Purpose of Schedule D
Schedule D is designed to provide additional information regarding information presented in the financial statements of Form 990.

Information You Will Need to Prepare Schedule D
You will need to gather or prepare the following information:

• Details regarding your donor advised funds, (Part I).
• Details regarding your conservation easements, (Part II).
• Details regarding your collections of art, historical treasures, and similar assets, (Part III).
• Details regarding your trust, escrow, and custodial arrangements, (Part IV).
• Details regarding your endowment funds, (Part V).
• Details regarding your assets, investments, and liabilities, (Part VI, VII, VIII, IX, and X).
• Your audited financial statements, (Part XI, XII, and XIII).
• View the IRS Website for additional instructions for preparation of Schedule D.

How to Prepare Schedule D

Part I, Organizations Maintaining Donor Advised Funds or Other Similar Funds or Accounts

A donor advised funds allow donors to maintain advisory privileges regarding the distribution or investment of their donated funds. Generally a donor advised fund is a fund or account:

1. That is separately identified by reference to contributions of the donor;
2. That is owned and controlled by your organization; and
3. For which the donor or donor advisor has or reasonably expects to have advisory privileges in the distribution or investment of amounts held in the donor advised funds of accounts because of the donor’s status as a donor.

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Purpose of Schedule A, Parts II & III
The purpose of Part II is to determine whether your organization meets the public support test.

Special Issues
Financial information in Parts II and III are now reported on the same basis as the remainder of the return, (in the past, Schedule A was presented on a cash basis even if the rest of the return was on an accrual basis.) This means that all four prior years that are shown (2004 through 2007) must be revised to the accrual basis if your organization reports on an accrual basis. Additionally, you must convert the list of supporters that is reported on line 5 to accrual basis for all prior years (2004 through 2007).

Information You Will Need to Prepare Schedule A, Part II or III
You will need to gather the following information:

• Contribution lists for 2004 – 2008. After 2008, you will only need your current year list since prior years will already have been converted to the accrual basis.
• Tax returns for 2004 – 2008. After 2008, you will only need your current year return since prior years will already have been converted to the accrual basis.
• View the IRS Form 990 Filing Tips: Schedule A (Public Support and Public Charity Classification) for additional help.

How to Prepare Schedule A, Part II
Complete Part II if you selected line 7 in Schedule A, Part I. There are two ways to meet the public support requirements: at least 33 and 1/3% of your support is from contributions and grants or 10% of your support is from contributions and grants and you meet the facts and circumstances test listed in Regulations section 1.170A-9T(f)(3). If you met the support test in the prior year but don’t meet it this year, you will have a grace period for one year, (see lines 16b and 17b in Schedule A). This article will only address the lines that often cause confusion.

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Today, the IRS released the following information – reminding organizations to properly file Form 990. According to the Pension Protection Act of 2006 non-profit organizations failing to file the required form for three consecutive years will automatically lose their federal tax-exempt status.

Mark your calendars and file the return, with extensions, if necessary.

Have questions? Give me a call.

Purpose of Schedule A
The primary purpose of Schedule A is to assist the IRS in determining if an organization qualifies as tax-exempt.  Public accountability is also promoted by providing certain details of the organization’s finances and operations for public inspection. Only 501(c)(3) organizations and 4947(a)(1) nonexempt charitable trusts complete Schedule A.

Special Issues With Schedule A, Part I
While your IRS determination letter is the first place to look to determine that type of organization you are, your activities may have changed. For your first five tax years as a section 501(c)(3) organization, you must check the box in Part I that corresponds to your public charity status as stated in your exemption determination letter from the IRS. After the first five years, check the box that corresponds to the activity you currently have.

Information You Will Need to Prepare Schedule A, Part I
You will need to gather or prepare the following information:

• IRS exemption determination letter. If you do not have your exemption determination letter, call 1-877-829-5500 to speak to the Exempt Organizations Customer Account Services.
• Information regarding the sources of your income.
• View the IRS Form 990 Filing Tips: Schedule A (Public Support and Public Charity Classification) for additional help.

How to Prepare Schedule A, Part I
Complete Part I by specifying under which part of the Internal Revenue Code (IRC) your organization claims classification as tax-exempt. Look at your determination letter to determine under what section the IRS has determined you fall, then verify that you still meet the qualifications of the section, as detailed on the schedule and shown below. The remainder of this article will only address lines 7, 9, and 11 as they can be a little confusing.

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When completing the new Form 990, organizations are required to provide details about related organizations on Schedule R. An organization is a related organization to the filing organization if it stands in one or more of the following relationships to the filing organization:

1. Parent – an organization that controls the filing organization.
2. Subsidiary – an organization controlled by the filing organization.
3. Brother/Sister – an organization controlled by the same person or persons that control the filing organization.
4. Supporting/ Supported – an organization that is (or claims to be) at any time during the organization’s tax year, a supporting or supported organization within the meaning of section 509(a)(3) and 509(f)(3).

According to the IRS – the definition of control is:

1. Power to remove and replace a majority of a nonprofit organization’s directors or trustees,
   or
2. Management or board overlap where a majority of the controlled entity’s directors or trustees are trustees, directors, officers, employees, or agents of the controlling organization.

In the case of stock corporations, and other organizations with owners or persons having beneficial interests, whether such organization is taxable or tax-exempt, any of the following relationships represent control:

1. Ownership of more than 50% of the stock (by voting power or value) of a corporation.
2. Ownership of more than 50% of the profits or capital interest in a partnership.
3. Ownership of more than 50% of the profits or capital in a limited liability company (LLC ) treated as a partnership regardless of the designation under state law of the ownership interests as stock, membership shares or otherwise.
4. Being a managing partner or managing member in a partnership or LLC treated as a partnership which has three or fewer managing partners or managing members (regardless of which partner or member has the most actual control).
5. Being the sole member of a disregarded entity, (an entity wholly owned by the organization that is not a separate entity for Federal tax purposes).
6. Ownership of more than 50% of the beneficial interests in a trust.

What is considered indirect control? If the filing organization controls Entity A, which in turn controls Entity B, the filing organization will be treated as controlling Entity B also.

Sometimes it is difficult to determine “who” owns “what”. If you have questions, call us.

The American Society of Association Executives (ASAE) published the following information in a recent alert to members. This should be of high interest to all tax-exempt organizations.

Sen. Chuck Grassley (R-IA), ranking member of the Senate Finance Committee, has filed two amendments to the health care reform bill introduced by Senate Finance Chairman Max Baucus (D-MT) that directly impact tax-exempt organizations. These amendments were filed along with more than 500 others before the end of last week, and are being considered in the markup of the Baucus bill that got underway Sept. 22.

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On an annual basis, tax-exempt organizations (excluding certain religious, gov’t and political organizations) are required to file an annual return with the IRS. Which form the organization files, depends on the organizational type (public vs private charity) and the amount of gross receipts and assets of the entity.

Public Charities (excluding certain religious, gov’t and political organizations) are requied to file a Form 990, and if your have:

1. Gross receipts greater than $1,000,000 and assets greater than $2,500,000 your organization should complete Form 990.

2. Gross receipts greater than $25,000 and less than $1,000,000 and assets less than $2,500,000 should complete Form 990EZ.

3. Gross receipts less than $25,000 should complete Form 990-N.

Private foundations file Form 990-PF.  Forms 990 and 990-PF are due within 41/2 months after your organization’s year-end (May 15 if your year-end is December 31). Extensions may be filed using Form 8868.

If you fail to file the return on time, the penalties for the 990 are $20/day to a maximum of $10,000 or 5% of gross receipts. The penalities for a 990-PF are $20/day to a maximum of $10,000 (small org) or $50,000 (large org) or 5% of gross receipts.

So…be ready to file or extend as the due date approaches.

On January 13, 2009, the Ft Worth Chapter of the Texas Society of Certified Public Accountants is hosting a nonprofit conference. This conference provides 8 hours of CPE credit and is available for TSCPA members and non-CPAs ($190 for member, $225 for non-member).

This conference includes lectures and panel discussion on tax compliance, financial management and consulting. The tax sessions will be co-facilitated by Becky DaVee and Darren Moore, attorney for Bourland, Wall & Wenzel, P.C. (BW&W of Fort Worth, Texas.) To sign-up for this conference, go to the Chapter’s website and register.

More governance training will be provided by RCO on March 20, 2009.

In late December the IRS announced the release of the final 2008 Form 990, Return of Organization Exempt From Income Tax.

The redesigned 990 consists of an 11-part core form required for all organizations that file a 990, with several additional schedules to be completed based on certain requirements.  Some of the most significant changes to the new 990 are the required disclosures related to governance and compensation of officers, directors and key employees.

Because of the new reporting requirements, many organizations will need to reevaluate their overall governance policies and procedures, as well as the composition and responsibilities of the board of directors.  In some cases these changes will be significant and will require considerable time and resources to implement. 

Through the revised form, the IRS is effectively imposing a new standard of governance on nonprofit organizations.  Don’t wait until it’s time to file your 990 to consider how these changes will affect your organization. For more information see the IRS website and one of our previous posts.

The major differences are in the reporting requirements. While public charities file the 990 Form (newly redesigned for 2008), private foundations file a 990-PF. The 990 tracks activities and attempts to show how the organization is accomplishing its exempt purpose. The 990-PF, while also tracking that information, is very focused on two things:

• Type of investments being made
• Distributions being made

Because they do not have the public support base, private foundations rely on either a minimal number of significant contributors or returns from investments for their income base. Most are considered to be “grant-making” organizations as they do not have any operations. The potential for abuse lies in the ability to direct the types of investments and/or distribute income either back to the contributors, who are usually board members or the original founders, or to non-exempt purposes that can benefit the contributors.

Extra reporting requirements include a detailed list of every investment owned by the organization. Every stock, every mutual fund, every partnership, S-corp, and LLC interest- ooh, did I say LLC? Yep. Certain transactions with flow through entities are considered “Listed Transactions”- assumed to be tax avoidance strategies- and others are being heavily scrutinized. In addition, they are not permitted to hold more than 20% interest in an unrelated business enterprise.

The other difference lies in the distributions. Besides keeping a keen eye out for anything that might possibly benefit a board member or significant contributor, it is imperative the organization make minimum charitable distributions roughly equal to 5% of the fair market value of investments. All distributions made must be detailed on the return with full name and address.

Do you need help in determining “what” should be reported “where” on your 990-PF? Contact us.