Schedule L provides additional information about financial transactions with interested persons. It’s important to note that Part I uses one definition of “interested persons,” and Parts II – IV use a second definition. Part I uses the definition under section 4958, which I discuss in this post about excess benefit transactions. This post is worth reading if you have any EBTs, as there are other ramifications beyond reporting them on Schedule L. Parts II-IV use a definition on page 1 of the Schedule L instructions.

Part I discusses excess benefit transactions. The blog post I link to above describes EBTs, who is considered an interested person for reporting purposes, and possible excise taxes for those involved. In Schedule L Part I, when identifying the disqualified person in column (a), if the person is an interested person because he/she is:

  • A substantial contributor (aggregate contributions of at least $5,000 during the fiscal year you’re reporting on your Form 990, or a prior year, or gifts greater than 2% of total contributions for the 5-year period ending with the year being reported; these contributors would be reported on your Schedule B)
  • A family member of a substantial contributor
  • A 35% controlled entity of a substantial contributor
  • An employee of a substantial contributor, or employee of a 35% controlled entity of a substantial contributor

then enter the term “substantial contributor” or “related to substantial contributor” instead of the interested person’s name, in order to protect the contributor’s confidentiality. (Remember that, for public charities, the names and addresses of significant contributors on Schedule B are not required to be made public with the rest of your Form 990.)

In column (b), where you report the relationship of the disqualified person to your organization, if the person is related to a significant contributor, describe the relationship without using their names, e.g. “child of significant contributor,” or “employee of 35% controlled entity of contributor.” If the person identified in column (a) is not a significant contributor, or related employee or relative, then column (b) would have a description like “officer,” or “family member of director.”

If someone meets multiple criteria for being an interested person, one related to being a substantial contributor and one not related to this, then don’t reference the substantial contributor status. For example if Jeff Smith is a significant donor and the husband of director Jane Doe, then put “spouse of director Jane Doe” in column (b).

In columns (c) and (d), describe the transaction and state whether or not it’s been corrected. In Part V of Schedule L, identify any manager(s) who participated in the transaction, knowing it was an excess benefit transaction. On Part I, line 2, enter any excise tax incurred by disqualified persons and managers of your organization involved in the transactions. Make sure you also file Form 4720 to report and pay the tax on EBTs.

Schedule L can be found here, and more detailed instructions for filling it out are provided here. I will cover Part II, Part III, and Part IV in future posts.