The NAVREF office continues to receive questions asking whether NPCs are “related” to VAMCs for purposes of IRS Form 990, and if yes, how to comply with the resulting compensation reporting requirements. 

Additionally, when NPCs have concluded they are related, some are having difficulty obtaining the fringe benefits amounts that must be broken out on Schedule J for individuals with compensation greater than $150,000.  Please see below for discussion of both of these issues.

1.  Relatedness and Reporting Compensation from the Related Organization.  Nancy Watterson-Diorio, executive director of the Boston VA Research Institute (BVARI), shared with NAVREF the following response to her inquiry about relatedness.  Richard C. Allen, an attorney in the Boston law firm Casner & Edwards, LLP, and Nancy have graciously allowed NAVREF to share Mr. Allen’s response with NAVREF members.  As informative as Mr. Allen’s email is, please be reminded that determining relatedness depends on a number of factors and NPCs should consult their own attorneys and accountants for guidance.
 

From: Allen, Richard [mailto:allen@casneredwards.com]
Sent: Wednesday, May 05, 2010 7:10 PM
To: Nancy Watterson-Diorio
Subject: Form 990 and Board Member Compensation from "Related Organizations"

Nancy,

I'm afraid that the advice that you were getting is correct that if a majority of BVARI's Board members are directors, officers or employees of VA Boston Healthcare, then VA Boston Healthcare is "related" for purposes of the Form 990, including the Form 990 requirement of reporting of compensation received by BVARI Board members from "related" organizations.  I have tried to make it come out the other way, but given the way that the Form 990 and Instructions are written, I can't.  There is no exception for federal "related" entities -- rather, the Instructions now explicitly include governmental entities within the scope of "related" entities.  And I can find no exception for "related" entity officers or employees who are not appointed by the "related" entity to the BVARI Board but rather merely are BVARI Board members solely at the invitation of BVARI.

Here is a summary of the situation:

1)  Compensation received by BVARI Board Members from entities, including governmental entities, "related" to BVARI is required to be reported in Form 990, Part VII, Section A, Line 1a (page 7 of the form) Click here for a copy of this part of Form 990, along with page 21 of the Form 990 Instructions, which provides that the filer must report at Line 1a all compensation received by Board members from "related" organizations.

2)  Per line 4 of said Part VII, Section A [page 8 of the Form 990 -- included in the above attachment], if the compensation totaled more than $150,000, it must also be reported in Schedule J, Part I, Line 4 and Schedule J, Part II. Click here for IRS Schedule J.

3)  The same "related" status requires a "yes" answer to Form 990, Part IV, Line 34 and completion of Schedule R, Parts II and V, which ask not about compensation but require BVARI to identify "related" organizations, including "related" governmental entities, and answer some questions about BVARI transactions and activities with the "related" organization. Click here for IRS Schedule R

4)  The Form 990 Instructions explicitly provide in two places that an entity that "controls" the filing entity is a "related" organization for these purposes, and that an entity "controls" the filer if a majority of the filer's Board members are trustees, directors, officers, employees, or agents of the "controlling" entity.  As mentioned above, I can find no exception for officers and employees of the "related" entity who are BVARI Board members not through Boston VA Healthcare appointment but rather solely at the invitation of BVARI.

Accordingly, my advice is that if a majority of the BVARI Board members are directors, officers or employees of VA Boston Healthcare, BVARI and VA are "related," [emphasis added by NAVREF] and you should not sign the Form 990 (it is signed under penalty of perjury) without inclusion of this compensation information.  Moreover, I doubt that the accounting firm can sign as preparer if this information is not included.

Failure to provide compensation information could open BVARI to some risk of penalties for incomplete and thus late filing, which can be as large as $100 per day if the IRS ends up being hard nosed about it, requiring a correction and taking the position that BVARI was late in filing a complete return 

I am happy to discuss.

Regards,

Dick

Richard C. Allen
Casner & Edwards, LLP
303 Congress Street
Boston, MA 02210
Phone:  (617) 426-5900 x 339
Fax:  (617) 426-8810
allen@casneredwards.com

Note from NAVREF:  During a recent training session on IRS Form 990 at which IRS personnel were present, speakers and attendees discussed the problems many were having obtaining personal compensation information from board members.  It was agreed that if the person signing the 990 formally asks board members for their compensation information and the board members decline to provide it, the signatory should document the request process and in Schedule O should explain why the required compensation information was not reported in Part VII of the core form and Schedule J.  

However, base salary information for federal employees is publicly available at http://php.app.com/fed_employees10/search.php.  [Link provided by Kristen Bourgerie, executive director of the Veterans Biomedical Research Institute (East Orange, New Jersey).]  Year 2008 information is posted, but may be adjusted using the 2009 federal pay adjustment rate of 2.9% provided for most federal employees; an additional 2% increase was provided for 2010. 

Whether compensation information is obtained from the individual or from some other source, NAVREF encourages “related” NPCs to ensure that VA board members are aware of the IRS compensation reporting requirements and to inform them that their information will be provided in the 990.

2.  Reporting Fringe Benefits from Related Organizations.  On pages 25-27 of the 2009 IRS Form 990 Instructions, the IRS provides a list of the types of compensation, including benefits, that they expect to see reported on core Form 990, Part VII and on Schedule J for individuals who receive compensation from “related organizations” (i.e., affiliated VAMC). 

Some NPCs report having difficulty obtaining fringe benefit information from VA personnel (because it may not be readily discernable on a W-2 form) or local HR departments.  Consequently, NAVREF consulted an individual familiar with VA human resources.  This individual noted that benefit costs are highly variable but confirmed that VA often uses a 30% fringe benefit rate when making estimates for budgetary purposes.  Therefore, if you have concluded that your NPC is “related” to your affiliated VAMC for purposes of Form 990 and you are unable to obtain from local resources exact fringe benefit information for VA employees serving on the NPC board, it may be appropriate to estimate fringe benefits at 30% and provide an explanation on Part III of Schedule J or on Schedule O.

Sample Explanation.  Individuals identified as receiving compensation from “related organizations” in Part VII of the core Form 990 are employees of the Department of Veterans Affairs (VA) [enter VAMC name and city].  Compensation information was requested from these individuals by [NPC title of person requesting information (i.e., Executive Director, Board Chair, etc.)].  However, the listed individuals were unable to provide detailed information about their benefits.  Therefore, based on the estimated fringe benefit rate VA often uses for budgetary purposes, [NPC] estimates fringe benefits for listed individuals to be 30% of compensation and has calculated them accordingly.