990 990 –– THE LEARNING THE LEARNING CURVECURVE

Sunny Wong, PartnerJanuary 22, 2010

Filing Requirements

2007 Tax Year (Filed in 2008 or 2009)Gross receipts normally ≤ $25,000

File 990-N Gross receipts > $25,000 and < $100,000, andTotal assets < $250,000

File 990-EZ or 990Gross receipts ≥ $100,000, orTotal assets ≥ $250,000

File 990

Filing Requirements - continued

2008 Tax Year (Filed in 2009 or 2010)Gross receipts normally ≤ $25,000

File 990-NGross receipts > $25,000 and < $ 1 million, and Total assets < $2.5 million

File 990-EZ or 990Gross receipts ≥ $1 million, orTotal assets ≥ $2.5 million

File 990

Filing Requirements - continued

2009 Tax Year (Filed in 2010 or 2011)Gross receipts normally ≤ $25,000

File 990-NGross receipts > $25,000 and < $500,000, andTotal assets < $1.25 million

File 990-EZ or 990Gross receipts ≥ $500,000, orTotal assets ≥ $1.25 million

File 990

Filing Requirements - continued

2010 Tax Year and later (Filed in 2011 and later)Gross receipts normally ≤$50,000

File 990-NGross receipts > $50,000 and < $200,000, andTotal assets < $500,000

File 990-EZ or 990Gross receipts ≥ $200,000, orTotal assets ≥ $500,000

File 990

Failure to File Penalty

If annual gross receipts below $1 million $20 per day up to $10,000 or 5% of gross receipts

If annual gross receipts $1 million or more$100 per day up to $50,000

No penalty is imposed if reasonable cause can be shown

Section 4958 Penalties

Penalty can be imposed on excess benefit transactions with disqualified persons and private inurement within tax-exempt organizationsPenalty amounts:

Tier 1 (individual benefitted) – 25 % of EBTier 2 (entity managers) – 10% up to $20,000; 200% of EB if not corrected within a year

990 EZ – How EZ Is It?

Regardless of gross revenue amount, 990 or 990-EZ must be filed if the Entity is a sponsoring organization of “Donor Advised Funds” or controlling organization of one or more controlled entitiesIf yes answered on Part IV of 990, may be required to attach corresponding schedules to 990 EZ

Applicable schedulesA, B, C, E, G, L and/or N

990 EZ – How EZ Is It? – continued

509 (a)(3) supporting organizations must file 990 or 990 EZ even if gross receipts are below $25K

Examples University endowment funds and organizations that provide essential services for hospital systems, and/or education foundation for school districts

A California Charity must file 990 with the Attorney General even if it is below $25K threshold under certain circumstances

Compensation of Officers

Part VII of core formSection A - Must list the following officers, directors, trustees, and employees whose reportable compensation from the Organization and related organizations exceeded the following:

Current officers, directors, and trustees regardless of amount of compensationCurrent key employees whose reportable compensation was $150K or moreCurrent five highest compensated employees other than those above, whose reportable compensation was $100K or moreFormer officers, key employees, and highest compensated employees with $100K or more compensationFormer directors and trustees with $10K or more compensation

* Reportable compensation is generally amount reported on Form W-2, box 5, and form 1099-MISC, box 7.* For the purpose of determining “former”, use five year look back period.

Compensation of Officers - continued

Current vs. FormerA “Current” officer, director, or trustee is a person that was an officer, director, or trustee at any time during the Organization’s tax yearA “Current” key employee or highest compensated employee is a person who was a key employee or highest compensated employee for the calendar year ending with or within the Organization’s tax year

Examples:ED whose compensation shown on 2008 W-2, box 5, was 160K. She resigned effective 5/31/2009. The Organization’s tax year ended 6/30/2009. ED should be classified as “current” key employee on 990 for the year ending 6/30/2009.For the same Organization, a director, who resigned as of 6/30/2008, received $10,500 for consulting services rendered on 12/31/09. He should be classified as a “former” director who exceeded $10,000 threshold.

Compensation of Officers - continued

Payments from related organizations for the purpose of Part VII, Columns (D) & (E):

There are few exceptions to reporting requirementReasonable effort to obtain and report compensation from a related organization to a person listed should be made

If information could not be obtained, report the efforts undertaken on Schedule O

Compensation Information

Schedule J of 990 is required if Part VII, section A is filled outSchedule J requires further breakdown of compensation reported on Part VII as well as disclosure of nontaxable benefits even ones not normally shown on W-2s, such as health insurance benefits.

Compensation Information - continued

Reasonable Compensation PolicyPolicy should include all top management officials Use the following to establish compensation:

Compensation CommitteeIndependent Compensation ConsultantForm 990 of other organizationsWritten employment contractCompensation survey or studyApproval by the board or compensation committee

Expense Reimbursement Policy

Need a written policy specifically addressing the following if applicable:

First-class or charter travelHousing allowance or residence for personal useTravel for companionsPayments for business use of personal residenceTax indemnification and gross-up paymentsHealth or social club dues or initiation feesDiscretionary spending accountPersonal services (e.g., made, chauffeur, chef)

Charitable Contributions

Issue an acknowledgement if $250 or moreIn writingBe contemporaneousState the amount of cash receivedState any goods or services given in returnDescribe goods or services received

Noncash Contributions

Must file Schedule M if reported $25,000 or more noncash contributionsNoncash donations should be recorded at the time of receipt at FMV, using the following methods:

Comparable salesReplacement costsOpinion of expertsResale value/annual sale revenueGain/loss is recognized when disposed

Noncash Contributions - continued

Thrift Shop/auction items:No need to recognize or record revenue at the time of receipt for bulk donations of clothing, household goods, and other similar items intended for resale

Donations of services or the use of facilities are not reported

Noncash Contribution - continued

Noncash donation of $5,000 or more must be acknowledged on the Form 8283If the item reported on 8283 is sold within 3 years of receiving it, the Form 8282 should be filed and given to donor if proceeds exceed $500Include review of non-standard gifts in the gift acceptance policyNon-standard gift:

Not reasonably expected to be used to satisfy or further the Organization’s exempt purposeThere is no ready market to sellDifficult to ascertain the value

Functional Expenses

Part IX of Core FormProgram Service - Activities that further the Entity’s exempt purposesManagement & General - Expenses related to the Entity’s overall operations and management.Fundraising - Expenses incurred in soliciting contributions, gifts and grants.Allocate directly if possible

Functional Expenses - continued

New line items added:Under fees for service, management, lobbying & investment management feesAdvertising and promotionOffice expenseInformation technologyRoyaltiesPayments of travel or entertainment for any federal, state, or local public officialsPayments to affiliatesInsurance

Functional Expenses - continued

Line items removed:SuppliesTelephonePostage and shippingEquipment rental and maintenancePrinting and publicationUnlimited list of other expenses

Expenses grouped and labeled as Misc. can’t exceed 5% of total expenses

Functional Expenses - continued

Office Expense includes: supplies, telephone, postage, equipment rental, bank fees and general printing costs.Occupancy costs include: rent, heat, light, power, property insurance, real estate taxes, mortgage interest.

Fundraising or Gaming Activities

Schedule G is required when the Entity reported more than $15,000 on the following:- Professional Fundraising Services- Gross revenue from fundraising events - Gross revenue from gambling activitiesReport only events that generated gross receipts of $5,000 or more. Only the two largest ones are reported in separate columns.

Fundraising or Gaming Activities- continued

Gaming includes:Bingo Pull tabs, Reverse draws Raffles

All direct expenses related to fundraising events and gaming activities must be reported separately and not included in fundraising expenses column of functional expenses section.Must have gaming license from applicable states

Unrelated Business Income

Form 990-T is required to be filed if $1,000 or more of gross income comes from unrelated business

Due the 15th day of the 5th month after year endNet UBI is subject to corporate tax rates as well as estimated tax rules

UBI and FIN 48

The Entity must provide the text of the footnote to its financial statements, if applicable, regarding the Entity’s liability for uncertain tax positions under FIN 48 on Schedule D.Liabilities accrued as a result of application of FIN 48 could involve UBI or tax that may be assess as a result of the revocation of exempt status.