Import of Public Private Dichotomy 223 (k) Nonexempt Charitable Trusts 224 (l) Disqualified Persons Preparation of New Form 990 Schedule A 227 (a) Part I (Reason for Public Charity Status) 227 (b) Part II (Support Schedule for Donative-Type Entities) 230 (c) Part III (Support Schedule for Service Provider Type Entities) 231 (d) Part IV (Supplemental Information) New Form 990 Compliance Tasks 232 Chapter Nine: Schedule C Legislative Activities Law and Policy 235 (a) Types of Lobbying Activity 235 (b) Exceptions to Treatment as Lobbying 237 (c) What Is Legislation? 237 (d) Substantial Part Test 237 (e) Expenditure Test 238 (f) Lobbying Taxes 241 (g) Lobbying by Other Exempt Organizations 241 (h) Deductibility of Dues Preparation of Schedule C 243 (a) Organizations Required to Report on Schedule C 244 (b) Part II-A Expenditure Test 244 (c) Part II-B Substantial Part Test 247 (d) Part III-A Deductibility of Dues 249 (e) Part III-B Dues Notice, Reporting Requirements, and Proxy Tax 250 (f) Part IV Supplemental Information Schedule C Compliance Tasks 253 Chapter Ten: Schedule C Political Activities Law and Policy 255 (a) Charitable Organizations 255 (b) Political Activity Taxes Paid by Charities 264 (c) Political Activity by Other Exempt Organizations 264 (d) Political Taxes Paid by Other Exempt Organizations Preparation of Schedule C 265 (a) Part I-A (Reporting of Political Campaign Activity) 265 (b) Part I-B 266 (c) Part I-C (Political Expenditure Subject to Tax) Schedule C Compliance Tasks 268 n xi n

8 Hopkins_NF_FM_1 11/13/ Chapter Eleven: Schedule D Supplemental Financial Statements Law and Policy 269 (a) Donor-Advised Funds 269 (b) Conservation Easements 272 (c) Art, Historical Treasures, and Other Similar Assets 274 (d) Trust, Escrow, and Custodial Arrangements 275 (e) Endowment Funds 278 (f) Investments Subsidiaries and Joint Ventures Preparation of New Form 990 Schedule D 296 (a) Part I (Donor-Advised Funds) 296 (b) Part II (Conservation Easements) 299 (c) Part III (Collections of Art, Historical Treasures, and Other Similar Assets) 302 (d) Part IV (Trust, Escrow and Custodial Arrangements) 304 (e) Part V (Endowment Funds) 304 (f) Part VI (Investments Land, Buildings and Equipment) 307 (g) Part VII (Investments Other Securities) 308 (h) Part VIII (Investments Program Related) 309 (i) Part IX (Other Assets) 310 (j) Part X (Other Liabilities) 311 (k) Parts XI, XII, and XIII (Reconciliation of Changes in Net Assets, Revenues, and Expenses from Form 990 to Audited Financial Statements) 312 (l) Part XIV (Supplemental Information) New Form 990 Compliance Tasks 313 Chapter Twelve: Schedule E Tax-Exempt Schools Law and Policy 315 (a) Public Charity Requirements 315 (b) Organizational Requirements (4.01) 316 (c) Statement of Policy (4.02) 316 (d) Publicity (4.03) 316 (e) Facilities and Programs (4.04) 318 (f) Scholarship and Loan Programs (4.05) 319 (g) Certification (4.06) 319 (h) Faculty and Staff (4.07) 319 (i) Specific Records (7.01) 319 (j) Limitation (7.02) 320 (k) Exceptions (7.03) 320 (l) Failure to Maintain Records (7.04) Preparation of Schedule E 320 (a) Public Charity and Nondiscriminatory Policy Schedule E Compliance Tasks 323 n xii n

9 Hopkins_NF_FM_1 11/13/ Chapter Thirteen: Schedule F Foreign Activities Law and Policy 325 (a) Foreign Activities of an Exempt Organization 326 (b) Grants to Foreign Organizations 327 (c) Foreign Grants from Donor-Advised Funds 328 (d) U.S. Recognition of Foreign Charities and Equivalency Determinations 328 (e) Grants to Foreign Individuals 330 (f) USA PATRIOT Act and Other Federal Acts Regarding Financing Terrorist Activities 330 (g) Treasury Anti-Terrorist Financing Guidelines 331 (h) Suspension of Tax-Exempt Status for Designation as a Terrorist Organization Preparation of New Form 990 Schedule F 334 (a) Part I (General Information on Activities Outside the United States) 334 (b) Part II (Grants and Other Assistance to Organizations and Entities Outside the United States) 337 (c) Part III (Grants and Other Assistance to Individuals Outside the United States) 339 (d) Part IV (Supplemental Information) New Form 990 Compliance Tasks 340 Chapter Fourteen: Schedule G Fundraising and Gaming Activities Law and Policy 343 (a) Federal Tax Law Concept of Fundraising 343 (b) Methods of Fundraising 344 (c) Fundraising Events 345 (d) Concept of Professional Fundraiser 345 (e) State Regulation of Fundraising 345 (f) State Charitable Solicitation Acts 346 (g) States Police Power 350 (h) Constitutional Law Considerations 351 (i) Federal Regulation of Fundraising 352 (j) Fundraising by Means of the Internet 354 (k) Fundraising Contracts 359 (l) Federal and State Regulation of Gaming 359 (m) Schedule B Preparation of New Form 990 Schedule G 364 (a) Part I (Professional Fundraising Expenses) 364 (b) Part II (Fundraising Events) 366 (c) Part III (Gaming) Preparation of Other Parts of New Form (a) Part I, Line 16a (Professional Fundraising Expenses) 370 n xiii n

10 Hopkins_NF_FM_1 11/13/ (b) Part IV, Line 14b (Fundraising Outside the U.S.) 370 (c) Part VIII, Lines 1c, 8a, and 9a (Fundraising Events) 370 (d) Part IX, Line 11e (Professional Fundraising Expenses) 370 (e) Schedule B (Information about Contributions) New Form 990 Compliance Tasks 372 Chapter Fifteen: Schedule H Hospitals Law and Policy 375 (a) Charity Care and Community Benefit 375 (b) Management Companies and Joint Ventures Preparation of New Form 990 Schedule H 380 (a) Who Must File 380 (b) Transition Rules for (c) Aggregation Rules 381 (d) Part I (Charity Care and Certain Other Community Benefits at Cost) 383 (e) Part II (Community Building Activities) 401 (f) Part III (Bad Debt, Medicare, and Collection Practices) 404 (g) Part IV (Management Companies and Joint Ventures) 410 (h) Part V (Facility Information) 411 (i) Part VI (Supplemental Information) New Form 990 Compliance Tasks 419 Chapter Sixteen: Schedule I Domestic Grantmaking Law and Policy 421 (a) Evaluating and Monitoring Grants 422 (b) Expenditure Responsibility Rules Preparation of New Form 990 Schedule I 426 (a) Part I (General Information on Grants and Assistance) 427 (b) Part II (Grants and Other Assistance to Governments and Organizations in the United States) 427 (c) Part III (Grants and Other Assistance to Individuals in the United States) 429 (d) Part IV (Supplemental Information) New Form 990 Compliance Tasks 430 Chapter Seventeen: Schedule K Tax-Exempt Bonds Law and Policy 433 (a) Qualified Use of Proceeds and Private Business Use 434 (b) Arbitrage Yield Restrictions and Rebate Requirements 438 (c) Treatment of Hedge Bonds 439 (d) Refunding of Qualified Charitable Bonds Preparation of Form 441 n xiv n

11 Hopkins_NF_FM_1 11/13/ (a) Part I (Bond Issues) 441 (b) Part II (Proceeds) (Optional for 2008) 442 (c) Part III (Private Business Use) 444 (d) Part IV (Arbitrage) Schedule K Compliance Tasks 447 Chapter Eighteen: Schedule L Transactions with Interested Persons Law and Policy 449 (a) Excess Benefit Transactions 449 (b) Loans with Interested Persons 450 (c) Grants or Assistance Benefiting Interested Persons 452 (d) Business Transactions with Interested Persons, Including Revenue-Sharing Preparation of New Form 990 Schedule L 460 (a) Part I (Excess Benefit Transactions) 460 (b) Part II (Loans to and from Interested Persons) 461 (c) Part III (Grants or Assistance Benefiting Interested Persons) 462 (d) Part IV (Business Transactions Involving Interested Persons) New Form 990 Compliance Tasks 465 Chapter Nineteen: Schedule M Noncash Contributions Law and Policy 468 (a) Charitable Giving Rules in General 468 (b) Noncash Contribution Rules in General 472 (c) Property Valuation Basics 472 (d) Contributions of Works of Art 474 (e) Contribution of Publications 475 (f) Contributions of Clothing and Household Goods 476 (g) Contributions of Vehicles 476 (h) Contributions of Intellectual Property 480 (i) Contributions of Securities 481 (j) Qualified Conservation Contributions 483 (k) Contributions of Real Estate 483 (l) Contributions of Jewelry and Gems 484 (m) Contributions of Collectibles 484 (n) Contributions of Inventory 485 (o) Contributions of Drugs and Medical Supplies 486 (p) Contributions of Taxidermy 486 (q) Contributions of Historical Artifacts 486 (r) Contributions of Scientific Specimens 486 (s) Contributions of Archeological Artifacts 486 (t) Other Types of Property 487 (u) Form n xv n

12 Hopkins_NF_FM_1 11/13/ (v) Form (w) Restrictions as to Donee Holding of Property 489 (x) Nonstandard Contributions 489 (y) Substantiation and Reporting Requirements Preparation of New Form 990 Schedule M 493 (a) Introduction 494 (b) Questions 1 to 3 (Works of Art) 495 (c) Question 4 (Books and Publications) 496 (d) Question 5 (Clothing and Household Goods) 496 (e) Questions 6 and 7 (Vehicles) 496 (f) Question 8 (Intellectual Property) 496 (g) Questions 9 to 12 (Securities) 497 (h) Questions 13 and 14 (Qualified Conservation Contributions) 497 (i) Questions 15 to 17 (Real Estate) 497 (j) Question 18 (Collectibles) 497 (k) Question 19 (Food Inventory) 498 (l) Question 20 (Drugs and Medical Supplies) 498 (m) Question 21 (Taxidermy) 498 (n) Question 22 (Historical Artifacts) 498 (o) Question 23 (Scientific Specimens) 498 (p) Question 24 (Archeological Artifacts) 498 (q) Questions 25 to 28 (Other Types of Property) 499 (r) Question 29 (Forms 8283) 499 (s) Question 30 (Contribution Holding Period) 499 (t) Question 31 (Gift Acceptance Policy) 499 (u) Question 32 (Service Providers) 499 (v) Question 33 (Explanation of Nonrevenue Treatment) New Form 990 Compliance Tasks 500 Chapter Twenty: Schedule N Liquidation, Termination, Dissolution, or Significant Disposition of Assets Law and Policy 501 (a) Process Issues 501 (b) Conversion Issues Preparation of New Form 990 Schedule N 504 (a) Part I (Liquidation, Termination, or Dissolution) 504 (b) Part II (Sale, Exchange, Disposition, or Other Transfer of More than 25 Percent of the Organization s Assets) 508 (c) Part III (Supplemental Information) 512 (d) Special Rules for Group Exemptions, Joint Ventures, and Disregarded Entities New Form 990 Compliance Tasks 514 n xvi n

13 Hopkins_NF_FM_1 11/13/ Chapter Twenty-One: Schedule R Related Organizations and Unrelated Partnerships Law and Policy 515 (a) Corporation Entity Tax versus Flow-through of Tax Items 516 (b) Attribution of Subsidiary Activities to Exempt Parent 516 (c) Attribution of Related Exempt Organization 517 (d) Private Inurement and Excess Benefit Transactions 517 (e) Private Benefit Generally 518 (f) Private Benefit and Joint Ventures 518 (g) Passive Income from Controlled Subsidiaries 520 (h) Disregarded Entities 521 (i) Supporting Organizations and Automatic Excess Benefit Transactions Preparation of Form 522 (a) Part I Identification of Disregarded Entities 523 (b) Part II Identification of Related Tax-Exempt Organizations 524 (c) Part III Identification of Related Organizations Taxable as a Partnership 525 (d) Part IV Identification of Related Organizations Taxable as a Corporation or a Trust 527 (e) Part V Transactions with Related Organizations 529 (f) Part VI Unrelated Organizations Taxed as Partnerships Schedule R Compliance Tasks 535 Appendix A: Form 990 (2008) 537 Appendix B: Supplemental Instructions Information 601 B.1 Chapter 6 Part VII and Schedule J 601 (a) Compensation table for reporting on Part VII, Section A or Schedule J, Part II 601 B.2 Chapter 9: Schedule C 603 (a) Part III-B, Line 2 of Schedule C, Form (b) Part III-B, Line 5 of Form Index 609 n xvii n

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