One of our governing board members is the president of a bank in which our organization has an account. We earn interest on the deposits, and pay fees to the bank throughout the year. Should this transaction be reported in Part II and/or Part IV of Schedule L, Form 990?
The bank would be an interested person for which Schedule L, Part II or Part IV reporting may be required only if it is:
- A trustee of the filing organization,
- A substantial contributor to the filing organization, or
- A 35% controlled entity.
In order to be a substantial contributor for this purpose, the bank would need to have made contributions to the filing organization during the tax year of at least $5,000 and exceed the threshold that would require the bank to be reported by name in Schedule B (Form 990, 990-EZ, or 990-PF), Schedule of Contributors, for the filing organization’s tax year. (See the Instructions for Schedule B.)
The bank could be a “35% controlled entity” if 35% of the total combined voting power of the bank is owned, directly or indirectly (for example, under constructive ownership rules of section 267(c)), by a current or former officer, director, trustee, or key employee of the filing organization who must be listed in Form 990, Part VII, Section 1 (such as the current governing board member), or the family members of such persons.
Schedule L, Part II reports loans to or from the filing organization and an interested person. The Instructions for Schedule L specifically provide that deposits into a bank account (when the bank is an interested person) in the ordinary course of business, on the same terms as the bank offers to the general public, should not be reported as loans for the purposes of Part II.
Schedule L, Part IV, reports business transactions between the filing organization and an interested person. The Instructions for Schedule L exclude the following transactions from reporting on Part IV:
- Deposits into or withdrawals from a bank account (when the bank is an interested person) in the ordinary course of business, on the same terms as the bank offers to the general public
- Transactions with publicly-traded companies in the ordinary course of the publicly-traded company’s business, on the same terms as it generally offers to the public (or more favorable for the filing organization)
The second exception above could arise where a publicly traded bank is serving as institutional trustee of the filing organization. In that case, transactions in the ordinary course of the bank’s business, on the same terms as generally offered to the public would not have to be reported on Part IV. Otherwise, if the bank is an interested person, the organization must report on Part IV any payments of fees and interest between the filing organization and the bank during the tax year if such payments with respect to the account exceeded the lesser of (1) $100,000, or (2) the greater of $10,000 or 1 percent of the organization’s total revenue for its tax year.