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November 15, 2008 ( PowerHomeBiz ) -
Columbia, SC --
The Internal Revenue Service has revised Form 990, the form which is filed
annually by tax-exempt organizations. The new form must be used for calendar
year 2008 reporting (to be filed in 2009). It requires extensive disclosure
of management compensation amounts and the processes by which those
compensation amounts were determined.
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The IRS has focused on compensation amounts paid by tax-exempt
organizations for years, and these new disclosure requirements are intended
to help them quickly identify organizations which may have the most
potential for abuse.
Economic Research Institute estimates that the expanded form will require
disclosure of compensation information from approximately 400,000 more
organizations than before.
Each tax-exempt organization filing Form 990 must complete the new Part
VI, which asks specific questions about the organization’s governance,
management policies, and disclosure practices. Although no particular
structure or policies are required, the IRS believes that the absence of
appropriate structure or policies may lead to “excess benefit transactions,”
such as the payment of unreasonable compensation to top employees.
Therefore, many of the new questions ask about the independence of
directors, documentation of meetings and actions, conflicts of interest,
whistleblower policies, and compensation practices. For example, one new
question asks:
“Did the process for determining compensation of the following persons
include a review and approval by independent persons, comparability data,
and contemporaneous substantiation of the deliberation and decision? The
organization’s CEO, Executive Director, or top management official? Other
officers or key employees of the organization? Describe the process in
Schedule O (see instructions).”
Schedule O of the Form 990 asks for a narrative description of the
compensation-setting process.
All organizations filing Form 990 will also be required to complete the
new Part VII – Compensation of Officers, Directors, Trustees, Key Employees,
Highest Compensated Employees, and Independent Contractors. Questions here
ask for the names of these individuals and the number of hours each one
worked. They also ask for compensation amounts paid by the organization (and
by related organizations) to each current and former officer, director,
trustee, key employee and highest compensated employee. Names and amounts of
compensation paid to the five highest paid independent contractors must also
be listed.
Although the IRS does not require tax-exempt organizations to follow any
prescribed format in setting pay levels, they do encourage them to meet the
following four standards:
1. Compensation amounts reviewed and approved by the Board,
2. Any person
with a conflict of interest excluded from compensation decisions,
3.
Comparable data (amounts paid by similar organizations for similar
positions) be collected and used to make decisions, and
4. Documentation of
decisions when they are made.
For more information on these four IRS standards, please see Internal
Revenue Code section 4958 and the regulations under that section or
www.CompensationOpinion.com .
An officer of the organization must sign the completed Form 990 under the
penalties of perjury.
As in the past, copies of the completed Form 990 must be made open to
public inspection. Therefore, details disclosed on the form will be
available to the organization’s employees, donors, state regulators, and the
media.
More information about the new disclosure requirements on Form 990 is
available from the IRS at www.IRS.gov . Click on the tab labeled “Charities &
Non-Profits.”
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Stephen D. Kirkland, CPA, CMC, CFC
Atlantic Executive Consulting Group, LLC
220 Stoneridge Drive, Suite 402 Columbia, SC 29210-8018 Phone: 803-477-5973
www.CompensationOpinion.com
www.ReasonableComp.biz
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