Making sense of an IRS Form 990 Filing
December 31, 2018 7:05 PM Subscribe
A non-profit organization with which I have a passing familiarity has recently come under scrutiny by the IRS. I am by no means a tax expert but I was reading over the organization's IRS Form 990 filing from 2015 (link in body) and found some things there which I don't understand. Can you help me figure out whether these apparent discrepancies might actually be fishy or whether I just don't sufficiently understand the form and its instructions? Details on what I don't understand are inside.
I was trying to figure out how much the organization spent on compensation for its employees (especially its top employees; director / board members / etc), but the numbers I saw in the filing just didn't make sense to me:
IRS Form 990 filing from 2015
On form 990, part I, line 5, the "total number of individuals employed in calendar year 2015" is reported as 0.
On form 990, part I, line 15, the amount expended for "salaries, other compensation, employee benefits" is reported as $362,844.
On form 990, part VII, 8 people are listed as current officers, directors, trustees, and key employees. Column (D) lists $8,520 of "reportable compensation from the organization" to two of these individuals (each). This results in a subtotal, listed on line 1b of this section, of $17,040 in compensation to the named individuals.
On form 990, part IX, line 5, "compensation of current officers, directors, trustees, and key employees" is reported as $342,842. An additional $20,002 of "other salaries and wages" are reported on line 7, which does add up to the $362,844 total previously reported on part I, line 15.
This would seem to leave a $325,802 difference between the $342,842 "compensation of current officers, directors, trustees, and key employees" reported there and the $17,040 compensation of "current officers, directors, trustees, and key employees" previously reported in part VII.
I don't understand what might have happened to the $325,802 in question. Can any of you explain some reasonable place that money might have gone that would be consistent with these forms? I don't see it, but I'm not very familiar with these kinds of filings. I am in no way associated with this organization, but the organization is of public interest to the community here and I am curious to try to figure out what might be going on with them.
I was trying to figure out how much the organization spent on compensation for its employees (especially its top employees; director / board members / etc), but the numbers I saw in the filing just didn't make sense to me:
IRS Form 990 filing from 2015
On form 990, part I, line 5, the "total number of individuals employed in calendar year 2015" is reported as 0.
On form 990, part I, line 15, the amount expended for "salaries, other compensation, employee benefits" is reported as $362,844.
On form 990, part VII, 8 people are listed as current officers, directors, trustees, and key employees. Column (D) lists $8,520 of "reportable compensation from the organization" to two of these individuals (each). This results in a subtotal, listed on line 1b of this section, of $17,040 in compensation to the named individuals.
On form 990, part IX, line 5, "compensation of current officers, directors, trustees, and key employees" is reported as $342,842. An additional $20,002 of "other salaries and wages" are reported on line 7, which does add up to the $362,844 total previously reported on part I, line 15.
This would seem to leave a $325,802 difference between the $342,842 "compensation of current officers, directors, trustees, and key employees" reported there and the $17,040 compensation of "current officers, directors, trustees, and key employees" previously reported in part VII.
I don't understand what might have happened to the $325,802 in question. Can any of you explain some reasonable place that money might have gone that would be consistent with these forms? I don't see it, but I'm not very familiar with these kinds of filings. I am in no way associated with this organization, but the organization is of public interest to the community here and I am curious to try to figure out what might be going on with them.
Maybe they paid everyone else as an independent contractor and none of them earned more than 100k (the threshold to be listed in the next section).
posted by NormieP at 7:47 PM on December 31, 2018 [1 favorite]
posted by NormieP at 7:47 PM on December 31, 2018 [1 favorite]
My guess? Either independent contractors or they subcontracted with another group and paid them for their employee's time. Since it looks like this group works with teachers, is it possible they were doing stipends or something like that?
posted by Toddles at 8:52 PM on December 31, 2018
posted by Toddles at 8:52 PM on December 31, 2018
From the IRS instructions: "The amount of compensation reported on Form 990, Part VII, for a listed person may differ from the amount reported on Form 990, Part IX, line 5, for that person due to factors such as a different accounting period (calendar vs. fiscal year) or a different accounting method."
If you look at the very top line of the Form 990, Part A, it says "For the 2015 calendar year, or tax year beginning ..."
The fact that there is no entry for the tax year indicates that they are defaulting to the tax year and calendar year being the same, that is, beginning on Jan. 1 and ending Dec. 31.
So the discrepancy you are seeing is not due to a different tax year differing from the calendar year. What is left is different accounting methods. What accounting methods usually refer to is cash basis vs. accrual basis. So in section XII they are probably reporting compensation as accrued. And in part IX they are probably reporting when the expense was cashed. As an example, if they sent a payroll check in late December 2015, the expense would be accrued in 2015 but the expense would be cashed in 2016 when the check was cashed. So the difference is explained by part of annual compensation accrued actually being a check cashed in January of the next year.
So the difference you see has to do with dates of expenses, typically at the end of a year, which are not the same for sections XII and IX.
posted by JackFlash at 9:08 PM on December 31, 2018
If you look at the very top line of the Form 990, Part A, it says "For the 2015 calendar year, or tax year beginning ..."
The fact that there is no entry for the tax year indicates that they are defaulting to the tax year and calendar year being the same, that is, beginning on Jan. 1 and ending Dec. 31.
So the discrepancy you are seeing is not due to a different tax year differing from the calendar year. What is left is different accounting methods. What accounting methods usually refer to is cash basis vs. accrual basis. So in section XII they are probably reporting compensation as accrued. And in part IX they are probably reporting when the expense was cashed. As an example, if they sent a payroll check in late December 2015, the expense would be accrued in 2015 but the expense would be cashed in 2016 when the check was cashed. So the difference is explained by part of annual compensation accrued actually being a check cashed in January of the next year.
So the difference you see has to do with dates of expenses, typically at the end of a year, which are not the same for sections XII and IX.
posted by JackFlash at 9:08 PM on December 31, 2018
A $300K difference in accrued vs. cash for an organization with two employees getting paid less than $9K each? That seems a little unlikely to me.
(Also, how are the two employees working 60 hrs/wk and getting paid less than $9K each? Independently wealthy?)
To me, the most likely answer is that in 2015 they erroneously transposed lines 5 and 7 of part IX. If you look at the 2016 form, line 7 of part IX is much larger than line 5, and line 5 matches the total of directors, etc. comp listed in part VII, which would be reasonable if they hired several people who were not directors, etc., and paid them less than $100K each (the reporting threshold for highly compensated employees not directors, etc.).
posted by praemunire at 10:51 PM on December 31, 2018 [1 favorite]
(Also, how are the two employees working 60 hrs/wk and getting paid less than $9K each? Independently wealthy?)
To me, the most likely answer is that in 2015 they erroneously transposed lines 5 and 7 of part IX. If you look at the 2016 form, line 7 of part IX is much larger than line 5, and line 5 matches the total of directors, etc. comp listed in part VII, which would be reasonable if they hired several people who were not directors, etc., and paid them less than $100K each (the reporting threshold for highly compensated employees not directors, etc.).
posted by praemunire at 10:51 PM on December 31, 2018 [1 favorite]
Hi praemunire, I'm a friend of the OP and have also looked at this form, but I was unable to find the organization's 2016 form 990 filing. I would really like to look at it to examine the possibly-transposed lines you mention. Would you be so kind as to let me know where you found that? Thanks!
posted by Juffo-Wup at 11:00 PM on December 31, 2018
posted by Juffo-Wup at 11:00 PM on December 31, 2018
(Also, how are the two employees working 60 hrs/wk and getting paid less than $9K each? Independently wealthy?)Yeah, I wondered about that too. This organization is based in the United States. Wouldn't that run afoul of minimum wage laws? Or would the "higher-ups" in the organization be allowed to say that some of those hours were in-kind donations instead of wage-hours worked?
posted by Juffo-Wup at 11:03 PM on December 31, 2018
http://990s.foundationcenter.org/990_pdf_archive/383/383600686/383600686_201612_990.pdf
posted by praemunire at 12:20 AM on January 1, 2019 [1 favorite]
posted by praemunire at 12:20 AM on January 1, 2019 [1 favorite]
As both a former Executive Director and a current board member of a nonprofit, the 990s do indeed strike me as suspicious.
In 2015, they list that they have zero voting board members, zero employees, and zero volunteers, but did not check the box indicating that they had ceased operation. That clearly can not be right - someone must have been running the ship at the end of the calendar year.
The matter of salary does not appear to be a issue of them using independent contractors, as that would be reported in Part IX, section 11. (In fact, they do list $615 in payment to non-employee accounting and legal staff.)
Of special note here is that they ultimately list $794,000 in salaries across 2015 and 2016, but do not list payroll taxes as an expense, nor do they indicate that wage statements were sent to the IRS. This could all just be a reporting mix-up, but that's certainly the kind of thing that would raise interest at the IRS.
posted by eschatfische at 6:03 AM on January 1, 2019 [2 favorites]
In 2015, they list that they have zero voting board members, zero employees, and zero volunteers, but did not check the box indicating that they had ceased operation. That clearly can not be right - someone must have been running the ship at the end of the calendar year.
The matter of salary does not appear to be a issue of them using independent contractors, as that would be reported in Part IX, section 11. (In fact, they do list $615 in payment to non-employee accounting and legal staff.)
Of special note here is that they ultimately list $794,000 in salaries across 2015 and 2016, but do not list payroll taxes as an expense, nor do they indicate that wage statements were sent to the IRS. This could all just be a reporting mix-up, but that's certainly the kind of thing that would raise interest at the IRS.
posted by eschatfische at 6:03 AM on January 1, 2019 [2 favorites]
You can't expect to get a meaningful view of an organization by looking at just a single Form 990 because it is just a single snapshot of an instant of time. You need to look at the forms for the preceding and following years to get a real picture of the flow of funds, as I pointed out about discrepancy between accrued and incurred expenses.
posted by JackFlash at 9:21 AM on January 1, 2019
posted by JackFlash at 9:21 AM on January 1, 2019
eschatfische: So actually that was an amended 990, they have an earlier one for 2015 (with disturbingly different numbers) that lists non-zero numbers for the governing body. Still 0 employees.
posted by NormieP at 12:32 PM on January 2, 2019
posted by NormieP at 12:32 PM on January 2, 2019
This thread is closed to new comments.
posted by parmanparman at 7:27 PM on December 31, 2018