From: Leonard J. Andorfer & Co., LLP

Date:

To: Board Member of organization

From: Leonard J. Andorfer & Co., LLP

Subject: Form 990 Return of Organization Exempt from Income Tax

As you are aware, the Form 990 was revised by the Internal Revenue Service for the tax years beginning January 1, 2008. The Form 990 asks if the tax return was furnished to and reviewed by the board prior to filing. In addition, a description of the process used by the board to review the form must also be disclosed in the Form 990. To aid the board in the review process, we would like to highlight several of the changes to the form.

Part I, found on page one of the 990, presents a snapshot of the organization. In addition to a mission statement, Part I presents data for revenues, expenses, revenue less expense, total assets, total liabilities and net assets. As this information is available for both the current and prior year, the opportunity is available to the board to compare each year’s results and to review consistency and trends between the years presented.

Page two, Part III describes the organization’s mission, program service achievements and amounts spent for each achievement. Organizations can include the number of clients served, or other tangible measures of achievements thereby providing readers/users with a comprehensive picture of the organization’s accomplishments. Directors should verify the programs and accomplishments are consistent with the mission of the organization. Any new activities require disclosure on the Form 990 and, depending on the activity, changes to organizational documents.

Part IV, page three and four, asks questions regarding activities of the organization. Some of these activities increase the risk of tax code violations. A positive answer to a checklist item results in a schedule added to the form 990. For example, if the organization has endowment funds, Schedule D is added to the Form 990 and additional information regarding the endowment is reported. Lobbying requires completion of Schedule C.

Part V, Statements Regarding Other IRS Filings and Tax Compliance, page five lists other tax compliance requirements. Questions include filing of informational returns, receipts given for contributions over $250, and payroll tax filing compliance. If lines 3b, 6b, 7b or 7h are answered ‘No’ or lines 5a, 8,9a or 9b are answered ‘Yes’, the organization could be subject to penalties and interest. REMC directors may wish to verify that 85% of the gross income consists of amounts collected from members for the sole purpose of meeting losses and expenses as the data is provided in question eleven.

Governance, Management, and Disclosure, Part VI, page six, lists several policies that are not required by the IRS, but notice the question of existence is asked. The policies include conflict of interest, whistleblower, document retention, and evaluation of joint venture arrangements. We strongly encourage adoption of these policies. In addition, the organization is asked to disclose how the conflict of interest policy is enforced, how executive director and other salaries are determined, are minutes of the governing body kept, etc.

Officers, directors and key employees are listed in Part VII, page seven. Compensation and benefits are listed here and on Schedule J, if required. Given the background of the revision of Form 990, the directors should consider if compensation is appropriate for the mission of the organization.

Statement of Revenue is found on page nine, Part VIII. Revenue sources include contributions, membership dues, program service revenue, special events, gaming, etc. The director should be aware of the revenue sources resulting in unrelated business income or if there is a large dependency upon investment income to meet the cost of functional expenses. The director should also be aware if the organization is dependent upon a few donors for the majority of contribution revenue.

Functional Expenses are listed in Part IX, page ten. Totals are presented for program service, management and general and fundraising expenses.

Part X, Balance Sheet, and Part XI, Financial Statements and Reporting, are found on page 11. Key points include lines five, six and twenty-two of Part X, receivables and payables from/to current and former directors, officers, and other related parties and disqualified persons. Part XII requests information regarding accounting method, financial statement preparation and independent accountant selection.

The majority of not for profit organizations are required to complete Schedule A, Public Charity Status and Public Support. Part II or III is completed to verify the public support and investment income percentage are within the required guidelines.

Schedule B, Schedule of Contributors, must be completed for all donations exceeding the greater of $5000 or 2% of contribution income. Cash and noncash gifts are listed in Schedule B.

Schedule C, Political Campaign and Lobbying Activities, is completed for an organization that made political contributions. Please be aware that participating in political campaigns could result in the revocation of the tax-exempt status of the organization.

Schedule D, Supplemental Financial Statements, is completed for any organization possessing collections of art or historical treasures, endowments, fixed assets, investments and other assets. Revenues and expenses per the Form 990 are reconciled to the amounts presented in the audited financial statements.

Schedule G, Supplemental Information Regarding Fundraising or Gaming Activities, requests information on the methods used to solicit funds, amounts paid to professional fundraisers, fundraising and gaming events.

Schedule R, Related Organizations and Unrelated Partnerships, requires disclosure of related tax-exempt organizations and relationships with organizations taxable as partnerships, corporations or trusts.

In addition, there are several other schedules, such as Schedule O for Supplemental Information, which may be attached to the organization’s Form 990.

Please note that the IRS requires disclosure of information which can be compared to state records, the prime example being gaming. Another question on the 990 which may need further consideration is in regards to the states in which the organization is registered as a not for profit and can seek contributions.

This is a very short overview of the new Form 990 given the instructions are seventy-nine pages in length, exclusive of the attached schedules. However, the purpose of the director’s review is to a) verify the accuracy of the return and b) to access the effectiveness of the non-profit organization in fulfilling its tax exempt purpose. Hopefully this information will shorten your task.