ISSUE:

Filers of Form 990 must report any loans, receivables, or payables to O/D/T/KE/HCE/DQ’s on Schedule L, Part II.

 

SITUATION:

Saltwater Christian College (SCC) is a private college exempt under Internal Revenue Code section 501(c)(3) and section 170(b)(1)(A)(ii).  While we are working with them to complete their Form 990, SCC’s Controller tells us that they have a “travel advance” (made under an accountable reimbursement plan) that has been outstanding to the President at year end for 20 days.  She inquires about the question at Form 990, Part IV, Line 26 and wonders if this question should be answered “Yes” and the advance reported on Schedule L, Part II.  Form 990, Part IV, Line 26 asks:

Did the organization report any amount on Part X, line 5, 6, or 22 for receivables from or payables to any current or former officers, directors, trustees, key employees, highest compensated employees, or disqualified persons? If “Yes,” complete Schedule L, Part II 

We say, “Great question, but that the advance should not trigger a ‘Yes’ here and should not require reporting on Schedule L, Part II because “advances under an accountable plan” is one of the exceptions in the Schedule L instructions.

 

RULES:

From Schedule L (Form 990), Part II instructions (2016):

Report details on loans, including salary advances, payments made pursuant to a split-dollar life insurance arrangement that are treated as loans under Regulations section 1.7872-15, and other advances and receivables (referred to collectively as “loans”), as described in Form 990, Part IV, line 26 (including receivables reported on Form 990, Part X, lines 5, 6, or 22), in Form 990-EZ, Part V, line 38a or in Form 990, Part IV, line 26 (if the organization reported an amount on Form 990, Part X, lines 5, 6, or 22). Report only loans between the organization and interested persons that are outstanding as of the end of the organization’s tax year. Report each loan separately, regardless of amount.

In addition to loans originally made between the organization and an interested person, report also loans originally between the organization and a third party or between an interested person and a third party that were transferred so as to become a debt outstanding between the organization and an interested person.

Exceptions. Don’t report the following in Part II (among others):

  • Excess benefit transactions reported in Schedule L, Part I.
  • Advances under an accountable plan as described in the instructions for Part II of Schedule J (Form 990), Compensation Information.
  • Pledges receivable that would qualify as charitable contributions when paid.
  • Accrued but unpaid compensation owed by the organization.
  • Loans from a credit union made to an interested person on the same terms as offered to other members of the credit union
  • Receivables outstanding that were created in the ordinary course of the organization’s business on the same terms as offered to the general public (such as receivables for medical services provided by a hospital to an officer of the hospital).

 

BOTTOM LINE:

  • Form 990, Part IV, Line 26 asks about loans, receivables, and payables to/from interested persons
  • These items are only reported if outstanding at year end
  • If these “to/froms” exist, they are reported on Schedule L (Form 990), Part II
  • There are several exceptions listed in the Schedule L, Part II instructions that should be closely reviewed

 

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.