Spring 2009 issue of Horizons

Raise Your Expectations CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS

reporting these groups. The prior threshold of $50,000 has been increased to $100,000. Associations and clubs eligible to file the 990EZ will not need to report these groups for 2008, but they will be required to make disclosures if they choose to file the longer Form 990. Schedule J will be required for filers that answer certain questions “yes.” Such filers will include those with employees paid more than $150,000 (including compensation from related organizations). Former employees reported on Part VII also are reported on Schedule J. Current officers, directors or trustees, and highest paid employees are generally reported on Schedule J if the sum of their W-2 compensation and the value of their fringe benefits exceed $150,000. Part IX, “Statement of Functional Expenses,” retains the prior version’s line for “Compensation of current officers, directors, trustees and key employees.” Whose Compensation Is Reported on the New Form 990? The instructions now include definitions of many of the terms that previously were the subject of interpretation. “Officers” are defined as persons elected or appointed to manage the organization’s daily operations (e.g., president, vice president, secretary or treasurer). They generally are determined according to the governing documents, such as by-laws and board resolutions. The instructions note that if organizations appoint “officers of the board” as well as “officers of the corporation,” then both groups should be reported in Part VII. Additionally, the instructions create an exception to the general definition of officer, but only for Form 990 reporting purposes. Regardless of their official status, two persons are always to be treated as officers for reporting purposes – the organization’s top management official and the top financial official (the person who has the ultimate responsibility for managing the organization’s finances). Organizations may want to review the titles and responsibilitiesof positions in theorganizationwith respect to who should have the powers and responsibilities of an officer for future years as the IRS continues to focus on governance policies and procedures.

“Key employee” is newly defined using a three-part test. First, the individual is someone other than an officer, director or trustee who has reportable compensation from the organization and all related organizations in excess of $150,000 for the calendar year ending in the organization’s tax year. Solely for this first test, only Form W-2 and Form 1099 compensation are considered; the value of nontaxable and tax-deferred fringe benefits is excluded in determining whether the $150,000 threshold is exceeded. Second, a “responsibility test” detailed in the instructions must be met. Third, key employees are limited to the top 20 employees meeting the first two tests. “Director or trustee” is a voting member of the governing body. This definition includes anyone who served in such a capacity at any time during the Form 990 filer’s tax year. It is similar to usage for the prior version of the Form 990. “Former officers, directors, trustees and key employees” has been defined so that certain smaller payments to persons may not be required to be disclosed. There also is a five-year look-back period that generally eliminates the need to report someone who has not been active in the organization for the last five years. Highest paid employees other than officers, directors, trustees and key employees who receive more than $100,000 of reportable compensation, including compensation from related organizations, are reported in Section A of Part VII. Independent contractors that received more than $100,000 of compensation from the organization are reported in Section B of Part VII if they are one of the five highest paid contractors. The distinction between professional services and other services has been eliminated. So, all service providers will be reported in a single section on the form.

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