Many tax-exempt organizations are getting ready to file their Form 990s for 2005. That form has always been filled with traps because it requires more than filling in lines with a bunch of numbers. The "Yes/No" questions are often where the action is. Organizations need to understand what some rather seemingly innocuous questions are asking and why. That has never been…
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truer than this year. Take a look at Part V-A. That section has been greatly expanded, with the following new questions:
75a. Enter the total number of officers, directors, and trustees permitted to vote on organization business at board meetings
75b. Are any officers, directors, trustees, or key employees listed in Form 990, Part V-A, or highest compensated employees listed in Schedule A, Part I, or highest compensated professional and other independent contractors listed in Schedule A, Part II-A or II-B, related to each other through family or business relationships? If “Yes,” attach a statement that identifies the individuals and explains the relationship(s)
75c. Do any officers, directors, trustees, or key employees listed in Form 990, Part V-A, or highest compensated employees listed in Schedule A, Part I, or highest compensated professional and other independent contractors listed in Schedule A, Part II-A or II-B, receive compensation from any other organizations, whether tax exempt or taxable, that are related to this organization through common supervision or common control? Note. Related organizations include section 509(a)(3) supporting organizations.
If “Yes,” attach a statement that identifies the individuals, explains the relationship between this organization and the other organization(s), and describes the compensation arrangements, including amounts paid to each individual by each related organization.
75d. Does the organization have a written conflict of interest policy?
It is may not be obvious to the unsuspecting and uninformed, but these questions are designed to identify organizations that are ripe for an intermediate sanction and best interests audits. They identify organizations where the officers, directors, and key employees may have too much control over the determination of their own compensation and organizations where directors may be furthering their best interests through side deals rather than the organization’s best interests. And how much does the likelihood of audit increase if the organization indicates that it does not have a conflict-of-interest policy, particularly if there are family members and related parties who receive compensation?
Setting aside the central issue regarding audits, the new questions also appear to mean that more compensation-related information will be available for review by the public. It should now also be easier for journalists to detect relationships between two or more seemingly unrelated entities, particularly where one of them is a for-profit entity.
As we begin to think about these questions, particularly after reading the lengthy instructions that accompany them, we believe more than ever that the Form 990 should be reviewed by the organization’s tax lawyer, as well as its accountant. This is particularly true where there are all sorts of relationships between the parties, including transactions that evidence a conflicts of interest despite having been validated under procedures mandated by state corporate law or the organization’s own conflict-of-interest policy. Well articulated explanations and disclosure could head off an audit from the outset, but some one with great skill needs to prepare that explanation and disclosure.
You’ve got just over two weeks to pull all this together or to file an extension.
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FOREGOING IS NOT AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. IF LEGAL
ADVICE IS REQUIRED, THE NON-PROFIT OR OTHER PARTY IN QUESTION SHOULD
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