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greater) in a partnership or limited liability

Schedule L, Part III (however, this

transaction, because the dollar amounts

company, beneficial interest in a trust, or

exception does not apply to transactions

do not exceed either the $10,000

control of a nonprofit organization.

covered by the business transaction

transaction threshold or the $100,000

Ownership includes indirect ownership

exception described in Part III instructions

aggregate threshold.

(for example, ownership in an entity that

on page 2; such transactions may need to

Example 7. The facts are the same

has ownership in the entity doing

be reported in Part IV).

as in Example (6), except that the

•

business with the organization or

Compensation reported in Form 990,

organization pays $105,000 instead of

ownership by a family member); there

Part VII, Section A, unless the

$75,000. Because the aggregate

may be ownership through multiple tiers

compensation was to a family member of

payments for the business transactions

of entities. The constructive ownership

another person reported in Form 990,

exceed $100,000, the organization must

rules of section 267(c) apply for purposes

Part VII, Section A.

report all the business transactions. The

of Schedule L (Form 990 or 990-EZ), Part

organization can report the transactions

Example 1. T, a family member of

IV, using the definition of family member

on an aggregate basis or list them

an officer of the organization, serves as

in the Glossary rather than in section

separately.

an employee of the organization and

267(c)(4). Accordingly, an individual is

receives during the organization’s tax

Column (a). Enter the name of the

treated as owning stock owned by his or

year compensation of $15,000, which is

interested person involved in the direct or

her family member.

not more than 1% of the organization’s

indirect business relationship with the

Reporting thresholds. In reporting

total revenue. The organization is

organization.

transactions in Part IV, the organization is

required to report T’s compensation as a

Column (b). Enter the relationship

not required to report transactions with an

business transaction in Schedule L, Part

between the interested person and the

individual or organization for a dollar

IV, because the organization’s

organization. For example:

amount that did not exceed the greater of

compensation to a family member of an

•

Key employee of the organization,

$10,000 or 1% of the organization’s total

officer exceeds $10,000, whether or not

•

Family member of Freda Jones,

revenue for the organization’s tax year

T’s compensation is reported in Form

former director,

(the amount reported in Form 990, Part

990, Part VII.

•

Entity more than 35% owned by (1)

VIII, line 12, column (A)), except in either

Example 2. X, the child of a current

Freda Jones, former director, and (2) Lisa

of the following cases.

director listed in Form 990, Part VII,

Lee, President, or

1. Total payments for all transactions

•

Section A, is a first-year associate at a

Partnership more than 5% owned by

between the parties during the

law partnership that the organization pays

Freda Jones, former director.

organization’s tax year exceeded

$150,000 during the organization’s tax

Column (c). The dollar amount of the

$100,000. In this case, report all

year. Given that X has no ownership

transaction is the cash or fair market

transactions between the parties

interest in the law firm and is not an

value of other assets and services

regardless of the individual amounts of

officer, director, trustee, or key

provided by the organization during the

such individual transactions.

employee of the firm, the organization is

tax year, net of reimbursement of

2. The transaction was the

not required to report this business

expenses. For joint ventures with

organization’s payment of compensation

transaction in spite of X’s employment

interested persons, report the total

to a family member of a current officer,

relationship to the law firm.

amount invested by the organization in

director, trustee, or key employee of

Example 3. The facts are the same

the joint venture as of the end of the

the organization. In this case, payment of

as in Example (2), except that X is a

organization’s tax year, whether or not the

reportable compensation must be

partner of the law firm and has an

organization invested any part of the

reported if in excess of $10,000 for the

ownership interest in the law firm of

amount during the tax year. In reporting

organization’s tax year.

5.25% of the profits. The organization

compensation for services, it is sufficient

must report the business transaction due

to report compensation for the calendar

Aggregate all payments during the tax

to X’s greater than 5% ownership interest

year ending with or within the

year between the parties under the same

in the law firm and the dollar amount in

organization’s tax year.

contract or transaction. For instance, if a

excess of the $100,000 aggregate

director of the organization is a greater

Column (d). Describe the transaction(s)

threshold.

than 5% partner of a law firm (or greater

by type, such as employment or

than 5% shareholder if the law firm is a

Example 4. The facts are the same

independent contractor arrangement,

professional corporation) and the

as in Example (3), except that the law firm

rental of property, or sale of assets.

organization pays the law firm an amount

entered into the transaction with the

Column (e). State “Yes” if all or part of

of more than 1% of the organization’s

organization before X’s parent became a

the consideration paid by the organization

total revenue during the organization’s tax

director of the organization. The

is based on a percentage of revenues of

year under a contract for a particular case

organization must report all payments

the organization. For instance, state “Yes”

or legal matter (if the amount exceeds

made during its tax year to the law firm for

if a management fee is based on a

$10,000), treat all payments under such

the transaction.

percentage of revenues, or a legal fee

arrangement as a single reportable

Example 5. The facts are the same

owed to outside attorneys by a public

business transaction.

as in Example (3), except that X is the

interest law firm is a percentage of the

Aggregate reporting. The organization

child of a former director listed in Form

amount collected.

can aggregate multiple individual

990, Part VII, Section A. The organization

Reasonable effort. The organization is

transactions between the same parties, or

is required to report the business

not required to provide information about

list them separately. If aggregation is

transaction, as family members of former

a business transaction with an interested

chosen, report the aggregate amount in

directors listed in Part VII are interested

person if it is unable to secure the

column (c) and describe the various types

persons.

information regarding interested person

of transactions (for example, “consulting,”

Example 6. The facts are the same

status after making a reasonable effort

“rental of real property”) in column (d).

as in Example (3), except that the

to obtain it. An example of a reasonable

Exceptions. Do not report the following

organization pays $75,000 in total during

effort for Part IV is for the organization to

in Part IV.

the organization’s tax year for 15

distribute a questionnaire annually to

•

Excess benefit transactions reported

each current or former officer, director,

separate transactions to collect debts

in Schedule L, Part I.

owed to the organization. None of the

trustee, and key employee listed on

•

Loans reported (or not required to be

transactions involves payments to the law

Form 990, Part VII, Section A, that

reported) in Schedule L, Part II.

partnership in excess of $10,000. The

includes the name, title, date, and

•

Grants and other assistance reported

organization is not required in this

signature of each person reporting

(or not required to be reported) in

instance to report the business

information and contains the pertinent

-4-

Instructions For Schedule L (Form 990 Or 990-Ez) - Transactions With Interested Persons - 2010 Page 4

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