DATELINE: December 20, 2007, Chicago
Well, we have begun to work our way through the various schedules that makeup the Form 990. For purposes of this post we will focus on...
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six of them.
SCHEDULE D, Supplemental Financial Statements.
Reorganization. Schedule D underwent a significant reorganization from its proposed to final form. It moves away from requiring information about specific assets, permitting organizations in many cases to aggregate individual assets into categories and report an aggregate balance. Parts I, II, and III, cover donor advised funds, conservation easements, and museum collections, respectively. We like Part III, Line 1A, which requires disclosure of the financial statement footnote for rganizations that do not follow SFAS 116. We wish the IRS had mandated more disclosures of financial statement footnotes.
Part V, Endowment Funds. We were critical in Part I about the lack of information on restricted assets. We had forgotten that Schedule D did contain a recap of endowment funds, providing some additional information about restricted funds. The final version of the schedule breaks out percentages regarding permanent endowment, term endowment and board designated endowment. Overall we think this is a good idea, but we think the IRS should have followed GAAP, telling respondents not to include board designated endowment in the basic numbers. We like Line 3, which asks about endowment funds held by both related and unrelated organizations. The one missing question in this section pertains to spending rates, but as we said in Part 1, you can't have everything.
Parts VII, VIII, and X, Investments and Other Assets. We appreciate Part VII, which requires organizations to break out financial derivatives and closely-held equity interests. This should pick up hedge and private equity funds. We would recommend that the instructions require these categories to be separately presented.
SCHEDULE F, Statement of Activities Outside the United States. For the most part, we will leave this schedule to those who handle international philanthropy. We think the IRS came up with a reasonable compromise for disclosure of information about individual countries in which organizations conduct activities and identification of individual grantees. The final form does not require individual grantees to be listed and will require reporting based on regions—we assume Asia, Europe, Middle East, etc. The instructions will most likely provide more clarity. We would not be surprised to see the IRS seek legislation permitting it to redact certain information and then ask for more details.
SCHEDULE G, Supplemental Information Regarding Fundraising or Gaming Activities. From our perspective as generalists, we don't see many changes from the proposed to the final version of this Schedule. We do like Line 1, which, through a series of checkboxes, asks each organization how it raises funds. We suspect that had this form been created six months later, it would have included questions on embedded giving. IRS officials have said the Form 990 is now final, but that as changes become necessary, it will now be much easier to make them. We will be curious to see whether this is the first form that undergoes modification in an effort to capture information on embedded giving.
SCHEDULE J, Compensation Information. The IRS certainly expanded the scope of Schedule J. We suspect nonprofits executives receiving some of the more extravagent perks will not like this schedule. In fact, we suspect that many of these perks will largely disappear as a result of the required disclosures. That may well have been the IRS's hidden agenda, particularly if certain congressional staffers had any input into the process.
Part I, Line 1a. Line 1a must have brought a smile to Senator Grassley's face. This series of questions is about as in your face as anybody could get. Organizations must disclose the existence of first-class air or charter travel, travel for companions, tax-indemnification payments, discretionary spending accounts, housing allowances and personal use of residences, health or social club dues, and personal services (e.g., maid of chef). Once again, the instructions will be critical. Does first-class include business class?
Part 1, Line 3. Senator Grassley should also like Line 3, which asks how CEO/Executive Director compensation was arrived at. Specifically, the IRS asks about the compensation committee, independent compensation consultants, reliance on the Forms 990 of other organizations, and compensation studies or surveys. It also wants to know whether there is a written contract and whether the compensation was approved by the board or a compensation committee.
Part 1, Lines 5, 6, and 7. These lines focus on contingent and non-fixed compensation. In Line 8, the IRS asks about the initial contract exception to the intermediate sanctions found in Regulation Section 53.4958-4(a)(3).
Part II, Officers, Directors, Trustees, Key Employees, and Highest Compensated Employees. Here is where the actual compensation numbers must be listed. The tabular format, together with the detailed columns, will provide Form 990 users with an excellent snapshot of compensation paid to key employees, highest compensated employees, and officers and directors.
Part III, Supplemental Information and Schedule J-1. We were initially concerned that the Form 990 did not provide sufficient space for explanatory and supplemental information. This portion of the Form 990 requires additional explanatory information with respect to some "Yes/No" questions from Part I of Schedule J. Until the instructions are issued, it is unclear exactly how the disclosures are to be made. For example, are organizations required to list each person who received a Part 1, Line 1a perk and the value of that perk, or will a general description of organization's policy suffice?
SCHEDULE L, Transactions with Interested Parties. The proposed version of Schedule L focused on related party loans. The final version is far more expansive in terms of related-party transactions.
Part 1, Excess Benefit Transactions. If an organization answers "Yes," it did engage in an excess benefit transaction with a disqualified person, the details of the transaction must be described and the disqualified person must be identified.
Part III, Grants of Assistance Benefiting Interested Persons. Organizations will now be required to disclose what might be referred to as "program-related" benefits conferred on insiders. This provision will be of particular interest to community action organizations. These organizations often have low-income individuals from the community on their boards. These same individuals are sometimes recipients of energy assistance and other programs sponsored by the organization.
SCHEDULE M, Non-Cash Transactions. This schedule is quite similar to the earlier version.
Line 24, Archeological Artifacts. We couldn't help but notice the addition of archeological artifacts to the list. We don't know whether it is the IRS's intent, but this question could be of significant help to foreign governments attempting to track archeological objects that have been removed from their country of origin in violation of local laws and international treaties.
Line 31, Gift Acceptance Policies. Although there is a specific part of the Core Form for governance-related questions, these questions are spread throughout the entire form. The question regarding the existence of gift-acceptance policies on Schedule M is another example.
And there you have it. We sure as the time move forwards, we will have additional thoughts.
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