Form 990 Preparation
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The document summarizes IRS filing requirements for Form 990, 990-EZ, and 990-N for tax-exempt organizations based on annual gross receipts and total assets. It provides guidance on reporting compensation, functional expenses, fundraising activities, unrelated business income, and other requirements. Requirements vary depending on the tax year and level of annual receipts and assets. Failure to properly file can result in penalties.
Form 990 Preparation
- 1. 990 – THE LEARNING CURVE Sunny Wong, Partner January 22, 2010
- 2. Filing Requirements 2007 Tax Year (Filed in 2008 or 2009) Gross receipts normally ≤ $25,000 File 990-N Gross receipts > $25,000 and < $100,000, and Total assets < $250,000 File 990-EZ or 990 Gross receipts ≥ $100,000, or Total assets ≥ $250,000 File 990
- 3. Filing Requirements - continued 2008 Tax Year (Filed in 2009 or 2010) Gross receipts normally ≤ $25,000 File 990-N Gross receipts > $25,000 and < $ 1 million, and Total assets < $2.5 million File 990-EZ or 990 Gross receipts ≥ $1 million, or Total assets ≥ $2.5 million File 990
- 4. Filing Requirements - continued 2009 Tax Year (Filed in 2010 or 2011) Gross receipts normally ≤ $25,000 File 990-N Gross receipts > $25,000 and < $500,000, and Total assets < $1.25 million File 990-EZ or 990 Gross receipts ≥ $500,000, or Total assets ≥ $1.25 million File 990
- 5. Filing Requirements - continued 2010 Tax Year and later (Filed in 2011 and later) Gross receipts normally ≤$50,000 File 990-N Gross receipts > $50,000 and < $200,000, and Total assets < $500,000 File 990-EZ or 990 Gross receipts ≥ $200,000, or Total assets ≥ $500,000 File 990
- 6. Failure to File Penalty If annual gross receipts below $1 million $20 per day up to $10,000 or 5% of gross receipts If annual gross receipts $1 million or more $100 per day up to $50,000 No penalty is imposed if reasonable cause can be shown
- 7. Section 4958 Penalties Penalty can be imposed on excess benefit transactions with disqualified persons and private inurement within tax-exempt organizations Penalty amounts: Tier 1 (individual benefitted) – 25 % of EB Tier 2 (entity managers) – 10% up to $20,000; 200% of EB if not corrected within a year
- 8. 990 EZ – How EZ Is It? Regardless of gross revenue amount, 990 or 990- EZ must be filed if the Entity is a sponsoring organization of “Donor Advised Funds” or controlling organization of one or more controlled entities If yes answered on Part IV of 990, may be required to attach corresponding schedules to 990 EZ Applicable schedules A, B, C, E, G, L and/or N
- 9. 990 EZ – How EZ Is It? – continued 509 (a)(3) supporting organizations must file 990 or 990 EZ even if gross receipts are below $25K Examples University endowment funds and organizations that provide essential services for hospital systems, and/or education foundation for school districts A California Charity must file 990 with the Attorney General even if it is below $25K threshold under certain circumstances
- 10. Compensation of Officers Part VII of core form Section A - Must list the following officers, directors, trustees, and employees whose reportable compensation from the Organization and related organizations exceeded the following: Current officers, directors, and trustees regardless of amount of compensation Current key employees whose reportable compensation was $150K or more Current five highest compensated employees other than those above, whose reportable compensation was $100K or more Former officers, key employees, and highest compensated employees with $100K or more compensation Former directors and trustees with $10K or more compensation * Reportable compensation is generally amount reported on Form W-2, box 5, and form 1099-MISC, box 7. * For the purpose of determining “former”, use five year look back period.
- 11. Compensation of Officers - continued Current vs. Former A “Current” officer, director, or trustee is a person that was an officer, director, or trustee at any time during the Organization’s tax year A “Current” key employee or highest compensated employee is a person who was a key employee or highest compensated employee for the calendar year ending with or within the Organization’s tax year Examples: ED whose compensation shown on 2008 W-2, box 5, was 160K. She resigned effective 5/31/2009. The Organization’s tax year ended 6/30/2009. ED should be classified as “current” key employee on 990 for the year ending 6/30/2009. For the same Organization, a director, who resigned as of 6/30/2008, received $10,500 for consulting services rendered on 12/31/09. He should be classified as a “former” director who exceeded $10,000 threshold.
- 12. Compensation of Officers - continued Payments from related organizations for the purpose of Part VII, Columns (D) & (E): There are few exceptions to reporting requirement Reasonable effort to obtain and report compensation from a related organization to a person listed should be made If information could not be obtained, report the efforts undertaken on Schedule O
- 13. Compensation Information Schedule J of 990 is required if Part VII, section A is filled out Schedule J requires further breakdown of compensation reported on Part VII as well as disclosure of nontaxable benefits even ones not normally shown on W-2s, such as health insurance benefits.
- 14. Compensation Information - continued Reasonable Compensation Policy Policy should include all top management officials Use the following to establish compensation: Compensation Committee Independent Compensation Consultant Form 990 of other organizations Written employment contract Compensation survey or study Approval by the board or compensation committee
- 15. Expense Reimbursement Policy Need a written policy specifically addressing the following if applicable: First-class or charter travel Housing allowance or residence for personal use Travel for companions Payments for business use of personal residence Tax indemnification and gross-up payments Health or social club dues or initiation fees Discretionary spending account Personal services (e.g., made, chauffeur, chef)
- 16. Charitable Contributions Issue an acknowledgement if $250 or more In writing Be contemporaneous State the amount of cash received State any goods or services given in return Describe goods or services received
- 17. Noncash Contributions Must file Schedule M if reported $25,000 or more noncash contributions Noncash donations should be recorded at the time of receipt at FMV, using the following methods: Comparable sales Replacement costs Opinion of experts Resale value/annual sale revenue Gain/loss is recognized when disposed
- 18. Noncash Contributions - continued Thrift Shop/auction items: No need to recognize or record revenue at the time of receipt for bulk donations of clothing, household goods, and other similar items intended for resale Donations of services or the use of facilities are not reported
- 19. Noncash Contribution - continued Noncash donation of $5,000 or more must be acknowledged on the Form 8283 If the item reported on 8283 is sold within 3 years of receiving it, the Form 8282 should be filed and given to donor if proceeds exceed $500 Include review of non-standard gifts in the gift acceptance policy Non-standard gift: Not reasonably expected to be used to satisfy or further the Organization’s exempt purpose There is no ready market to sell Difficult to ascertain the value
- 20. Functional Expenses Part IX of Core Form Program Service - Activities that further the Entity’s exempt purposes Management & General - Expenses related to the Entity’s overall operations and management. Fundraising - Expenses incurred in soliciting contributions, gifts and grants. Allocate directly if possible
- 21. Functional Expenses - continued New line items added: Under fees for service, management, lobbying & investment management fees Advertising and promotion Office expense Information technology Royalties Payments of travel or entertainment for any federal, state, or local public officials Payments to affiliates Insurance
- 22. Functional Expenses - continued Line items removed: Supplies Telephone Postage and shipping Equipment rental and maintenance Printing and publication Unlimited list of other expenses Expenses grouped and labeled as Misc. can’t exceed 5% of total expenses
- 23. Functional Expenses - continued Office Expense includes: supplies, telephone, postage, equipment rental, bank fees and general printing costs. Occupancy costs include: rent, heat, light, power, property insurance, real estate taxes, mortgage interest.
- 24. Fundraising or Gaming Activities Schedule G is required when the Entity reported more than $15,000 on the following: - Professional Fundraising Services - Gross revenue from fundraising events - Gross revenue from gambling activities Report only events that generated gross receipts of $5,000 or more. Only the two largest ones are reported in separate columns.
- 25. Fundraising or Gaming Activities - continued Gaming includes: Bingo Pull tabs, Reverse draws Raffles All direct expenses related to fundraising events and gaming activities must be reported separately and not included in fundraising expenses column of functional expenses section. Must have gaming license from applicable states
- 26. Unrelated Business Income Form 990-T is required to be filed if $1,000 or more of gross income comes from unrelated business Due the 15th day of the 5th month after year end Net UBI is subject to corporate tax rates as well as estimated tax rules
- 27. UBI and FIN 48 The Entity must provide the text of the footnote to its financial statements, if applicable, regarding the Entity’s liability for uncertain tax positions under FIN 48 on Schedule D. Liabilities accrued as a result of application of FIN 48 could involve UBI or tax that may be assess as a result of the revocation of exempt status.