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Part VI, Section A of the Form 990 Shines a Light on Your Board and Governance Practices
Articles A. Michael Gellman (CPA, CGMA) Articles A. Michael Gellman (CPA, CGMA)

Part VI, Section A of the Form 990 Shines a Light on Your Board and Governance Practices

Part VI, Section A of the Form 990 asks many probing questions related to a nonprofit organization’s “Governing Body and Management.” How an organization chooses to respond to these questions will directly impact perceptions of the quality of its management systems and the integrity of its governance practices, so be thoughtful and complete with your responses.

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GUIDE SHEET: Form 990, Page 6, Part VI, Section A - Governing Body and Management [SUBSCRIBERS-ONLY]
Resources, Subscribers-Only R. Michael Sorrells (CPA) and A. Michael Gellman (CPA, CGMA) Resources, Subscribers-Only R. Michael Sorrells (CPA) and A. Michael Gellman (CPA, CGMA)

GUIDE SHEET: Form 990, Page 6, Part VI, Section A - Governing Body and Management [SUBSCRIBERS-ONLY]

R. Michael Sorrells (CPA) and A. Michael Gellman (CPA, CGMA) jointly authored this guide sheet to provide insights and tips on this highly visible portion of the Form 990, which directly impacts perceptions of the quality of your nonprofit organization’s management and the integrity of its governance practices.

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Successful Charity Auctions Start with Careful Planning
Articles A. Michael Gellman (CPA, CGMA) Articles A. Michael Gellman (CPA, CGMA)

Successful Charity Auctions Start with Careful Planning

Charity auctions are used by nonprofit organizations of all shapes and sizes. Organizations that are thoughtful with their investment in time and planning can realize major benefits from their charity auctions. However, many nonprofits commit to holding charity auctions without committing to the time, planning, and due diligence necessary to realize the most successful event possible. A poorly planned charity auction can potentially impact net proceeds received, damage the organization’s reputation, and even expose the organization to tax liabilities and other possible risks.

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CHECKLIST: Charity Auctions Done Right [SUBSCRIBERS-ONLY]
Resources, Subscribers-Only R. Michael Sorrells (CPA) and A. Michael Gellman (CPA, CGMA) Resources, Subscribers-Only R. Michael Sorrells (CPA) and A. Michael Gellman (CPA, CGMA)

CHECKLIST: Charity Auctions Done Right [SUBSCRIBERS-ONLY]

R. Michael Sorrells (CPA) and A. Michael Gellman (CPA, CGMA) jointly authored this checklist of key “Dos” and “Don’ts” to help your nonprofit optimize its charity auctions, run them efficiently and without unwanted hiccups, and be prepared to comply with key tax and legal requirements.

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Q&A #89 – Are grants from donor advised funds subject to 2% limit when calculating public support on Form 990, Schedule A?
Q&A Benjamin Takis Q&A Benjamin Takis

Q&A #89 – Are grants from donor advised funds subject to 2% limit when calculating public support on Form 990, Schedule A?

As of the date of this post, contributions received from a donor advised fund (DAF) are generally counted in full and not subject to the 2% limitation when calculating public support under section 170(b)(1)(A)(vi) of the Internal Revenue Code on Form 990, Schedule A. This favorable treatment currently applies regardless of whether the individual who holds the DAF account makes substantial contributions to the organization. However, this treatment has been under increasing scrutiny, so be aware that these rules could change significantly in the future.

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Q&A #88 – Does theft or fraud need to be reported on the Form 990?
Q&A Benjamin Takis Q&A Benjamin Takis

Q&A #88 – Does theft or fraud need to be reported on the Form 990?

Whether theft or fraud must be reported on the Form 990 depends on the amount, and also on the role of the individual who committed the offense. Part VI, Line 5 of the Form 990 (on page 6) requires organizations to disclose whether they became aware of a “significant diversion of the organization’s assets.” Also, if assets were stolen by a “disqualified person,” this must be reported as an “excess benefit transaction” on Part IV, Lines 25a and 25b (on page 4) and Schedule L.

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Reporting the Total Number of Volunteers on the Form 990
Articles A. Michael Gellman (CPA, CGMA) Articles A. Michael Gellman (CPA, CGMA)

Reporting the Total Number of Volunteers on the Form 990

Nonprofits have only a few touchpoints where a lasting impression can be made in the blink of an eye. These opportunities must be given careful thought so they can be optimized and leveraged before they disappear. The total number of volunteers reported on Page 1, Line 6 of the Form 990 is one of those key touchpoints that most organizations take for granted.

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Q&A #63 – Are grants from foreign charities subject to the 2% limit when calculating public support on the Form 990, Schedule A?
Q&A Benjamin Takis Q&A Benjamin Takis

Q&A #63 – Are grants from foreign charities subject to the 2% limit when calculating public support on the Form 990, Schedule A?

This is a common question that has lacked a clear answer for a very long time. Most practitioners have concluded that grants from foreign charities meeting certain requirements should qualify to be counted in full for public support test purposes, and not subject to the 2% limitation, However, there is some risk that the IRS could disagree with this position.

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Q&A #59 – What policies are recommended for a newly formed nonprofit?
Q&A A. Michael Gellman (CPA, CGMA) Q&A A. Michael Gellman (CPA, CGMA)

Q&A #59 – What policies are recommended for a newly formed nonprofit?

For new nonprofit organizations, Part VI, Section B on page 6 of the Form 990 is a good starting point to look for basic guidance related to which governing policies should be adopted in the organization’s early start-up phase. While some of these policies may not be relevant, most new organizations should start, at a minimum, with a conflict of interest policy, whistleblower policy, and document retention and destruction policy. Additionally, I recommend that new organizations consider adopting a code of ethics policy.

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Q&A #56 – Who should fill out an organization’s annual conflict of interest disclosure statement?
Q&A Benjamin Takis Q&A Benjamin Takis

Q&A #56 – Who should fill out an organization’s annual conflict of interest disclosure statement?

Processes for applying and monitoring conflict of interest policies vary widely for different nonprofits, but the Form 990 is a good starting point for basic guidance. As a practical matter, you want to ensure that the annual conflict of interest disclosure statement is at least filled out by all directors, officers, and “key employees,” as these terms are defined for purposes of Part VI, Line 12b on the Form 990. As a technical matter, all employees and volunteer leaders who are (or could be) “disqualified persons” as defined in Treas. Reg. § 53.4958-3 should also be required to disclose conflicts of interest, so it is prudent to err on the side of distributing the annual conflict of interest disclosure statement more widely.

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Q&A #55 – What Board members are considered independent for purposes of reviewing executive compensation?
Q&A Benjamin Takis Q&A Benjamin Takis

Q&A #55 – What Board members are considered independent for purposes of reviewing executive compensation?

The key guidance addressing independent review and approval of executive compensation for Form 990 purposes is set forth in Treas. Reg. § 53-4958-6. The key principle is that the persons reviewing and approving executive compensation should not be in a position to economically benefit from the compensation and should not be family members of the person receiving the compensation or otherwise have a business or employment relationship with this person.

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Q&A #54 – What comparability data must a small 501(c)(3) organization review when determining executive compensation?
Q&A Benjamin Takis Q&A Benjamin Takis

Q&A #54 – What comparability data must a small 501(c)(3) organization review when determining executive compensation?

For small organizations, the rule for reviewing comparability data when determining compensation amounts is relatively easy to satisfy. This Form 990 question is based on Treasury Regulations issued under the “intermediate sanctions” rules. Treas. Reg. § 53-4958-6 provides that organizations with less than $1 million in annual revenue (averaged over the three prior tax years) can satisfy this standard by reviewing “data on compensation paid by three comparable organizations in the same or similar communities for similar services.”

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Q&A #53 – How should a nonprofit provide a copy of its Form 990 to the Board before filing?
Q&A A. Michael Gellman (CPA, CGMA) Q&A A. Michael Gellman (CPA, CGMA)

Q&A #53 – How should a nonprofit provide a copy of its Form 990 to the Board before filing?

Virtually all organizations check “Yes” to Part VI, Line 11a on page 6 of the Form 990, to affirm that they provided a complete copy of the Form 990 to all members of their governing Board, and failure to check “Yes” can negatively impact an organization’s reputation and appearance to honor transparency (and for publicly supported charities, affect their rating on charity watchdog websites). However, organizations should put careful thought into what it means to satisfy this standard.

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