Part VII of the Form 990 is one of the more closely examined and highly scrutinized sections of an exempt organization’s tax return, both from the public and potential donors as well as other organizations and businesses. This is mainly because this section reports compensation for the listed individuals.

For this reason, it is important to understand who must be reported according to the form’s instructions. Listing individuals and their compensation, who shouldn’t be listed, or not listing individuals who should have been, may be troublesome for exempt organizations.

Determining who must be reported on this part of the tax return can be a straightforward process for some organizations, while being very complex and requiring a deeper dive into the IRS’ definitions and guidance for others.

As one of the more highly viewed parts of the Form 990, it is important to list the correct individuals. So, who are the individuals that need listed each year?

Required Individuals Reported on the Form 990

Current Directors & Trustees

Let’s start with the members of the organization’s board or governing body. Anyone who served as a director or trustee with voting rights during the organization’s tax year must be reported on Form 990, Part VII. These individuals are listed regardless of whether they received any amount of compensation. A director/trustee is considered ‘current’ if they served at any point during the tax year. If they only served part of the year, dates of service should be noted.

Current Officers

Officers of the organization must also be listed regardless of the amount of their compensation. Per IRS instructions, an officer is “a person elected or appointed to manage the organization’s daily operations”. The officers of an organization are determined by reference to its organizing document, bylaws, or resolutions of its governing body, or as otherwise designated consistent with state law. Examples of officers are a president, vice president, secretary, treasurer, and board chair. An officer that served at any time during the organization’s tax year is deemed a current officer and must be listed, even if they are not in that position at the end of the year.

Additionally, the IRS requires the following individuals to be reported as officers regardless of what their title is:

• Top management official – usually the organization’s president, CEO, or executive director. The top management official has final responsibility for implementing the decisions of the governing body, or is responsible for supervising management, administration, or operation of the organization.
• Top financial official – usually the organization’s treasurer, CFO, or Vice President of Finance. The top financial official has final responsibility for the organization’s finance management.

In both cases above, if the ultimate responsibility resides with two or more individuals (such as co-presidents) then both or all individuals shall be listed.

Current Key Employees

There are three criteria an individual must meet to be reported as a current key employee, per the IRS’ instructions.

1. The individual received $150,000 or more in total reportable compensation from the organization and or related organizations.
2. Meets the responsibility test—typically this would mean the individual has power or influence over the organization similar to an officer, director, or trustee; or manages a department or segment that represents 10% or more of the entire organization’s activities/assets/income.
3. Is one of the organization’s top 20 employees other than officers, directors, and trustees.

All three tests must be met for an individual to be reported as a key employee. A key employee is considered current if it was an employee at any time during the calendar year ending with or within the organization’s tax year and met the three tests above.

Current Top Five Highest Compensated Employees

The organization must also list the top five highest compensated employees that received over $100,000 of reportable compensation, and who were not considered one of the individuals mentioned above (officer, director, trustee, or key employee). Both reportable compensation from the filing organization & reportable compensation from any related organizations must be considered.

“Former” Officers, Directors, Trustees, Key Employees, and Highest Compensated Employees

Organizations must also be aware of the reporting requirements of any individual that may meet the criteria of being a former director, trustee, officer, key employee, or highest compensated employee.
Per the IRS’ instructions, an organization should check the “Former” box for former officers, directors, trustees, and key employees only if both conditions below apply.

1. The organization reported (or should have reported, applying the instructions in effect for such years) an individual on any of the organization’s Forms 990, 990-EZ or 990-PF, for any one or more of the five (5) prior years in one or more of the following capacities: officer, director, trustee, or key employee.
2. The individual received reportable compensation, from the organization and/or related organizations, in the calendar year ending with or within the organization’s current tax year in excess of the threshold amount ($100,000 for former officers and key employees, $10,000 paid to former directors and trustees for services rendered in their former capacity as directors or trustees).

There are a specific set of conditions that must be met for an organization to check the “Former” box for any former highest compensated employees. All four of the conditions must be met for an employee to qualify as a “former” highest compensated employee and these can be found in the Form 990 instructions.

While in most cases determining which individuals need listed on this section seems straightforward, there are additional items to take into consideration. Organizations with a fiscal year end must look at different periods to determine whether a person is considered a “current” officer, director, key employee, or highest compensated employee. An individual’s title alone does not determine if they meet the criteria above and in fact can be misleading on whether they need reported. There are also specific instructions and rules when an organization uses management companies and leased employees.

If you have any questions about who should be listed on your organization’s Form 990, please contact your local Blue & Co. advisor. For more information regarding the Form 990, visit our Form 990 Solutions page.