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Compensation tips for Your Form 990

Avoiding trouble on the federal Form 990 regarding compensation is often a matter of just making sure that I’s are dotted and T’s are crossed, small things rather than huge gaps. It can be extremely difficult to emerge from a governmental cloud, and especially frustrating if that cloud falls because of a small clerical error.

Speaking during the AICPA Not-For-Profit Financial Executive Forum, Joe De Trane of Grant Thornton offered the following tips about keeping everyone, including the Internal Revenue Service (IRS), happy when paying people and keeping good records:

  • Effective compensation design. Pay reasonable amounts. Consider performance-based compensation. Maximize 457(b) plan deferrals before implement a 457(f) plan.
  • Form 990 reporting. Don’t forget to report amounts paid by related organizations. Section 132 fringe benefits are not reported. Deferred compensation accruals are not reported if contingent on organizational goals or performance criteria. Amounts paid within two and a half months after year-end are not reported deferred compensation.
  • Items specifically reported on Schedule J have fallen out of favor among tax-exempt organizations. First class or charter travel. Tax gross-up payments. Social club dues. Personal services.
  • Avoid surprises. Your 457(f) plans with elective deferrals, rolling risk of forfeiture or non-compete used as vesting condition are subject to Section 409(a). 457(f) plans that defer payment beyond vesting are also subject to Section 409(a).

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