Schedule L - Transactions with Interested Persons

2011

Instructions for Schedule L
(Form 990 or 990-EZ)

Department of the Treasury
Internal Revenue Service

Transactions With Interested Persons
Section references are to the Internal
Revenue Code unless otherwise noted.

General Instructions

More information. For more information
about the latest developments on Form
990 and its instructions, go to www.irs.
gov/form990.
Note. Terms in bold are defined in the
Glossary of the Instructions for Form 990.

Purpose of Schedule
Schedule L (Form 990 or 990-EZ) is used
by an organization that files Form 990 or
990-EZ to provide information on certain
financial transactions or arrangements
between the organization and
disqualified person(s) under section
4958 or other interested persons.
Schedule L is also used to determine
whether a member of the organization’s
governing body is an independent
member for purposes of Form 990, Part
VI, line 1b.
Supplemental information. Parts I-IV
can be duplicated if additional space is
needed. Also, Part V may be used to
explain a transaction or to provide
additional information.

Who Must File
The chart at the bottom of this page
provides which organizations must
complete all or a part of Schedule L and
must attach Schedule L to Form 990 or
990-EZ. If an organization is not required
to file Form 990 or 990-EZ but chooses to

Type of filer

do so, it must file a complete return and
provide all of the information requested,
including the required schedules.

Specific Instructions

For Parts I, II, and III, report all
transactions regardless of amount. Part
IV instructions provide individual and total
reporting thresholds below which
reporting is not required for an interested
person. Parts III and IV contain separate
reasonable effort instructions which
organizations may rely on to satisfy
reporting requirements for those Parts.
There is a separate definition of
interested person for each part of the
schedule, so a person who is an
interested person for one part may not be
an interested person for other parts of the
schedule. Each reportable transaction is
to be reported in only one part of
Schedule L, as described below.

Part I. Excess Benefit
Transactions
(To be completed by section 501(c)(3)
and 501(c)(4) organizations.)
Line 1. For each excess benefit
transaction involving an organization
described in section 501(c)(3) or (c)(4),
regardless of amount:
• Identify the disqualified person(s) that
received an excess benefit in the
transaction;
• Identify the organization manager(s), if
any, that participated in the transaction,

IF you answer “Yes” to . .

THEN you must complete

Section 501(c)(3) or 501(c)(4)
organization

Form 990, Part IV, line 25a or
25b (regarding excess benefit
transactions)

Schedule L, Part I.

Section 501(c)(3) or 501(c)(4)
organization

Form 990-EZ, Part V, line 40b
(regarding excess benefit
transactions)

Schedule L, Part I.

All organizations

Form 990, Part IV, line 26
(regarding loans)

Schedule L, Part II.

All organizations

Form 990-EZ, Part V, line 38a
(regarding loans)

Schedule L, Part II.

All organizations

Form 990, Part IV, line 27
(regarding grants)

Schedule L, Part III.

All organizations

Form 990, Part IV, line 28a, 28b, Schedule L, Part IV.
or 28c (regarding business
transactions)

Oct 21, 2011

Cat. No. 51522J

knowing that it was an excess benefit
transaction;
• Describe the transaction; and
• State whether the transaction has been
corrected.
Excess benefit transaction. An excess
benefit transaction generally is a
transaction in which an applicable
tax-exempt organization directly or
indirectly provides to or for the use of a
disqualified person an economic benefit
the value of which exceeds the value of
the consideration received by the
organization for providing such benefit.
For special section 4958 rules governing
transactions with donor advised funds
and supporting organizations, see the
special rules under Section 4958 Excess
Benefit Transactions in Appendix G in the
Instructions for Form 990 or Appendix E
in the Instructions for Form 990-EZ.
Applicable tax-exempt organizations are
generally limited to organizations which
(without regard to any excess benefit) are
section 501(c)(3) public charities or
section 501(c)(4) organizations, or
organizations that had such status at any
time during the 5-year period ending on
the date of the excess benefit transaction.
Section 501(c)(3) and (c)(4)
organizations should refer to the
instructions for Form 990, Part IV, line 25
(or Form 990-EZ, Part V, line 40b) before
completing Part I. For more information
on excess benefit transactions, section
4958, and special rules for donor advised
funds and supporting organizations, see
Appendix G in the Instructions for Form
990 (or Appendix E in the Instructions for
Form 990-EZ) and Pub. 557, Tax-Exempt
Status for Your Organization.
Line 2. Enter the amount of taxes
imposed under section 4958 on
organization managers or disqualified
persons, whether or not assessed by the
IRS, unless abated. Form 4720, Return of
Certain Excise Taxes Under Chapters 41
and 42 of the Internal Revenue Code,
must be filed to report and pay the tax on
excess benefit transactions.

Part II. Loans to and/or
From Interested Persons
Report details on loans, including salary
advances and other advances and
receivables (referred to collectively as
“loans”), as described in Form 990, Part
IV, line 26 or Form 990-EZ, Part V, line
38a. Report only loans between the
organization and interested persons that

are outstanding as of the end of the
organization’s tax year. Report each loan
separately, regardless of amount.
In addition to loans originally made
between the organization and an
interested person, report also loans
originally between the organization and a
third party or between an interested
person and a third party that were
transferred so as to become a debt
outstanding between the organization and
an interested person.
Interested persons. For Form 990
filers, interested persons for purposes of
Part II, are:
• For all organizations, current or former
officers, directors, trustees, key
employees, and highest compensated
employees listed in Form 990, Part VII,
Section A, are interested persons.
• For organizations described in section
501(c)(3) or 501(c)(4), disqualified
persons as described in section
4958(f)(1) are also interested persons.
• For organizations described in section
509(a)(3), disqualified persons as
described in section 4958(c)(3)(B) are
also interested persons.
For Form 990-EZ filers, interested
persons for purposes of Part II are current
officers, directors, trustees, and key
employees listed on Form 990-EZ, Part
IV.
Exceptions. Do not report the following
in Part II:
• Excess benefit transactions reported
in Schedule L, Part I.
• Advances under an accountable plan
as described in the instructions for Part II
of Schedule J (Form 990), Compensation
Information.
• Pledges receivable that would qualify
as charitable contributions when paid.
• Accrued but unpaid compensation
owed by the organization.
• Loans from a credit union made to an
interested person on the same terms as
offered to other members of the credit
union.
• Tax-exempt bonds purchased from
the filing organization and held by an
interested person, so long as the
interested person purchased the bonds
on the same terms as offered to the
general public.
• Receivables outstanding that were
created in the ordinary course of the
organization’s business on the same
terms as offered to the general public
(such as receivables for medical services
provided by a hospital to an officer of the
hospital).
Column (a). Identify the interested
person that was the debtor or creditor on
the loan. Also, state the organization’s
purpose for engaging in the transaction
(for example, “compensation package”).
Column (b). Check either “To” or “From”
whichever is applicable.
Column (c). Enter the original dollar
amount owed (the loan principal).
Column (d). Enter the balance due as of
the end of the organization’s tax year,

including outstanding principal, accrued
interest, and any applicable penalties and
collection costs. For Form 990 filers, the
sum total indicated in column (d) must
equal the total of Form 990, Part X,
Balance Sheet, column (B), lines 5 and 6
(for amounts owed to the organization),
and column (B), line 22 (for amounts
owed by the organization).
Column (e). Answer “Yes” if any
payment by the debtor was past due as of
the end of the organization’s tax year, or
if the debtor otherwise is in default under
the terms and conditions of the loan.
Column (f). State whether the
organization’s governing body (or a
committee of the governing body)
approved the loan transaction.
Column (g). State whether the loan is
evidenced by a promissory note or other
written agreement signed by the debtor.

Part III. Grants or
Assistance Benefiting
Interested Persons
Report each grant or other assistance
(including provision of goods, services, or
use of facilities), regardless of amount,
provided by the organization to any
interested person at any time during the
organization’s tax year. Examples of
grants are scholarships, fellowships,
discounts on goods or services,
internships, prizes, and awards. A grant
includes the gift portion of a part-sale,
part-gift transaction.
See Reasonable effort later,
TIP applicable to Part III.
Interested person. For purposes of Part
III, an “interested person” means a
current or former officer, director,
trustee, or key employee listed in Form
990, Part VII, Section A; a substantial
contributor; or a related person.
For purposes of Schedule L, Part III, a
“substantial contributor” is a person that
contributed during the organization’s tax
year at least $5,000 and is required to be
reported by name in Schedule B (Form
990, 990-EZ, or 990-PF), Schedule of
Contributors, for the organization’s tax
year. Thus, organizations not required to
file Schedule B are not required to report
transactions with substantial contributors
and their related persons in Schedule L,
Part III.
A “related person” means:
• A member of the organization’s grant
selection committee;
• A family member of any of the
organization’s current or former officers,
directors, trustees, or key employees
listed in Form 990, Part VII, Section A, of
substantial contributors, or of members of
the organization’s grant selection
committee;
• A 35% controlled entity of any of the
organization’s current or former officers,
directors, trustees, or key employees
listed in Form 990, Part VII, Section A; of

-2-

a substantial contributor; or of a member
of the organization’s grant selection
committee; or
• An employee (or child of an employee)
of a substantial contributor or of a 35%
controlled entity of a substantial
contributor, but only if the employee (or
child of an employee) received the grant
or assistance by the direction or advice of
the substantial contributor or 35%
controlled entity, or under a program
funded by the substantial contributor that
was intended primarily to benefit such
employees (or their children).
Exceptions. Do not report the following
in Part III:
• Excess benefit transactions reported
in Schedule L, Part I.
• Loans reported (or not required to be
reported) in Schedule L, Part II.
• Business transactions that do not
contain any gift element and that are
engaged in to serve the direct and
immediate needs of the organization,
such as payment of compensation
(including taxable and nontaxable fringe
benefits treated as compensation) to an
employee or consultant in exchange for
services of comparable value. Some
transactions may be reportable on
Schedule L, Part IV.
• Compensation to a person listed in
Form 990, Part VII, Section A (including
taxable and nontaxable fringe benefits
treated as compensation).
• Grants to employees (and their
children) of a substantial contributor or
35% controlled entity of a substantial
contributor, awarded on an objective and
nondiscriminatory basis based on
pre-established criteria and reviewed by a
selection committee, as described in
Regulations section 53.4945-4(b).
• Grants or assistance provided to an
interested person as a member of the
charitable class or other class (such as a
member of a section 501(c)(5), 501(c)(6),
or 501(c)(7) organization) that the
organization intends to benefit in
furtherance of its exempt purpose, if
provided on similar terms as provided to
other members of the class, such as
short-term disaster relief, poverty relief, or
trauma counseling. However, grants for
travel, study (such as scholarships or
fellowships), or other similar purposes
(such as to achieve a specific objective,
produce a report or other similar product,
or improve or enhance a literary, artistic,
musical, scientific, teaching, or other
similar capacity, skill, or talent of the
grantee) like those described in section
4945(d)(3) are not excluded from
reporting under this exception.
But see Schools, later, for instructions on
how to report grants, scholarships, and
other assistance from colleges,
universities, primary, and secondary
schools. Grants that are awards
recognizing past achievements also are
not excluded from reporting under this
exception. Grants for travel, study, or
similar purposes do not include such

purposes as short-term disaster relief,
poverty relief, or trauma counseling.
• Grants or assistance to a section
501(c)(3) organization.
Column (a). Enter the name of the
interested person that benefitted from the
grant or assistance. If the person has
status as an interested person only
because the person is a substantial
contributor, a family member of a
substantial contributor, a 35% controlled
entity of a substantial contributor, or an
employee of a substantial contributor or
35% controlled entity of a substantial
contributor, then enter the term
“substantial contributor” or “related to
substantial contributor” (as the case may
be) instead of the interested person’s
name, in order to protect the
confidentiality of the substantial
contributor.
Column (b). Describe the relationship
between the interested person that
benefitted from the grant or assistance
and the organization, such as “spouse of
Director John Smith.” If “substantial
contributor” was entered in column (a),
enter “substantial contributor” here as
well. If “related to substantial contributor”
was entered in column (a), then describe
the relationship without referring to
specific names, for example: “child of
employee of 35% controlled entity of
substantial contributor.”
If an interested person has interested
person status other than by being a
substantial contributor or related to a
substantial contributor, then make no
reference to the substantial contributor
status. For example, if grantee Jane
Smith is both a substantial contributor and
the spouse of Director John Smith, then
she must be listed by name in column (a),
and column (b) must state “spouse of
Director John Smith” or words to similar
effect.
Column (c). Enter the total dollar
amount of grants provided to the
interested person during the
organization’s tax year. Also describe the
type of assistance and estimate its value.
Reasonable effort. The organization is
not required to provide information about
a grant or assistance to an interested
person if it is unable to secure the
information regarding interested person
status after making a reasonable effort
to obtain it. An example of a reasonable
effort for Part III is for the organization to
distribute a questionnaire annually to
each current or former officer, director,
trustee, and key employee listed in
Form 990, Part VII, Section A, and each
member of a grant selection committee,
that includes the name and title of each
person reporting information, blank lines
for the person’s signature and signature
date, and the pertinent instructions and
definitions for Schedule L, Part III. The
organization is not expected to distribute
such a questionnaire to a substantial
contributor or a related person to a
substantial contributor, except (1) where
the substantial contributor or related

person advises the organization as to the
specific recipients of grants or assistance,
or (2) with respect to programs of the
organization intended primarily to benefit
employees (or their children) of the
substantial contributor or their 35%
controlled entities.
Example. A substantial contributor to
the organization states that he would like
Mr. X and Ms. Y to be beneficiaries of a
grant. The organization inquires of the
substantial contributor whether Mr. X or
Ms. Y are interested persons with respect
to the organization because of a family or
business relationship they have with the
substantial contributor (using the pertinent
instructions and definitions), and the
substantial contributor replies in writing
that they are not. Whether they actually
are interested persons or not, the
organization has made a reasonable
effort in this situation.
Schools. Colleges, universities, and
primary and secondary schools are not
required to identify interested persons to
whom they provided scholarships,
fellowships, and similar financial
assistance. Instead, these organizations
must, in Part III, group each type of
financial assistance (for example,
need-based scholarships, merit
scholarships, discounted tuition) provided
to interested persons in separate lines.
For each line, the school should report in
column (c) the type of assistance and
aggregate dollar amount of that
assistance, unless such reporting would
be an unauthorized disclosure of student
education records under the Family
Educational Rights and Privacy Act
(FERPA). Columns (a) and (b) should be
left blank for these lines.

Part IV. Business
Transactions Involving
Interested Persons
Report in Part IV business transactions
for which payments were made during the
organization’s tax year between the
organization and an interested person, if
such payments exceeded the reporting
thresholds described below, and
regardless of when the transaction was
entered into by the parties. The “ordinary
course of business” exception to reporting
business relationships on Form 990, Part
VI, line 2, does not apply for purposes of
Schedule L.
In general, an organization must report
business transactions in Part IV with an
interested person if: (1) all payments
during the tax year between the
organization and the interested person
exceeded $100,000; (2) all payments
during the tax year from a single
transaction between such parties
exceeded the greater of $10,000 or 1% of
the filing organization’s total revenue for
the tax year; (3) compensation
payments during the tax year by the
organization to a family member of a
current or former officer, director, trustee,
or key employee of the organization listed

-3-

in Form 990, Part VII, Section A
exceeded $10,000; or (4) in the case of a
joint venture with an interested person,
the organization has invested $10,000 or
more in the joint venture, whether or not
during the tax year.
See Reasonable effort later, applicable
to Part IV. Special rules permit individual
or aggregate transaction reporting.
Business transactions. Business
transactions include but are not limited to
contracts of sale, lease, license,
insurance, and performance of services,
whether initiated during the organization’s
tax year or ongoing from a prior year.
Business transactions also include joint
ventures, whether new or ongoing, in
which either the profits or capital interest
of the organization and of the interested
person each exceeds 10%. The
organization’s charging of membership
dues to its officers, directors, etc., are not
considered business transactions for
purposes of Part IV.
Interested persons. An interested
person for purposes of Schedule L, Part
IV, is a current or former officer,
director, trustee, or key employee listed
on Form 990, Part VII, Section A, or any
of the following:
• A family member of a current or
former officer, director, trustee, or key
employee listed in Form 990, Part VII,
Section A.
• An entity (other than a section
501(c)(3) organization, a section 501(c)
organization of the same subsection as
the filing organization, or a governmental
unit or instrumentality) more than 35%
owned, directly or indirectly, individually
or collectively, by one or more current or
former officers, directors, trustees, or key
employees listed on Form 990, Part VII,
Section A, or their family members.
• An entity (other than a tax-exempt
organization under section 501(c) or a
governmental unit or instrumentality) of
which a current or former officer, director,
trustee, or key employee listed in Form
990, Part VII, Section A, or any of their
family members, was serving at the time
of the transaction as:
1. an officer,
2. a director,
3. a trustee,
4. a partner or member with a direct
or indirect ownership interest in excess of
5% (including ownership by a family
member) if the entity is treated as a
partnership, or
5. a shareholder with a direct or
indirect ownership interest in excess of
5% (including ownership by a family
member) if the entity is a professional
corporation.
Certain management company
transactions with former officers, etc.
A business transaction also includes a
transaction between the organization and
a management company of which a
former officer, director, trustee, or key
employee of the organization (within the
last five tax years, even if not listed in
Form 990, Part VII, Section A because

the individual did not receive any
compensation from the organization) is a
direct or indirect 35% owner, or an officer,
director, or trustee.
Ownership. Ownership is measured by
stock ownership (voting power or value,
whichever greater) of a corporation,
profits or capital interest (whichever
greater) in a partnership or limited liability
company, beneficial interest in a trust, or
control of a nonprofit organization.
Ownership includes indirect ownership
(for example, ownership in an entity that
has ownership in the entity doing
business with the organization or
ownership by a family member); there
may be ownership through multiple tiers
of entities. The constructive ownership
rules of section 267(c) apply for purposes
of Schedule L (Form 990 or 990-EZ), Part
IV, using the definition of family member
in the Glossary rather than in section
267(c)(4). Accordingly, an individual is
treated as owning stock owned by his or
her family member.
Reporting thresholds. In reporting
transactions in Part IV, the organization is
not required to report transactions with an
individual or organization for a dollar
amount that did not exceed the greater of
$10,000 or 1% of the organization’s total
revenue for the organization’s tax year
(the amount reported in Form 990, Part
VIII, line 12, column (A)), except in either
of the following cases.
1. Total payments for all transactions
between the parties during the
organization’s tax year exceeded
$100,000. In this case, report all
transactions between the parties
regardless of the individual amounts of
such individual transactions.
2. The transaction was the
organization’s payment of compensation
to a family member of a current officer,
director, trustee, or key employee of
the organization. In this case, payment of
reportable compensation must be
reported if in excess of $10,000 for the
organization’s tax year.
Aggregate all payments during the tax
year between the parties under the same
contract or transaction. For instance, if a
director of the organization is a greater
than 5% partner of a law firm (or greater
than 5% shareholder if the law firm is a
professional corporation) and the
organization pays the law firm an amount
of more than 1% of the organization’s
total revenue during the organization’s tax
year under a contract for a particular case
or legal matter (if the amount exceeds
$10,000), treat all payments under such
arrangement as a single reportable
business transaction.
Aggregate reporting. The organization
can aggregate multiple individual
transactions between the same parties, or
list them separately. If aggregation is
chosen, report the aggregate amount in
column (c) and describe the various types
of transactions (for example, “consulting,”
“rental of real property”) in column (d).

Exceptions. Do not report the following
in Part IV:
• Excess benefit transactions reported
in Schedule L, Part I.
• Loans reported (or not required to be
reported) in Schedule L, Part II.
• Grants and other assistance reported
(or not required to be reported) in
Schedule L, Part III (however, this
exception does not apply to transactions
covered by the business transaction
exception described in Part III instructions
earlier; such transactions may need to be
reported in Part IV).
• Compensation reported in Form 990,
Part VII, Section A, unless the
compensation was to a family member of
another person reported in Form 990,
Part VII, Section A.
Example 1. T, a family member of
an officer of the organization, serves as
an employee of the organization and
receives during the organization’s tax
year compensation of $15,000, which is
not more than 1% of the organization’s
total revenue. The organization is
required to report T’s compensation as a
business transaction in Schedule L, Part
IV, because the organization’s
compensation to a family member of an
officer exceeds $10,000, whether or not
T’s compensation is reported in Form
990, Part VII.
Example 2. X, the child of a current
director listed in Form 990, Part VII,
Section A, is a first-year associate at a
law partnership that the organization pays
$150,000 during the organization’s tax
year. Given that X has no ownership
interest in the law firm and is not an
officer, director, or trustee of the firm,
the organization is not required to report
this business transaction in spite of X’s
employment relationship to the law firm.
Example 3. The facts are the same
as in Example (2), except that X is a
partner of the law firm and has an
ownership interest in the law firm of
5.25% of the profits. The organization
must report the business transaction due
to X’s greater than 5% ownership interest
in the law firm and the dollar amount in
excess of the $100,000 aggregate
threshold.
Example 4. The facts are the same
as in Example (3), except that the law firm
entered into the transaction with the
organization before X’s parent became a
director of the organization. The
organization must report all payments
made during its tax year to the law firm for
the transaction.
Example 5. The facts are the same
as in Example (3), except that X is the
child of a former director listed in Form
990, Part VII, Section A. The organization
is required to report the business
transaction, as family members of former
directors listed in Part VII are interested
persons.
Example 6. The facts are the same
as in Example (3), except that the
organization pays $75,000 in total during

-4-

the organization’s tax year for 15
separate transactions to collect debts
owed to the organization. None of the
transactions involves payments to the law
partnership in excess of $10,000. The
organization is not required in this
instance to report the business
transaction, because the dollar amounts
do not exceed either the $10,000
transaction threshold or the $100,000
aggregate threshold.
Example 7. The facts are the same
as in Example (6), except that the
organization pays $105,000 instead of
$75,000. Because the aggregate
payments for the business transactions
exceed $100,000, the organization must
report all the business transactions. The
organization can report the transactions
on an aggregate basis or list them
separately.
Column (a). Enter the name of the
interested person involved in the direct or
indirect business relationship with the
organization.
Column (b). Enter the relationship
between the interested person and the
organization. For example:
• Key employee of the organization,
• Family member of Freda Jones,
former director,
• Entity more than 35% owned by (1)
Freda Jones, former director, and (2) Lisa
Lee, President, or
• Partnership more than 5% owned by
Freda Jones, former director.
Column (c). The dollar amount of the
transaction is the cash or fair market
value of other assets and services
provided by the organization during the
tax year, net of reimbursement of
expenses. For joint ventures with
interested persons, report the total
amount invested by the organization in
the joint venture as of the end of the
organization’s tax year, whether or not the
organization invested any part of the
amount during the tax year. In reporting
compensation for services, it is sufficient
to report compensation for the calendar
year ending with or within the
organization’s tax year.
Column (d). Describe the transaction(s)
by type, such as employment or
independent contractor arrangement,
rental of property, or sale of assets.
Column (e). State “Yes” if all or part of
the consideration paid by the organization
is based on a percentage of revenues of
the organization. For instance, state “Yes”
if a management fee is based on a
percentage of revenues, or a legal fee
owed to outside attorneys by a public
interest law firm is a percentage of the
amount collected.
Reasonable effort. The organization is
not required to provide information about
a business transaction with an interested
person if it is unable to secure the
information regarding interested person
status after making a reasonable effort
to obtain it. An example of a reasonable
effort for Part IV is for the organization to

distribute a questionnaire annually to
each current or former officer, director,
trustee, and key employee listed on
Form 990, Part VII, Section A, that
includes the name and title of each
person reporting information, blank lines
for the person’s signature and signature
date, and the pertinent instructions and
definitions for Schedule L, Part IV. The
organization is not required to distribute
such a questionnaire to organizations or

individuals with which it does business,
but who are not current or former officers,
directors, trustees, or key employees of
the organization, in order to have made a
reasonable effort for this purpose.

Part V. Supplemental
Information
Use Part V if the organization needs
additional space to explain a transaction

-5-

or provide additional information. In Part
V, identify the specific part and line
number that each response supports, in
the order in which those parts and lines
appear on Schedule L (Form 990 or
990-EZ). Part V can be duplicated if more
space is needed.