Mastering Form 990 Schedule R: Reporting Transactions With Related Organizations and Unrelated Partnerships TUESDAY, DECEMBER 8, 2015, 1:00-2:50 pm Eastern IMPORTANT INFORMATION This program is approved for 2 CPE credit hours . To earn credit you must: • Participate in the program on your own computer connection (no sharing) – if you need to register additional people, please call customer service at 1-800-926-7926 x10 (or 404-881-1141 x10). Strafford accepts American Express, Visa, MasterCard, Discover . Listen on-line via your computer speakers. • Respond to five prompts during the program plus a single verification code . You will have to write down • only the final verification code on the attestation form, which will be emailed to registered attendees. To earn full credit, you must remain connected for the entire program. • WHO TO CONTACT For Additional Registrations : -Call Strafford Customer Service 1-800-926-7926 x10 (or 404-881-1141 x10) For Assistance During the Program : -On the web, use the chat box at the bottom left of the screen If you get disconnected during the program, you can simply log in using your original instructions and PIN.
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Mastering Form 990 Schedule R Dec. 8, 2015 Angie Fidler Frank Giardini Moss Adams Grant Thornton angie.fidler@mossadams.com frank.giardini@us.gt.com
Notice ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY THE SPEAKERS’ FIRMS TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN. You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the tax treatment or tax structure, or both, of any transaction described in the associated materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.
Schedule R Related Entities 5
Agenda I. Overview of Schedule R, Related Organizations and Unrelated Partnerships Defining “control” II. I. For-profit/Not-for-profit II. Direct/Indirect III. Reporting on Schedule R I. Identifying relationship type II. Reporting transactions IV. Reporting on Form 990 I. Part IV, Checklist of Required Schedules II. Part VII, Compensation V. Identifying unrelated partnerships 6
Concepts By the end of this presentation, you will be able to: • Determine the standards for relatedness • Identify information that must be reported on Schedule R • Complete Part III and understand the Unrelated Partnership Standards • Report relationships with other exempt organizations • Report relationships and transactions with taxable partnerships 7
Core form – Part IV: Checklist of Required Schedules: R • Schedule R is required to capture information about the complex organizational structures of tax-exempt organizations. Use Schedule R to report your: – Ownership of disregarded entities – Relationships with any tax-exempt or taxable entities – Relationships with 'controlled entities' (512(b)(13)) – Transfers to an exempt non-charitable related organization – Conduct of more than 5% of your exempt activities through an unrelated entity that is taxed as a partnership 8
Core form – Part IV: Checklist of Required Schedules: R (AMF addition) 9
Schedule R – Related organizations • Specific questions on each type of entity including income and end of year assets – Identification of disregarded entities; Part I – Related tax-exempt organizations; Part II – Related taxable organizations taxable as partnerships ; Part III – Related taxable corporations or trusts ; Part IV – Disclose transactions with related organizations (as described in §512(b)(13)) and non-charitable tax-exempt organizations; Part V – Provide information about unrelated partnerships through which the organization conducted over 5% of its activities; Part VI 10
Schedule R – Related organizations • Definition of related organization – Parent ; controls the filer – Subsidiary ; controlled by another filer or parent organization – Brother/sister ; controlled by the same person/entity or persons/entities who control the filer – Supporting/supported – relationships described under Section 509(a)(3) – VEBA – includes sponsoring and contributing employers • Transactions with disregarded entities do not need to be reported in Part V of Schedule R 11
Schedule R – Related organizations • Definition of control for taxable entities ; ownership of more than 50% of: – Stock by voting power or value of a corporation – Profits or capital interest in a partnership or LLC – The beneficial interest in a trust • You are also related in these situations: – Managing partner in a partnership or LLC that has three or fewer managers – One of three or fewer general partners in an Limited Partnership – Sole member of a disregarded entity 12
Schedule R – Related organizations • Definition of control of nonprofit organizations – Power to appoint, remove, replace (or veto the choice) a majority of directors or trustees • Typically located within organizational documents (Bylaws) – Majority of subsidiaries directors or trustees are also trustees, directors, officers, employees or agents of the parent organization (overlap by design or coincidence) • Can be spelled out in organizational documents • May need reviewed annually by comparing board listing • Control under 512(b)(13): more than 80% control 13
Schedule R – Related organizations Example: Control by multiple persons A and B each appoint 1/3 rd of the board members of C and D. • Separately, no control A B • Combined, A & B control C & D Because C and D are controlled by the same persons, they are brother / sister to each other and therefore related. C D Note: A & B are not related to each other nor to C or D 14
Schedule R – Related organizations Part II Example: Control by multiple persons (cont’d) 15
Schedule R – Related organizations Part V Example: Control by multiple persons (cont’d) 16
Schedule R – Related organizations Example: Indirect Control Multiply 100% x 51% = 51% B Controls C directly B Controls D indirectly B is related to both C and D 17
Schedule R – Related organizations Part III & IV Example: Indirect Control (cont’d) (cont’d) 18
Schedule R – Related organizations Part V Example: Indirect Control (cont’d) Transactions for the reporting period: 1. Dividends received by B from C in the amount of $65,000. 2. C owns real estate and leases office space to B. The amount for the year is $120,000. 3. D makes partner distributions of $35,000 to C. 4. D also rents space from C. Amount totals $240,000 for the year. 19
Schedule R – Related organizations Part V Example: Indirect Control (cont’d) 20
Schedule R – Related organizations Example: Indirect Control Multiply 80% x 60% = 48% X Controls Y directly X Does NOT control Z indirectly X and Y are related X and Z are NOT related 21
Schedule R – Related organizations Part III & IV Example: Indirect Control (cont’d) (cont’d) 22
Schedule R – Related organizations Part V Example: Indirect Control (cont’d) Transactions for the reporting period: 1. Y has a loan outstanding from X for $100,000. 2. Annual interest paid on the loan from Y to X is $6,000. 3.Y pays dividends to X of $35,000. 23
Schedule R – Related organizations Part V Example: Indirect Control (cont’d) 24
Schedule R – Related organizations Example: Indirect Control Y controls Z through means other than ownership % (i.e. as 1 of 3 general partners) Multiplication of % not used X Controls Y directly X Controls Z indirectly X and Y are related X and Z are related 25
Schedule R – Related organizations Part III & IV Example: Indirect Control (cont’d) (cont’d) 26
Schedule R – Related organizations Part V Example: Indirect Control (cont’d) 27
Schedule R – Related organizations Example: Indirect Control B & D – directly controlled by A C – indirectly controlled by A B, C, D = subsidiaries of A C = subsidiary of B B, C, D = brother / sister relationship 28
Schedule R – Related organizations Part II (AMF addition) Example: Indirect Control (cont’d) 29
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