ISSUE

Discerning who might be “interested persons” for purposes of Schedule L (Form 990), Parts II – IV can be challenging.  Ultimately, your institution should have an annual questionnaire that gathers the required information in a complete and accurate manner.

SITUATION

Troas Bible College (TBC) is a private college exempt under Internal Revenue Code section 501(c)(3) and 170(b)(1)(A)(ii).  They are required to file Form 990 annually.

Now that June 30 is past, the TBC Accounting Team is working through their fiscal year-end questionnaire for officers, directors/trustees, and key employees that may need to be reported on Form 990, Part VII; Schedule J (Form 990); and/or Schedule L (Form 990).  In that process, they want to make sure they correctly and adequately gather the appropriate data for Schedule L, Part III (Grants or Assistance Benefiting Interested Persons).

TBC notes that they have put together an Excel worksheet to track all of their “interested persons,” including individuals listed at Form 990, Part VII, Section A; creators/founders; substantial contributors; a member of the school’s grant selection committee; family members; a 35% controlled entity of other defined “insiders;” certain employees (or child of an employee) of a substantial contributor or of a 35% controlled entity.  (Is that fun, or what?)

We explain that tuition remission and/or scholarships to “insiders” or their “family members” are reported at Schedule L, Part III.  The reporting – because TBC is a “school,” they can report in “summary” form – does not have to list each name/line item.  (How about all of those quotation marks!)  Also, we explain that scholarships to board members and/or their families may be taxable and need to be reported as income on Form 990, Part VII.

Note:  Because board members would not be specifically named in Schedule L, Part III, it would appear that this reporting – in itself – would not “disqualify” a board member from being reported as an independent voting member of the board/governing body.

 

RULES

From 2018 Schedule L (Form 990) Instructions:

Report each grant or other assistance (including provision of goods, services, or use of facilities), regardless of amount, provided by the organization to any interested person at any time during the organization’s tax year. Examples of grants are scholarships, fellowships, discounts on goods or services, internships, prizes, and awards. A grant includes the gift portion of a part-sale, part-gift transaction.

Schools. Colleges, universities, and primary and secondary schools aren’t required to identify interested persons to whom they provided scholarships, fellowships, and similar financial assistance. Instead, these organizations must, on Part III, group each type of financial assistance (for example, need-based scholarships, merit scholarships, discounted tuition) provided to interested persons on separate lines. For each line, the school should report in column (c), the aggregate dollar amount of each type of assistance, the type of assistance in column (d), and the purpose of the assistance in column (e), unless such reporting would be an unauthorized disclosure of student education records under the Family Educational Rights and Privacy Act (FERPA). Columns (a) and (b) should be left blank for these lines.

 

BOTTOM LINE

  • Schedule L (Form 990) is “triggered” by a “Yes” answer to any of the items at Form 990, Part IV, Lines 25a through 28c.
  • It is VERY important to closely follow the instructions to Schedule L (Form 990) – if applicable to your institution.
  • Gathering “insider” information can be daunting and time consuming. It is important to design a “robust” questionnaire for your school.
  • A school may report “scholarship” information in aggregate or summary format per the Schedule L, Part III instructions.

Specific questions? Email Dave Moja

The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.

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