Spring 2009 issue of Horizons

INDUSTRy u NOT-FOR-PROFIT Compensation Reporting Changes for 2008 (cont.)

When Is Calendar Year Compensation Reported?

When Is Fiscal Year Compensation Needed?

The changes to reporting compensation for Part VII of the Form 990 and Schedule J do not affect how organizations report compensation and benefits on their books or on their financial statements. Therefore, Part IX, “Statement of Functional Expenses,” will be based on the fiscal year amounts used for book purposes. However, there continues to be a need to separately state the compensation of current officers and directors on this part of the Form 990. Furthermore, compensation includes all forms of income and other benefits earned or received, including retirement plan contributions and other employee benefits. Thus, the information required encompasses total compensation as opposed to straight salary. For 501(c)(3) and 501(c)(4) organizations, these amounts need to be allocated among program services, management and general, and fundraising categories. These same organizations are required to separately state compensation paid to “disqualified persons.” A disqualified person is any person in a position to exercise substantial influence over the affairs of a particular tax- exempt organization at any time during a five-year period ending on the date of the transaction. The term includes certain former officers, directors, trustees or employees, as well as certain donors. Beyond the dollar amounts of compensation, the core Form 990 for 2008 has questions regarding how the governing body determines the appropriateness of compensation. Part VI of the core form requires all filers to describe the process for setting compensation of top management, key employees, officers and directors. For those otherwise required to complete Schedule J, there is a series of questions on benefits relating to travel, housing, club dues, and other kinds of compensation beyond a base salary. Another change implemented with the restructuring of the old Schedule A is the new Schedule L. All organizations will be required to complete parts of Schedule L that detail information on business transactions, loans, and grants or other assistance over certain dollar amounts that involve “interested persons.”

All organizations filing the longer Form 990 will use calendar year compensation for purposes of Part VII and Schedule J. Previously, fiscal year organizations generally provided information consistent with their fiscal year throughout the Form 990. There are new standardized definitions of compensation. For Part VII, which lists name, average hours per week and position in the organization, “reportable compensation” for columns D and E is taken from the Form W-2 (generally wages subject to Medicare tax) or Form1099-MISC(non-employeecompensation) for employees and independent contractors, respectively. Reportable compensation from related organizations is reported in a separate column on Part VII. In other words, related party compensation is no longer reported on a separate schedule; instead, it appears on the same line as compensation from the organization filing the Form 990. Part VII column F requires the amount of other compensation (other than “reportable compensation”) to be reported, encompassing nontaxable or tax-deferred benefits. Retirement benefits, medical/health benefits and deferred compensation are reported regardless of the amounts. Other benefits may not need to be reported on Part VII of the core Form 990 if they are below $10,000 for the year. However, this $10,000 threshold does not apply when an individual is listed on Schedule J because reporting of benefits is required regardless of the amount. A table appears in the instructions to provide guidance with respect to where specific types of compensation should be reported. Form 990EZ filers will have an option to use either a simplified version of the 2008 Form 990 instructions or use the 2007 Form 990EZ instructions to report compensation. The method used on the 2008 form must be followed in the future when subsequent Form 990EZs are filed.

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u spring 2009 issue