Mastering Form 990 Schedule R: Reporting Transactions With Related - - PowerPoint PPT Presentation

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Mastering Form 990 Schedule R: Reporting Transactions With Related Organizations and Unrelated Partnerships

TUESDAY, DECEMBER 8, 2015, 1:00-2:50 pm Eastern

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• Dec. 8, 2015

Mastering Form 990 Schedule R

Angie Fidler Moss Adams angie.fidler@mossadams.com Frank Giardini Grant Thornton 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

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Agenda

I. Overview of Schedule R, Related Organizations and Unrelated Partnerships II. Defining “control” 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
• rganizational 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

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Core form – Part IV: Checklist of Required Schedules: R (AMF addition)

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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

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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

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Schedule R – Related organizations

• Definition of control for taxable entities; ownership of more than 50%
• f:

– 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

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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

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Schedule R – Related organizations

Example: Control by multiple persons A B C D

A and B each appoint 1/3rd of the board members of C and D.

• Separately, no control
• 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. Note: A & B are not related to each

• ther nor to C or D

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Schedule R – Related organizations Part II

Example: Control by multiple persons (cont’d)

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Schedule R – Related organizations Part V

Example: Control by multiple persons (cont’d)

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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

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Schedule R – Related organizations Part III & IV

Example: Indirect Control (cont’d) (cont’d)

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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.

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Schedule R – Related organizations Part V

Example: Indirect Control (cont’d)

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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.

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Schedule R – Related organizations Part V

Example: Indirect Control (cont’d)

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Schedule R – Related organizations

Example: Indirect Control

Y controls Z through means other than

• wnership % (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

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Schedule R – Related organizations Part III & IV

Example: Indirect Control (cont’d) (cont’d)

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Schedule R – Related organizations Part V

Example: Indirect Control (cont’d)

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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

Schedule R – Related organizations Part V

Example: Indirect Control (cont’d) Transactions for the reporting period: 1.B pays rent to A for $360,000 per year. 2.D pays B rent of $240,000 per year. 3.C makes a grant to B of $50,000. 4.B makes a grant to A of $100,000. 5.Employees, equipment and mailing lists are shared by all entities. Dollar amount is $600,000 per year.

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Schedule R – Related organizations Part V

Example: Indirect Control (cont’d)

31

Schedule R – Related organizations

Example: Split Interest Trusts A

Beneficial Interest: T1 = 51% T2 = 38% T3 = 27% T4 = 67% T5 = 100%

T5 T4 T1 T2 T3

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Schedule R – Related organizations Part IV

Example: Split Interest Trusts (cont’d)

33

Additional Form 990 Reporting Part IV: Checklist of Required Schedules

34

Additional Form 990 Reporting Part VII : Compensation

35

Identifying Unrelated Partnerships

• 1. Unrelated organization is treated as a

partnership for Federal tax purposes

• 2. The filing organization was a partner or

member at any time during the tax year

• 3. The filing organization conducted more than

5% of its activities, based on greater of total assets at year end or total revenue for tax year, through unrelated partnership

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Comments? Questions?

.

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Thank you!

Frank D. Giardini – Tax Principal East Region Not-for Profit & Healthcare Tax Leader Grant Thornton LLP 2001 Market Street, Suite 700 Philadelphia, PA 19103-7080 Direct Tel. 215-656-3060 Fax Tel. 215-561-1066 Cell 610-909-4292 Email Frank.Giardini@us.gt.com Angie Fidler CPA CGMA | MOSS ADAMS LLP Tax Senior Manager 999 Third Avenue, Suite 2800 Seattle, WA 98104 D (206) 302-6385 | T (206) 302-6500 C (260) 797-9311 | F (206) 622-9975 38