The New Form 990. Crosslin & Associates, P.C. Presented by Rodney Brower, CPA Richard Winstead, CPA, MBA. An accounting firm. And so much more.

Transcription

1 The New Form 990 Crosslin & Associates, P.C. Presented by Rodney Brower, CPA Richard Winstead, CPA, MBA 2009 An accounting firm. And so much more.

2 Form Please use the following link to IRS Form html An accounting firm. And so much more. 2

3 Background to the New Form Increase in complexity of organizations Congressional focus on abuses, use of funds, executive compensation, etc. Guiding Principles Transparency Promote compliance Minimize burden An accounting firm. And so much more. 3

4 Overview of the New Form New 11 page Core form 16 possible schedules to be attached for organizations conducting particular activities Unstructured D,G, I, J, L and N Schedule A A, C, E and R New F, H, K, M and O Organizations to file Form 990, Form 990-EZ or Form 990-N or risk loss of exemption Effective dates Calendar 2008, Fiscal Years 2009 An accounting firm. And so much more. 4

5 Core Form 11 Parts 5 Part I Summary Part II Signature block Part III Program service accomplishment 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 An accounting firm. And so much more. 5

6 16 Supplemental Schedules 6 Schedule A: Public charity status Schedule B: Contributions Schedule C: Political and Lobbying activities Schedule D: Supplemental financial statement Schedule E: Schools Schedule F: Foreign activities Schedule G: Fundraising and gaming activities Schedule H: Hospitals An accounting firm. And so much more. 6

7 16 Supplemental Schedules (continued) Schedule I: Grants 7 Schedule J: Supplemental compensation information Schedule K: Tax-exempt bonds Schedule L: Transactions with interested persons Schedule M: Non-cash contributions Schedule N: Termination and significant dispositions of assets Schedule R: Related organizations and unrelated partnerships Schedule O: Supplemental information An accounting firm. And so much more. 7

8 Core General and Question List 8 Core Form Reorganized Structure for Efficiency and to Move Important Key Items Forward Expansion Beyond Financial Reporting Part II Signature Move to Page 1 Part IV Checklist for Identification of Required Schedules Part V Questions on Other IRS Filings and Tax Compliance Order of Completion Dictated by Topics An accounting firm. And so much more. 8

9 Part I: Summary 9 Public has pushed for high level summary of organizations activities Prior and current year financial information are reported on page 1 Instructions include reference table to determine what to report for prior year revenue and expense amounts This is the last part organizations should complete when preparing Form 990 An accounting firm. And so much more. 9

10 Part III: Statement of Program Service Accomplishments 10 One of the best marketing tools for organizations to use to tell their story to the public Additions to this section include questions regarding changes in significant program service activities during the year All Organizations are required to disclose their achievements for each of their three largest program services 501(c)(3),(c)(4) organizations and 4947(a)(1) trusts are now required to disclose revenues associated with their program services along with expenses and grants and allocations paid to others Information regarding total other program service activities is disclosed on Schedule O An accounting firm. And so much more. 10

11 Part VIII: Statement of Revenue Classification of contribution revenues required 11 Investment income from tax exempt bond proceeds disclosed separately Fund Raising Events and Gaming gross receipts >$15,000, complete Schedule G Other Revenues Lines Disclose three largest revenue sources and amounts Disclose corresponding business code Business codes are located in 2008 Form 990-T instructions An accounting firm. And so much more. 11

12 Part IX: Statement of Functional Expenses 12 Expenses are reported in further detail Other Expenses lines cannot contain amounts labeled Other or Miscellaneous expenses that exceed 5% of total expenses. If amount >5% required to provide detail of amount. Fees for services require further breakdown An accounting firm. And so much more. 12

13 Part X: Balance Sheet 13 Additional categories and detail requirements Detail for certain line items such as property, plant and equipment and other liabilities are now disclosed on Schedule D An accounting firm. And so much more. 13

14 Part XI: Financial Statements and Reporting 14 New schedule Questions include: Financial statements were audited, reviewed or compiled by independent accountant Existence of audit committee Single Audit Act and A-133 An accounting firm. And so much more. 14

15 Focus on Governance Part VI 15 IRS takes the position that a well governed organization is more likely to be in compliance with the tax laws IRS has included governance and management questions on the new Form 990 IRS will develop a post-audit checklist to see effect of governance practices An accounting firm. And so much more. 15

16 Good Governance Practices 16 Mission Statement Code of Ethics and Whistleblower Policy Due Diligence Duty of Loyalty Transparency Fundraising Policy Financial Audits Compensation Practices Document Retention Policy An accounting firm. And so much more. 16

17 Mission Statement 17 Why does the organization exist? What does the organization hope to accomplish? What activities will be undertaken? Where will activities be undertaken? For whom will activities be undertaken? Update mission periodically An accounting firm. And so much more. 17

18 Code of Ethics and Whistleblower Policies 18 Communication to all personnel of a strong culture of legal compliance and ethical integrity Policy for handling employee complaints Procedures for employees to report in confidence suspected financial impropriety or misuse of the organization s resources. An accounting firm. And so much more. 18

19 Whistleblower Policy 19 SOX whistleblower provisions also apply to nonprofit organizations Whistleblower provisions cover financial improprieties as well as areas such as discrimination and sexual harassment An accounting firm. And so much more. 19

20 Duty of Loyalty and Conflicts of Interest 20 A Director s Duty of Loyalty requires adoption of a conflict of interest policy A Conflict of Interest Policy must require directors and staff to act solely in the interest of the organization without regard to personal interest Policy must include written procedures for determining if a relationship results in a conflict of interest Policy must include the course of action in the event a conflict of interest is identified An accounting firm. And so much more. 20

21 Transparency 21 Transparency requires complete and accurate records that are available to the public Penalties can apply for nondisclosure Application for Exemption Form 990 Form 990-T (501(c)(3) public charities only) Penalties can apply for not providing information or providing incorrect information An accounting firm. And so much more. 21

22 Part VI: Management and Governance 22 IRS authority and rationale to ask questions Consequences to not answering questions Reasonable efforts required to avoid penalties Board should have oversight regarding financial matters, including compensation Board review before filing the Form 990 is not required but suggested! An accounting firm. And so much more. 22

23 Part VI (Continued) Board Structure 23 Number of voting members Right size the board Delegation of authority for decisions Documentation of board decisions and committees that have delegated authority Family or business relationships between board members Number of independent voting members An accounting firm. And so much more. 23

24 Part VI (Continued) Independent Board Members 24 Three tests for independence apply to the Organization and any Related Organization: Not compensated as an officer or employee, and Receives total compensation of $10,000 or less as independent contractor except for reimbursement of expenses or compensation as serving as a board member, and No transaction with member or family member that would have to be reported on Schedule L An accounting firm. And so much more. 24

25 Part VI (Continued) Conflict of Interest Policy 25 Financial conflicts versus other conflicts Who is covered by the written policy? Conflict disclosure mechanism Procedures for dealing with conflicts Consequences of violating policy An accounting firm. And so much more. 25

26 Part VI (Continued) Whistleblower Policy Communication to all personnel of a strong culture of legal compliance and ethical integrity 26 Policy for handling employee complaints Procedures for employees to report in confidence suspected financial impropriety or misuse of the organization s resources Required by Sarbanes-Oxley Whistleblower provisions cover financial improprieties as well as areas such as discrimination and sexual harassment An accounting firm. And so much more. 26

27 Part VI (Continued) Document Retention and Destruction Policy 27 Written policy to maintain document integrity, retention and destruction This is a SOX requirement that applies to nonprofit organizations Policy should include: Guidelines for handling electronic files Backup procedures Archiving of documents Regular check-ups of the reliability of the system An accounting firm. And so much more. 27

28 Part VI (Continued) Compensation Line15: Process for determining compensation 28 Describe the process on Schedule O including: The role of the compensation committee and independent compensation consultants Review and approval by a governing body or compensation committee Use of data as to comparable compensation NOTE: Would establish compliance with rebuttable presumption of reasonableness An accounting firm. And so much more. 28

29 Part VII: Compensation 29 Requires detailed compensation information for: Current and former ODTK and highest compensated employees. Schedule J must be completed if an organization reports in Part VII, Section A: Certain payments to any former ODTK or highest compensated Payments of total reportable compensation to an individual that exceeds $150,000; or Payments from an unrelated organization for services to this organization An accounting firm. And so much more. 29

30 Part VII: Definitions 30 Director or Trustee Member of organization s governing body, but only with voting rights and served at any time during the organization s tax year Officer Person elected or appointed to manage the organization s daily operations and served at any time during the organization s tax year: President Vice President Secretary Note: For purposes of Form 990 reporting, treat the top management official and top financial official as officers, regardless of their titles An accounting firm. And so much more. 30

31 Part VII: Definitions (Continued) Key Employee $150,000 Test. Reportable compensation from the organization and related organizations; and 2. Responsibility Test. The employee: (a) Similar to officers or directors; or (b) Manages 10% or more of the activities, assets, income, or expenses of the organization; or (c) Authority over 10% or more capital expenditures, operating budget, or compensation for employees and 3. Top 20 Test. An accounting firm. And so much more. 31

32 Part VII: Definitions (Continued) 32 Five Highest Compensated Employees: Reportable compensation combined from the organization and related organizations is greater than $100,000 for the calendar year ending within the organization s tax year and Not an ODTK Former ODTK: Reported by the organization for one or more of the prior five years in that service capacity and the individual received reportable compensation in excess of threshold amounts: $100,000 for former officers and key employees, $10,000 for directors and trustees An accounting firm. And so much more. 32

33 Schedule J: Compensation Information 33 Organizations that complete Schedule J must indicate if: Perquisites including first class or charter travel, companion travel, tax gross-ups, housing allowances, and maid or chauffeur or other personal services The reporting of de minimis* fringe benefit and nontaxable expense arrangement amounts has been eliminated The thresholds for reporting an individual s compensation on Schedule J: Included either reportable compensation greater than $150,000, or More than $250,000 of total compensation, nontaxable fringe benefits and expense reimbursements * De minimis is any property or service provided to an employee that has minimal value (taking into account how frequently similar benefits are provided to employees) that accounting for it would be unreasonable or administratively impracticable. An accounting firm. And so much more. 33

34 Schedule J: Compensation Information 34 Requires information on how the CEO/ Executive Director s compensation was established Verify whether anyone listed in Section A received compensation contingent on the revenue or net earnings of the organization or any other organization The compensation for each person listed in Schedule J must be categorized as broken out by compensation category: Base Compensation Bonus and Incentive Compensation Other Reportable Compensation Deferred Compensation Nontaxable Benefits New column (F) added to report amounts that were also reported in a prior year An accounting firm. And so much more. 34

35 Schedule J: Compensation Information Base Compensation Salary or Fees 35 Bonus and Incentive Compensation Signing Bonuses Other Reportable Compensation Current year payments of amounts earned in a prior year Payments under a severance plan Change-in-Control payments Awards based on longevity of service An accounting firm. And so much more. 35

36 Schedule J: Compensation Information 36 Deferred Compensation: Earned in one year and paid in subsequent year Generally treated as earned in the year that services are rendered, except when entitlement to payment is contingent on satisfaction of specified performance criteria under the plan Nontaxable Benefits Examples: Value of housing provided by the employer Educational assistance Health insurance Medical reimbursement programs Life insurance Disability benefits Adoption assistance An accounting firm. And so much more. 36

37 Schedule J: Compensation Information 37 New column (F) added to report amounts that were also reported in a prior year Whether substantiation was required prior to incurring a reimbursed listed expense; Question regarding process and data used to establish compensation of the CEO/Executive Director Limited questions on payments contingent on revenues or net earnings, other non-fixed payments, and compensation subject to the initial contract exception, to payments by 501(c)(3) and 501(c)(4) organizations; and Provided opportunity to explain responses by adding continuation sheets An accounting firm. And so much more. 37

38 Schedule J--Supplemental Compensation Information First-class or charter travel (Not due to frequent flyer miles) 38 Travel for companions (Family even if bona fide business purpose) Written reimbursement policy Manner of determining CEO compensation Tax indemnification and gross-up payments Discretionary spending accounts (not subject to accountable plan) Housing allowance or residence for personal use Payments for business use of personal residence Health or social club dues, initiation fees or usage fees Personal Services, e.g. maid, chauffeur, chef An accounting firm. And so much more. 38

39 Financial Statements and Form Audited financial statements Audit committees The new Form 990 asks whether the form was provided to the organization s governing body before it was filed and also the process used to review the form An accounting firm. And so much more. 39

40 Compensation Practices 40 Compensation should be reasonable Independent persons determine compensation of others Determination should be based on comparables Compensation decisions should be contemporaneously documented 501(c)(3) organizations should use procedures to establish the Rebuttable Presumption of Reasonableness Comparison with for-profit entities under scrutiny by Congress An accounting firm. And so much more. 40

41 Investment and Joint Venture Policies 41 Written investment policies Reasonable compensation of investment advisors Joint ventures should have provisions to protect the assets of the organization Charity should receive returns commensurate with investments Profits and losses Compensation for services and capital Dissolution rights An accounting firm. And so much more. 41

42 Documentation 42 Minutes should be kept of the Board of Directors meetings and meetings of committees that have authority to act on behalf of the Board. Document, document, document An accounting firm. And so much more. 42

43 Overview of the Form Core Form and 16 Schedules Schedule A--Public Charity Status Schedule B--Contributions Schedule C Political Campaign and Lobbying Schedule D Assets and Liabilities and FIN 48 Schedule E Schools Schedule F Foreign Activities Schedule G Fundraising or Gaming Schedule H Hospitals Schedule I Grants to US Persons An accounting firm. And so much more. 43

44 Schedules-continued 44 Schedule J Supplemental Compensation Information Schedule K Tax Exempt Bonds Schedule L Transactions with Interested Persons Schedule M Noncash Contributions Schedule N Liquidation, Termination or Significant Disposition of Assets Schedule O Explanations Schedule R Related Organizations and Unrelated Partnerships An accounting firm. And so much more. 44

45 Highlights of Core Form: 45 Part I Summary (2-year summary of financial information) Part II Signature Part III Program Service Accomplishments Part IV Checklist of Required Schedules Part V Other IRS Filings and Tax Compliance Employment returns Forms 8282 Back-up withholding Foreign bank accounts Form 990-T-- Was it filed by the time the Form 990 was filed and if no explain An accounting firm. And so much more. 45

46 Core Form: Parts VIII, IX, X and XI 46 Part VIII Statement of Revenue Classification of contribution revenue Income from investment of tax exempt bond proceeds Separation of gaming Part IX- Statement of Functional Expenses Break down by category Fees for services require further breakdown Certain new expense line items that had been in other expenses Part X- Balance Sheet Further detail and additional Schedule D Part XI- Financial Statements and Reporting An accounting firm. And so much more. 46

47 47 Schedules A and B Schedule A Public Charity Status and Public Support Required of 501(c)(3) charities only (just like prior 990s) Now only contains reason for public charity status and support schedules Separate support schedules for 509(a)(1) and (a)(2) orgs Clarifies method of accounting should be same as 990 core Schedule B Schedule of Contributions--Stays the same An accounting firm. And so much more. 47

48 Schedule C Political Campaign and Lobbying Activities New description of political activities and listing of support to 527 organizations 48 Report transfers to separately segregated funds Non-electing 501(c)(3) organizations must count volunteer labor Outlines rules for allocation of costs to lobbying and influencing legislation An accounting firm. And so much more. 48

49 Schedule D Supplemental Financial Statements Puts balance sheet detailed schedules in one place instead of requiring various attachments 49 Adds thresholds and reduces required disclosures New disclosures for conservation easements, museum type collections, trust/escrow accounts, endowments Includes donor advised fund information Reconciliations of net assets and revenue/ expenses (audited financials only) moved to this schedule FIN 48 Disclosure An accounting firm. And so much more. 49

50 FIN 48-Disclosure of Uncertain Tax Positions 50 Must disclose whether a material position taken or expected to be taken on any income tax return Is more likely than not to be sustained upon audit, assuming the organization is audited The amount must be quantified, interest and penalties taken into account and then disclosed. Exempt organizations Tax exemption Unrelated business income and expense allocations (includes alternative investments) Federal, state and local, international An accounting firm. And so much more. 50

51 Schedules E and F Schedule E Schools--Stays the same 51 Schedule F Activities Outside the US Added to provide a more complete picture of foreign activities Detailed listings of foreign grants to both organizations and individuals-- $5,000 threshold Report on regional basis as opposed to specific country Foreign individual person who lives or resides outside US Foreign organization organized outside US, but does not include a branch office, account or employee Volunteers are not agents An accounting firm. And so much more. 51

52 Schedule G: Supplemental Fundraising Information 52 Expands disclosures to increase transparency and to improve noncompliance in the gaming and fundraising area Required to complete Sections II and III if > $15,000 in gross revenues from fundraising events and gaming Detailed disclosure of expenditures required for each fundraising event or gaming activity Additional questions regarding professional fundraising, compensation to workers and promoters and state gaming requirements An accounting firm. And so much more. 52

53 Schedule H--Hospitals Ony Facility Information Required Use state definition of hospital Aggregate multiple hospitals owned by one organization Optional for 2008, but required for 2009 Part I --- Charity Care and Other Community Benefits Part II Community Building Activities Part III -- Bad Debt, Medicare & Collection Practices Part IV Management Companies and Joint Ventures Part VI Supplemental Information An accounting firm. And so much more. 53

54 Schedule I- Supplemental Information on Domestic Grants 54 Only required if any grant was >$5,000 Grant selection procedures and monitoring use of funds Does the organization maintain records to substantiate the amount of the grants or assistance, the grantees eligibility for the grants or assistance, and the selection criteria used to award the grants or assistance? Organization s procedures for monitoring the use of grant funds in the United States An accounting firm. And so much more. 54

55 Schedule K--Tax Exempt Bonds Part I -- Information about outstanding bond issues with an outstanding principal amount of greater than $100,000 and issued after Part II - Use and investment of bond proceeds Part III - Private Use Part IV - Arbitrage Only Part I will be required for 2008 All parts must be completed for 2009 tax years An accounting firm. And so much more. 55

56 Schedule L-Transactions with Interested Persons Excess Benefit Transactions regardless of amount 56 Loans to and from Interested Persons Grants or assistance benefiting Interest Persons Business transactions with Interested Persons Interested Persons Current or former officers, directors, key employees, and five highest compensated employees listed for all organizations Also Disqualified Persons for 501(c)(3) Substantial contributors and related persons for supporting organizations An accounting firm. And so much more. 56

57 Schedule L: Transactions with Interested Persons 57 Modified to incorporate reporting of non-loan transactions between the organizations and insiders reported elsewhere, including excess benefit transactions Modifications consolidate reporting of most relationships and transactions involving insiders in a single schedule Interested Persons--Current or former officers, directors, trustees, key employees, and five highest compensated employees all organizations 501(c)(3) and 501(c)(4) organizations also include Disqualified Persons An accounting firm. And so much more. 57

58 Schedule L: Transactions with Interested Persons 58 Disqualified Persons To exercise substantial influence over the affairs of organization at any time during a 5-year period Voting members of the board, president, chief executive officers, chief operating officers, treasurers and chief financial officers Also includes: A disqualified person s family member A 35% controlled entity of: A disqualified person and/or Family members of the disqualified person A donor or donor advisor to a donor advised fund An investment advisor of a sponsoring organization An accounting firm. And so much more. 58

59 Schedule L: Transactions with Interested Persons Excess Benefit Transactions 59 Transaction in which an applicable tax-exempt organization directly or indirectly provides an excess benefit to a disqualified person Embezzlement by a disqualified person Determine whether an excess benefit transaction has occurred Standard of reasonableness example - compensation for the performance of services is considered reasonable: If it is an amount that would ordinarily be paid by similarly situated organizations under like circumstances Generally based on the facts that existed at the time of execution of the contract Establish rebuttable presumption of reasonableness An accounting firm. And so much more. 59

60 Schedule L: Transactions with Interested Persons Intermediate Sanctions 60 If the IRS finds that excess benefits have been paid, intermediate sanctions can be imposed An excise tax equal to 25% of the excess benefit is imposed on each excess benefit transaction between an applicable tax-exempt organization and a disqualified person Organization managers and board members who participate in excess benefit transaction knowingly, willfully, and without reasonable cause, are liable for a tax of 10% of the excess benefit If a disqualified person makes a payment of less than the full correction amount: The 200% tax is imposed only on the unpaid portion of the correction amount Need to correct during taxable year An accounting firm. And so much more. 60

61 Schedule M--Noncash Contributions 61 All new schedule Required when > $25,000 non-cash contributions Breakdown by type and number of non-cash items and amounts and indication of valuation method Disclosure of Forms 8283 received Questions about any 3-year holding requirements, gift acceptance policies, and third party solicitor use An accounting firm. And so much more. 61

62 Schedule N--Liquidation, Termination or Significant Disposition of Assets 62 Significant disposition Sale or exchange of more than 25 percent of organization s nets assets or a substantial contraction of net assets Attach documents for liquidation, termination, dissolution or merger Passive investment portfolio changes need not be reported however, a decrease in the market value of assets may impact the mathematical calculation of whether there has been a significant disposition An accounting firm. And so much more. 62

63 Schedule O Supplemental Information 63 Very important the story! Consolidated location for e-file general explanations Each response has a specific form and line number reference Limited number of attachments and length Schedule J (Compensation) has its own explanation area An accounting firm. And so much more. 63

64 Schedule R: Related Organizations and Unrelated Partnerships Part I Identification of Disregarded Entities 64 Part II Identification of Related Tax-Exempt Organizations Part III Identification of Related Organizations Taxable as a Partnership Part IV Identification of Related Organizations Taxable as a Corporation or Trust Part V Transactions with Related Organizations Part VI Unrelated Organizations Taxable as a Partnership An accounting firm. And so much more. 64

65 Schedule R: Related Organizations Parent 65 Subsidiary Brother/Sister Supporting/Supported (509(a)(3)) And Disregarded Entities for purposes of Part I Special Rules for Group Exemption members IRC 512(b)(13) exception extended through 2009 An accounting firm. And so much more. 65

66 Schedule R: Transactions with Related Organizations 66 Rent Royalties Interest Annuities Gifts Grants Contributions Loans Loan Guarantees Sales or Purchases Leases Services Sharing of facilities, equipment, mailing lists, assets, employees Reimbursement of expenses An accounting firm. And so much more. 66

67 Form 990-Summary 67 Public disclosure requirements still apply to Form 990; not providing information or providing incorrect information can result in substantial penalties! Redact donor identification information from Schedule B for the public Compensation information on Part VII and Schedule J cannot be redacted The Form 990 is now viewed by many stakeholders and should be prepared very carefully IRS provides a 12 step sequencing list regarding how to fill out the new form so it should be easy! An accounting firm. And so much more. 67

68 68 An accounting firm. And so much more. 68