2008 Form 990 – Compensation Best Practices (Part II)
The Internal Revenue Service has revised Form 990 for the 2008 tax year. PYA has identified a “Best Practices” approach for use by our clients and friends in preparing to use the revised form. This is the second alert that focuses on reviewing certain compensation policies and practices of the tax exempt organization.
The 2008 Form 990 revises compensation disclosures in several ways. Management, especially the organization’s financial officers, should immediately familiarize themselves with the various disclosures now contained in Schedule J, Compensation Information. Schedule J is a supplemental disclosure that will generally be required for any officer or key employee earning more than $150,000, and for certain other directors, trustees and former employees.
Part I of Schedule J asks a series of questions relating to compensation practices. The response to these questions may raise an organization’s IRS examination exposure. As a result, organizations should review their current practices and policies with this perspective. For example, Question 1 solicits a “check-the-box” response requiring the organization to disclose if it provides any of the following:
- First class or charter travel
- Travel for companions
- Tax gross-up payments
- Club dues or initiation payments
- Discretionary spending accounts
- Residential allowances or payments
- Payments for personal services
Some organizations may decide to discontinue or reduce certain payments or payment practices (such as tax gross-up payments, club dues or automobile allowances). At a minimum, organizations should carefully review existing policies and ensure that they are (1) in writing, (2) compliant with all statutory and regulatory guidance, and (3) consistently reviewed and enforced. For example, the use of the accountable plan rules should be reviewed for strict compliance. Any taxable payments should be included as taxable wages on the employee’s Form W-2. Substantiation and documentation requirements should be in writing and consistently enforced.
If you have any questions regarding any of the issues raised in this alert or would like to understand how PYA can help your employer in the transition to the revised 2008 Form 990, please contact the experts listed below at (800) 270-9629.
WE ARE REQUIRED BY IRS CIRCULAR 230 TO INFORM YOU THAT THE FOLLOWING DISCUSSION WAS NOT INTENDED OR WRITTEN TO BE USED, AND IT CANNOT BE USED, NOR RELIED UPON, BY ANY TAXPAYER FOR THE PURPOSE OF AVOIDING ANY PENALTIES THAT MAY BE IMPOSED UNDER FEDERAL TAX LAW. THE ADVICE WAS WRITTEN TO SUPPORT THE PROMOTION OR MARKETING OF THE TRANSACTIONS OR MATTERS ADDRESSED IN THE DISCUSSION. EACH TAXPAYER SHOULD SEEK ADVICE BASED ON ITS PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.
