The How to’s of your 990

1. The How to’s of your 990 Learn critical information about the 990 and how to read and work with the document.

2. Randall Biddix, CPA • MARKOWSKI & COMPANY, CPA’S • 2880 SPRING ARBOR ROAD • JACKSON, MICHIGAN 49203

3. Overview • Essential matters to be aware of • Ways to gain efficiency through overlap with tax work • First Major redesign in nearly 30 years

4. Three Guiding Principles • Transparency • Compliance • Accountability

5. Who Must File • Most organizations exempt from income tax under section 501(a) must file an annual information return or submit an annual electronic notice depending upon the organization’s gross receipts and total assets.

6. Which Form To File • 990-N • An organization whose gross receipts are normally $50,000 or less. • 990-EZ • $200,000 of Gross Receipts for the tax year or $500,000 of total assets. • 990 • All others not outlined above.

7. Revised Form 990 • Core Form • 12 Pages. • Applies to all organizations filing the form. • 16 Schedules • A through O and R. • Only file schedule if organization meets certain criteria.

8. Why the revision? • Attempts to incorporate many of the same governance principles and transparency best practices introduced to the for-profit world through the Sarbanes-Oxley Act in the aftermath of the Enron scandal. • Attempt by the federal government to restore confidence in the governance of the exempt organization sector, particularly charities.

9. Governance, Management and Transparency • Does the organization have written policies on conflicts of interest, whistleblowers and document retention? • How are the policies enforced and disclosed to the public? • How independent are the voting members of the board?

10. Are minutes taken at board and committee meetings documenting actions take? • Will the board review the form 990 before it is signed and submitted to the IRS? • What is the process for reviewing and approving executive compensation?

11. Article on IRS website: • “well-governed organizations are more likely to be transparent with regard to their operations, finances, fundraising practices, and use of assets for exempt and unrelated purposes”… • It is clear that the IRS believes these policies are necessary in order to operate an organization effectively and efficiently and that not having these policies in place reflects poorly on the organizations governance from top to bottom.

12. Core Form 990 Structure • Page 1 – Summary Schedule and Signature blocks • Page 2 – Description of Activities • Pages 3 & 4 – Questions for Add’l Schedules • Page 5 – Compliance Questions • Page 6 Governance/Policy/Disclosure • Page 7 & 8 – Compensation • Page 9 & 10 Detail Revenue and Expense • Page 11 – Balance Sheet • Page 12 – Reconciliation of Net Assets

13. Schedules • A – Public Charities • B – Donations • C – Political and Lobbying • D – Financial • E – Schools • F – Foreign • G – Events & Gaming • H - Hospitals • I – Domestic grants • J – Compensation • K – Bonds • L – Interested Persons • M – Non-Cash • N – Discontinued • O – Other • R – Related Organizations

14. Fundamentals • Materiality is an audit concept – thresholds are for tax • Gross receipts and asset thresholds determine which form is required. • Each schedule has a threshold • Questions within the form or schedule may have a threshold • Three flavors of Form 990 • Public Charities (990, 990EZ, 990N) • Private Foundations – Form 990PF • Unrelated Income 990T

15. Generally no “consolidation” Form 990 is different tax ID # • Affiliated organizations under a group exemption • Must deconsolidate financial information • Deconsolidating entries inform on Schedule R • Part IV Q 12 Audit Question – Separate vs. Consolidated

16. PREPERATION OF FORM 990(do not prepare forms in order) Page 1 Header & Line 1 and 6 of Summary: Form is for the year the tax year began Do not complete Line G at this time Type of Entity Year of Formation State of legal domicile

17. Schedule R - Entities • Identification of Disregarded entities, Taxable and Exempt “Related Organizations” & Related and Unrelated Partnerships • Threshold reduced to 5% of the organizations activities in a joint venture(Part VI) • Added check the box section to disclose type of transactions • Part V>$50K Threshold (organization or transaction type?)

18. Identify Directors, Trustees, Officers and Key Employees • Part VII – Compensation (For 990 purposes, top management official and top financial official are officers • 5 Highest paid with greater then $100K (including related org) (Box 5 of W-2, Box 7 of 1099, or actual amount paid) • Former Dir/Trus/HCE/KE paid greater then $100K • Former Director/trustee paid greater then $10K as a former Director or Trustee • All calculated on a calendar year even if fiscal year organization

19. Who is a Key Employee • Reportable compensation exceeds $150,000 or highest paid employee if compensation is less than $100K • And, Manages a discrete segment or activity, or has authority to control 10% or more of activities, assets, income or expenses of the organization

20. Part VIII – Statement of Revenue • All revenue including contributions on one page • Elimination of UBI and exempt codes • Business code for exempt revenue • Question 8 & 9, $15K threshold fore filing Sch G • Memberships split by type • Track certain revenue streams (Part III) • Note – Record Total Receipts on Page 1 Line G

21. Part IX – Functional Expenses • Complete Columns “B” thru “D” • Q3 – separate reporting of foreign grants • Q11 – report non-employee services • UBI tax must be listed on line 24 – Other Expenses • Q24f – Should attempt to keep below 10% of total expenses

22. Part X – Balance Sheet • Separates assets, liabilities and net assets into reporting line items. • Land, Building and equipment must agree to Sch D • Receivables and Payables from related parties must agree with Sch L • Report Net Assets on line 27 thru 29 if the organization follows SFAS 117, or Line 30 thru 32 if the organization does not follow SFAS 117. (Statement of Financial Accounting Standards)

23. Public Support – Schedule A • Splits two types of public support (Complete Part I; either Part II or Part III; and Part IV if necessary • Report on a 5 year basis including the current year • Facts and Circumstances on face of form • Include prior year support % to make normal relevant

24. IRS’s review of Revenue(Facts and Circumstances) • 10% minimum public support • Continuous bona fide fundraising program • Diverse sources of support • Public board • Ongoing provision of services or facilities to the public • Member organizations have dues rates that make the organization accessible to the public • Activities of the organization have broad public appeal

25. Schedule of Contributors – Schedule B • File if during the year the organization received $5,000 or more from any one contributor. • Special rules for 501(c)(3) – If the organization meets the 331/3% support test only report contributors of $5,000 or more if it is greater than 2% to total contributions, grants, gifts, etc.

26. Supplemental financial Statements – Schedule D • Details previously only in footnotes to audited financial statements • Includes the reporting on: • Donor advised funds • Conservation Easements • Collections of art, historical treasures, etc. • Escrow and Custodial Arrangements • Endowment Funds • Land, Buildings, and Equipment • Investments – Other Securities • Investments – Program related • Other Assets • Other Liabilities • Reconciliation of Form 990 to Financial Statements: • Net Assets • Revenue • Expenses

27. Fundraising or Gaming Activities – Schedule G • Fundraising Activities • Fundraising Events and/or Gaming • Report revenue and expenses • Name and address of person who prepares the gaming books and records.

28. Summary • Be aware of which form is applicable • Obtain the new information that is required • Pay attention to form thresholds • Reasonable efforts Standard • Coordinate related party disclosures • Action items – policies and procedures • Governing Body must be involved

29. Additional topics for discussion • Unrelated Business Income – Form 990T – • “Income from a trade or business regularly carried on by an exempt organization and not substantially related to the performance by the exempt organization of its exempt purpose or function”. • Examples of unrelated income: • Selling of membership mailing lists • Certain Advertising Sales • Selling of greeting cards • Rental Income from personal property

30. Exclusions from Unrelated Trade or Business Income • Volunteer workforce • Selling donated merchandise • Exchange or rental of member lists • Rental income from real property • Dividends, interest and other investment income

31. Accounting Issues • Do you record membership dues that have been billed but not paid? • How do you record funds in your name in an endowment fund held by a Foundation? • How do you record donated property or services?

32. Questions?????