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Form 990, Schedule L (Transactions with Interested Persons): Definition of "Business Relationship"

Does the definition of business relationship in the Form 990 Glossary and in the instructions to Part VI, line 2 (which include an ordinary course of business exception) apply for purposes of Part IV, line 28 and Schedule L, Part IV (business transactions involving interested persons)?

No. The instructions to Part IV, line 28, Form 990 and Schedule L, Part IV define a business transaction differently than how a business relationship is defined for purposes of Part VI, Question 2. Whereas business relationships between an organization’s key personnel (directors, trustees, officers and key employees) are reported in Part VI, line 2, business transactions between the organization and its interested persons (including its current and former officers, directors, trustees, key employees; family members thereof; and certain entities owned or controlled, in part, by those officers, directors, trustees and key employees) are reported in Schedule L, Part IV. Business relationships reported in Part VI and business transactions reported in Schedule L, Part IV are similar, in that both include contracts of sale, lease, license and performance of services.  However, each involves different reporting thresholds and exceptions set forth in their respective instructions.  For example, an organization that completes Schedule L, Part IV generally is not required to report transactions with an interested person for a dollar amount that did not exceed the greater of $10,000 or 1 percent of the organization’s total revenue for the organization’s tax year, whereas the similar threshold for Part VI, line 2 is simply $10,000.  Further, the ordinary course of business exception to business relationship reporting in Part VI, line 2 does not apply to Schedule L, Part IV. 

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Page Last Reviewed or Updated: 18-Apr-2014