The New Form 990 Executive Compensation What the

The New Form 990 Executive Compensation What the IRS Wants to Know

Executive Compensation – Overview • Tax exempt organizations must not pay employees more than reasonable compensation for their services. • IRS and some members of Congress are particularly interested in levels of compensation paid to exempt hospital executives. The New Form 990, Executive Compensation

Executive Compensation – Overview (cont. ) • Senator Charles Grassley the top Republican on the Senate Finance Committee has expressed concern with the amounts paid to non profit hospital executives and whether hospitals’ boards are taking full responsibility for approving them. • In addition, paying reasonable compensation is consistent with the core Catholic values of responsible stewardship and treating employees fairly and justly. The New Form 990, Executive Compensation

Executive Compensation – Overview (cont. ) An organization can qualify for a rebuttable presumption of reasonableness if, when setting executive compensation, there is: 1. 2. 3. Approval of the compensation by independent persons; Review of appropriate comparability data; and Preparation of contemporaneous documentation, such as minutes, that reflect the deliberations and decisions made regarding the compensation setting. The New Form 990, Executive Compensation

New Form 990 and Executive Compensation • The IRS is now requiring increased disclosure about compensation levels and processes. • Changes from the previous Form 990 include: - Broader group of persons covered - Expanded types of compensation covered - More detailed questions about compensation setting practices - Specific questions about the types of “perks” provided The New Form 990, Executive Compensation 5

New Form 990 and Executive Compensation (cont. ) • All exempt organizations must answer compensation questions on the Core Form, Part VII. • In addition, if one or more persons listed on the Core Form received compensation in excess of $150, 000, the organization must complete Schedule J. The New Form 990, Executive Compensation 6

990 Core Form, Part VII Must disclose compensation provided to: • Current and former officers, trustees, key employees, and 5 highest compensated employees who received more than $100, 000 • Former trustees who received more than $10, 000 for serving as trustees • Five highest compensated independent contractors The New Form 990, Executive Compensation 7

990 Core Form, Part VII (cont. ) New definition of key employee : - Had reportable compensation exceeding $150, 000 for the calendar year, and - Had or shared responsibilities over the entire organization or over at least 10% of the organization’s activities; and - Was one of the 20 employees with the highest reportable compensation for the calendar year. The New Form 990, Executive Compensation 8

Schedule J – Supplemental Compensation Information • Applies to: every officer, director, trustee, key employee (including former), and top 5 highest compensated employees with reportable income above $150, 000 or reportable plus non-reportable above $250, 000. • Requires full compensation disclosure with breakdown by type of compensation. • Requires disclosure of “perks” such as first-class travel, companion travel, tax indemnification and gross-ups, discretionary spending, housing allowance or personal residence, business use of personal residence, health or social club dues, personal services. The New Form 990, Executive Compensation 9

Schedule J – Supplemental Compensation Information (cont. ) • Must disclose whether reimbursement of expenses subject to written policy and substantiation. • Must identify CEO compensation review process, including whether a compensation consultant was used to determine comparables. • Must state whethere are change in control payments, severance payments, SERP’s, equity-based compensation, etc. • Must disclose whether any person on Schedule J was paid compensation based on net earnings or revenues of the organization or related organizations. The New Form 990, Executive Compensation 10

Suggestions for Boards Regarding Executive Compensation 1. Review your executive compensation-setting processes for consistency with the rebuttable presumption requirements, core Catholic values and Part I of the Ethical and Religious Directives. 2. Determine whether the organization has appropriate policies on compensation, perquisites, and reimbursement of expenses. 3. Determine whethere may be compensation issues that should be clarified/explained further on the Form 990. 4. Confirm that your organization has prepared responses to inquiries from media and others regarding executive compensation. The New Form 990, Executive Compensation 11

Additional Resources http: //www. irs. gov/charities/article/0, , id=206636, 00. html http: //www. 990 forhospitals. org/ The New Form 990, Executive Compensation 12

Thank You! The New Form 990, Executive Compensation