Part IV of this schedule reports business transactions involving interested persons (IPs). The definition of IP used in Part IV of Schedule L is the same as in Part II, with an addition to the first bullet point that former officers, directors, trustees, and key employees within the last 5 years are considered IPs whether or not you need to report them in Form 990, Part VII, Section A, or Form 990-EZ Part IV.
You’ll report any payments made during the fiscal year you’re reporting on, regardless of when you entered into the business transaction. If the total amount paid to an IP is below certain thresholds, you don’t need to report it. You must report them if:
- The total amount paid during the fiscal year between your organization and the IP exceeds $100,000
- The total paid during the fiscal year for a single transaction exceeds the greater of $10,000 or 1% of your total revenue for the year
- Compensation to a family member of a current or former officer, director, trustee, or key employee listed in Form 990, Part VII, Section A that exceeds $10,000
- If you have at least $10,000 invested in a joint venture with an IP, even if you didn’t make the investment this year, and if the profits or capital interest of your organization and the IP each exceeds 10% at some point during the tax year
If you have multiple business transactions with an IP, you can choose to aggregate them or list them separately. If you aggregate them, include the total of all payments in column (c) and all the types of transactions in column (d).
Some transactions are exempt from reporting in Part IV, including:
- Excess benefit transactions reported in Part I
- Loans reported, or not required to be reported, in Part II
- Grants and other assistance reported, or not required to be reported, in Part III
- Compensation reported in Form 990, Part VII, Section A, unless it was to a family member of another person reported therein
- If a bank is an IP, deposits into and withdrawals from a bank account in the ordinary course of business, on the same terms as the bank offers to the general public
- Membership dues that you charge to officers, directors, etc.
- If you transfer funds to an IP to make investments on your behalf as your agent or contractor, but not as part of a joint venture, don’t report the entire amount transferred. Only report the management fee, service fees, or carried interest (if any) of the IP.
- Transactions with publicly traded companies in the ordinary course of the publicly traded company’s business, on the same terms as it generally offers to the public, or if they give your organization more favorable terms
In column (a), list the name of the IP involved in the transaction. 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), enter the relationship between the IP and your organization, such as “key employee of the organization,” “family member of Bob Smith, former director,” or “entity more than 35% owned by Bob Smith, former director and John Jones, president.” 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).
In column (c), put the dollar amount if you paid cash, or fair market value of assets and services you provided during the fiscal year, net of reimbursement of expenses. If you have a joint venture with an IP, report the total amount you have invested at the end of your fiscal year, even if you didn’t invest any of it during the fiscal year. Describe the type of transaction in column (d), e.g. employment, independent contractor arrangement, rental of property, or sale of assets. In column (e), check yes if all or part of what you paid the IP was based on a percentage of your revenue.
Schedule L can be found here, and more detailed instructions for filling it out are provided here. I covered Part I, Part II, and Part III in previous posts.