Don’t Be Ambushed By The 2008 IRS Form 990 PCPA 2008 Conference October 7, 2008 Thomas E. Sweeney Tsoules, Sweeney, Martin & Orr, LLC 29 Dowlin Forge Road Exton, PA Tel.: Fax.:

Copyright© 2008 Tsoules, Sweeney, Martin & Orr, LLC Form 990? Past Practices Why the is Important Policy and Practices

Copyright© 2008 Tsoules, Sweeney, Martin & Orr, LLC 3 IRS Redesign Guiding Principles: Enhancing transparency Promoting compliance Minimizing the burden on filing organizations

4 Core Form Overview The Core Form is eleven pages and divided into 11 parts:  Part I, Summary  Part II, Signature Block  Part III, Program Service Accomplishments  Part IV, Checklist of Required Schedules  Part V, IRS Filings and Tax Compliance  Part VI, Governance, Management and Disclosure  Part VII, Compensation  Part VIII, Statement of Revenue  Part IX, Statement of Functional Expenses  Part X, Balance Sheet  Part XI, Financial Statements and Reporting

5 PART IV: Checklist of Required Schedules The redesigned core form is supplemented by 16 Schedules that should be completed based on the organization’s activities Redesign Schedule TopicApplicable to Agencies? APublic Charity StatusYes BContributionsYes CPolitical Campaign and Lobbying ActivityPossibly DSupplemental Financial Statement DetailYes ESchoolsMaybe FForeign ActivitiesNo GFundraising and GamingProbably HHospitalsNo

6 PART IV: Checklist of Required Schedules Redesign Schedule TopicApplicable to Agencies? IGrantsMaybe JCompensationMaybe KTax Exempt BondsMaybe LLoansMaybe MNon-cash ContributionsMaybe NTermination or Significant Disposition of AssetsMaybe OSupplemental InformationYes RRelated OrganizationsMaybe

Copyright© 2008 Tsoules, Sweeney, Martin & Orr, LLC 7 Filing Requirements For Most Smaller Organizations Form 990 or 990 EZ Form 990 EZ Short Form may be filed by smaller organizations with gross receipts and total assets below certain amounts Form 990 EZ – Fewer Changes to Form

Copyright© 2008 Tsoules, Sweeney, Martin & Orr, LLC 8 Filing Requirements for Most Smaller Organizations: Form 990 EZ FYG/ReceiptsAssets 2008<$1,000,000<$2,500, <$500,000<$1,250, <$200,000$500,000

Copyright© 2008 Tsoules, Sweeney, Martin & Orr, LLC 9 Agenda Parts I & III: Statement of Program Services PART IV: Checklist of Required Schedules  Schedule A: Public Charity  Schedule B: Contributors  Schedule C: Political Campaign Activities  Excess Benefit Transactions Part VI: Governance, Management and Disclosure Part VII: Compensation Compliance Planning

Copyright© 2008 Tsoules, Sweeney, Martin & Orr, LLC 10 Core Form Part III – Statement of Program Services Briefly describe the Organization’s Mission – Line 1 New Program Services Not Listed Last Year – Line 2 Any Significant Changes in “conduct” of any Program Service – Line 3 Describe Exempt Purposes for three largest Program Services by Expense – Line 4

Copyright© 2008 Tsoules, Sweeney, Martin & Orr, LLC 11 Corm Form Part IV – Checklist of Required Schedules Overview of Part IV Line 1: Schedule A - Public Charity Status Line 2: Schedule B – Contributions Line 3: Schedule C – Political Campaign Activities, Lobby Activities

Copyright© 2008 Tsoules, Sweeney, Martin & Orr, LLC 12 Schedule A: Public Charity Status and Public Support What is Public Charity Status? Part I – Reason for Public Charity Status Supporting Organizations/Publicly Supported Organizations What is Public Support? Not Controlled by a “Disqualified Person”

Copyright© 2008 Tsoules, Sweeney, Martin & Orr, LLC 13 Schedule B: Schedule of Contributors General Rules: List every contributor who, during the year gave the organization, directly or indirectly, money, securities, or property aggregating $5,000 or more Special Rules: >$5,000 or 2% Rule Part I: List Contributors: > $1,000 Part II: List Non-Cash Contributors

Copyright© 2008 Tsoules, Sweeney, Martin & Orr, LLC 14 Schedule C: Political Campaign and Lobbying Activities Did the organization engage in direct or indirect political campaign activities on behalf or in opposition to candidates for public office? If “yes” complete Schedule C.

Copyright© 2008 Tsoules, Sweeney, Martin & Orr, LLC 15 Schedule L: Transactions with Interested Persons Excess Benefit Transaction. An excess benefit transaction is a transaction in which an applicable tax-exempt organization directly or indirectly provides to or for the use of a disqualified person an economic benefit the value of which exceeds the value of the consideration received by the organization for providing such benefit.

Copyright© 2008 Tsoules, Sweeney, Martin & Orr, LLC 16 Schedule L: Transactions with Interested Persons Interested Persons.  Directors, Officers, Trustees, Key Employees, 5 highest compensated employees Disqualified Persons.  Regarding any transaction, is any person who was in a position to exercise substantial influence over the affairs of the applicable tax-exempt organization at any time during a 5-year period ending on the date of the transaction.  Persons who hold certain powers, responsibilities, or interests are among those who are in a position to exercise substantial influence over the affairs of the organization:  For Example, voting members of the governing body, and persons holding the power of: President, chief executive officers, or chief operating officers; treasurers and chief financial officers.

Copyright© 2008 Tsoules, Sweeney, Martin & Orr, LLC 17 Schedule L: Transactions with Interested Persons Duty to Report/Disclose  Loans to and from Interested Persons (officers, directors, key employees, 5 highly compensated employees)  Grants or Assistance Benefiting Interested Persons  Business Transactions Involving Interested Persons

Copyright© 2008 Tsoules, Sweeney, Martin & Orr, LLC 18 Schedule R: Related Organizations Purpose:  Provide information on Related Organizations  Certain transactions with Related Organizations  Certain unrelated partnerships

Copyright© 2008 Tsoules, Sweeney, Martin & Orr, LLC 19 Schedule R: Related Organizations Part I requires identifying information on any disregarded entity (i.e., wholly owned entity that is not a separate entity for tax purposes) Part II requires identifying information on related tax-exempt organizations Part III requires identifying information on any related organization that is a partnership (Continued)

Copyright© 2008 Tsoules, Sweeney, Martin & Orr, LLC 20 Schedule R: Related Organizations Part IV requires identifying information on any related organization that is treated as a C or S Corporation or Trust Part V requires information on transactions between the organization and related organizations (excluding disregarded entities) Part VI requires information on an unrelated organization taxable as a partnership through which the organization conducted more than 5% of its activities.

Copyright© 2008 Tsoules, Sweeney, Martin & Orr, LLC 21 Core Form Part VII: Compensation Requires reporting on Compensation and other Financial Arrangements the organization has with its officers, directors, trustees, key employees, and independent contractors

Copyright© 2008 Tsoules, Sweeney, Martin & Orr, LLC 22 Core Form Part VII: Compensation List of individuals to include:  Top 5 Highest Paid Employees with more than $100,000 of reportable compensation  Former Officers, Key Employees and Top 5 Highest Compensated Employees (going back 5 years) with more than $100,000 of reportable compensation  Former Directors and Trustees who received more than $10,000 of reportable compensation

Copyright© 2008 Tsoules, Sweeney, Martin & Orr, LLC 23 Core Form Part VII: Compensation Disclose total number of employees receiving compensation in excess of $100,000 Disclose Top 5 Most Highly Compensated Independent Contractors paid more than $100,000 List total number of independent contractors paid more than $100,000

Copyright© 2008 Tsoules, Sweeney, Martin & Orr, LLC 24 Core Form Part VII: Compensation Changes  Question regarding the rebuttable presumption of reasonableness for executive compensation  What is a “Rebuttable Presumption”  Question on business and family relationships

Copyright© 2008 Tsoules, Sweeney, Martin & Orr, LLC 25 Part VI - Governance Governing Body and Management  Number of voting members and independent members on board  Business and family relationships among directors and officers  Delegation of control to a management company  Changes to organizational documents  Any material diversion of the organization’s assets

Copyright© 2008 Tsoules, Sweeney, Martin & Orr, LLC 26 Part I and Part III Statement of Program Services Enter the Number of Voting Members of Governing Body (Part I: Line 2) Enter the Number of Independent Voting Members of the Governing Body (Part I: Line 3) Describe Mission or Significant Activities

Copyright© 2008 Tsoules, Sweeney, Martin & Orr, LLC 27 Part I – Summary: Who is an Independent Voting Members of the Governing Body A voting member of the governing body, if all three of the following circumstances applied at all times during the organization’s tax year: 1. The member was not compensated as an officer or other employee of the organization or of a related organization. 2. The member did not receive total compensation or other payments exceeding $10,000 during the organization’s tax year from the organization or from related organizations as an independent contractor, other than reimbursement of expenses. (Continued)

Copyright© 2008 Tsoules, Sweeney, Martin & Orr, LLC 28 Part I – Summary: Who is an Independent Voting Members of the Governing Body 3. Neither the member, nor any family member of the member, was involved in a transaction with the organization (whether directly or indirectly through affiliation with another organization) that is required to be reported in Schedule L, Transactions With Interested Persons.

Copyright© 2008 Tsoules, Sweeney, Martin & Orr, LLC 29 Part I – Summary: Who is an Independent Voting Members of the Governing Body A member of the governing body is not considered to lack independence merely because of the following circumstances: 1. The member is a donor to the organization, regardless of the amount of the contribution; 2. The member has taken a bona fide vow of poverty and either (a) receives compensation as an agent of a religious order or a 501(d) religious or apostolic organization; 3. The member receives financial benefits from the organization solely in the capacity of being a member of the charitable or other class served by the organization in the exercised of its exempt functions.

Copyright© 2008 Tsoules, Sweeney, Martin & Orr, LLC 30 Independent Board Members - Examples Attorney on the Board Employee related to Board Member

Copyright© 2008 Tsoules, Sweeney, Martin & Orr, LLC 31 Business and Family Relationships Business Relationship Privileged Relationship Exception Examples

Copyright© 2008 Tsoules, Sweeney, Martin & Orr, LLC 32 Management Contracts Use of a Management Company to perform duties customarily performed by officers, directors, etc. Services include: hiring, firing, budgets, financial operations

Copyright© 2008 Tsoules, Sweeney, Martin & Orr, LLC 33 Changes to Organizational Documents In the organization’s exempt purposes or mission; In the number, composition, qualifications, authority, or duties of the organization’s officers or key employees; In the role of the stockholders or membership in governance; In the distribution of assets upon dissolution In the provisions to amend the organizing or enabling document or bylaws; (Continued)

Copyright© 2008 Tsoules, Sweeney, Martin & Orr, LLC 34 Changes to Organizational Documents In the quorum, voting rights, or voting approval requirements of the governing body members or the organization’s stockholders or membership; In the policies or procedures contained within the organizing document or bylaws regarding; compensation of officers, directors, trustees, or key employees, conflicts of interest, whistleblowers, or document retention and destruction; and In the composition or procedures contained within the organizing document or bylaws of an audit committee.

Copyright© 2008 Tsoules, Sweeney, Martin & Orr, LLC 35 Material Diversion of Assets Explain in Schedule O the diversion, amounts, circumstances Diversion: any unauthorized conversion or use of an organization’s assets other than for exempt purposes, including theft or embezzlement Authorized transfer for FMV is not a Diversion

Copyright© 2008 Tsoules, Sweeney, Martin & Orr, LLC 36 Part VI - Governance  Whether organization keeps minutes of board and committee meetings  Whether there are local chapters, branches or affiliates  Whether a copy of 990 is provided to governing board before it is filed – Schedule O – describe Board review process  Whether any director or officer can’t be reached through organization’s mailing address

Copyright© 2008 Tsoules, Sweeney, Martin & Orr, LLC 37 Part VI - Governance Policies  Conflict of Interest Policy  Whistleblower Policy  Document Retention and Destruction Policy  Rebuttable Presumption for CEO, top management, and other officers and key employees  Investments in Joint Ventures: partnership, LLC, other entitied treated as partnership Recap: 301, 7701 –

Copyright© 2008 Tsoules, Sweeney, Martin & Orr, LLC 38 Part VI - Governance Public Disclosures  List how 990 is disclosed (own website, another website, upon request)  Describe how governing documents, conflict of interest policy and financial statements are made available to the public

Copyright© 2008 Tsoules, Sweeney, Martin & Orr, LLC Form 990 – Compliance Planning Board Education Identify Individuals within Organization Inventory Policies Identify Key Employees and Compensation Policies Adopt Best Practices – Policies Public Disclosure of 990 Board Approval