Part II of the Schedule L reports loans between your organization and interested persons (IPs), whether your organization is making the loan to the IP, or the other way around. The definition of IP used in Part II of Schedule L is different from the definition used in Part I, and includes all of the following:

  • If you’re filing a Form 990, anyone listed in Part VII, Section A – current and former officers, directors, trustees, key employees, highly compensated employees, and disqualified persons. If you’re filing a Form 990-EZ, anyone listed in Part IV – current officers, directors, trustees, and key employees.
  • The creator or founder of your organization.
  • Substantial contributors – individuals and organizations who have made aggregate donations of at least $5,000 during the fiscal year you’re reporting on, and are reported on your Schedule B.
  • Family members of individuals listed above.
  • Entities at least 35% controlled by one or more individuals and/or organizations listed above.
  • Employees of substantial contributors and/or 35% controlled entities of substantial contributors.

In column (a), name the IP who is the debtor or creditor on the loan. If the IP is a substantial contributor, or a contributor’s family member, a 35% controlled entity of a contributor, or employee of such an entity or the contributor, then put “substantial contributor” or “related to substantial contributor.” This protects the confidentiality of the contributor. (Remember: the names and addresses of contributors are redacted from the publicly available version of your Schedule B and other schedules that draw from this information.)

In column (b), specify the relationship between the IP and your organization. If it’s a substantial contributor, put “substantial contributor” here. If you put “related to substantial contributor” in column (a), describe the relationship without using anyone’s name, e.g. employee of 35% controlled entity of substantial contributor.” If an IP is a substantial contributor or related to one, and also meets another criteria for being an IP, use the latter criteria and don’t reference his/her status of, or relationship to, the substantial contributor. E.g. if Jane Doe is a substantial contributor and also married to director John Doe, list her name in column (a) and “spouse of director John Doe” in column (b).

Describe the purpose for engaging in the loan in column (c), and check the relevant box in column (d). Put the original loan balance in column (e), and the amount outstanding at the end of your fiscal year in column (f). This may include principal, accrued interest, penalties, and/or collections costs. If you’re filing a Form 990, the total of all lines of column (f) should match the total of Part X, column (B), lines 5, 6, and 22 in the main body of the Form 990. Check the relevant boxes in columns (g), (h), and (i).

In this schedule, only list loans that are outstanding  at the end of your fiscal year. Also include loans made between your organization and a third party, or between an IP and a third party, that were transferred and became a debt between your organization and an IP. There are also some types of receivables or payables that do not need to be reported here:

  • Excess benefit transactions listed in Part I.
  • Advances under an accountable reimbursement plan.
  • Pledges receivable that will qualify as charitable contributions when they’re paid.
  • Accrued but unpaid compensation owed by the organization.
  • Loans from a credit union to an IP, if the loan is made on the same terms that are offered to other members of the credit union.
  • Tax-exempt bonds purchased from your organization and held by an interested person, if he/she bought the bonds on the same terms that were offered to the general public.
  • Deposits in a bank account, if the bank is an interested person, if the deposit was made in the ordinary course of business and on the same terms that the bank offers to the general public.
  • Receivables created in your ordinary course of business that are on the same terms you offer to the general public, e.g. if you run a hospital and provide medical care to one of your officers.

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