When an organization provides grants to individuals, it may be required to complete specific schedules on the Form 990. Organizations that provide grants or assistance to interested persons must complete Schedule L, Part III. Is this a requirement for your organization? The answer of “yes” or “no” to the following question will be the determining factor:

“Form 990, Part IV, Line 27: “Did the organization provide a grant or other assistance to an officer, director, trustee, key employee, substantial contributor or employee thereof, a grant selection committee member, or to a 35% controlled entity or family member of any of these persons?”

In essence, this question is asking if an individual that is significantly involved in the organization received grants or assistance from the organization. The question also applies to family members. If your organization answered “yes”, then it is required to complete Schedule L, Part III. So, where do you start?

First, define grant or assistance. The IRS defines grant or other assistance as goods, services, or use of facilities. A grant or assistance provided to an interested person must be reported, regardless of the amount. Examples include the following items:

• Scholarships
• Fellowships
• Discounts on goods or services
• Internships
• Prizes and awards

Second, define an “interested person”. According to the IRS, an “interested person” is an individual or entity that benefits from the grant or assistance. This status is achieved through the following circumstances:

• An officer, director, trustee, key employee or grant selection committee member of the nonprofit, or any relatives of these individuals
• Individual is a substantial contributor
• Individual is a family member of substantial contributor
• Entity is 35% controlled by a substantial contributor
• Individual is an employee of a substantial contributor or 35% percent controlled entity of a substantial contributor

A substantial contributor is an individual who contributed at least $5,000 during the tax year. This individual must also be reported on Schedule B. However, if the donation does not meet the $5,000 minimum threshold and Schedule B is not required, then the contributor is not reported on Schedule L, Part III.

Putting it all together, any amount of grant or assistance to an interested person must be reported on Schedule L, Part III. An interested person includes officers, directors, trustees, key employees, grant committee members, substantial contributors, controlling entities, and relatives of any of these individuals. If an individual qualifies as an interested person, then you must provide the relationship between the organization and the interested person on Form 990. For example, state that an interested person is the “son of director”. The dollar amount and type of grant or assistance provided should also be entered. Finally, the organization must describe the purpose of the grant or assistance.

Now that you know who and what should be reported, you should also be aware of what should NOT be reported:

• Excess benefit transactions – these are reported in Schedule L, Part I
• Loans – these are reported in Schedule L, Part II
• Grants or assistance to another 501(c)(3) entity
• Any grants that are based on objective criteria and reviewed by a selection committee
• Fringe benefits treated as compensation
• Business transactions that do not contain any gift element

Completing Schedule L, Part III requires careful consideration of the grants and assistance provided by the organization. Details to pay attention to include who received the grant, the amount of the grant, and whether or not it falls into one of the excluded categories. With that information, it can be determined how it should be reported and whether or not you must complete Schedule L, Part III.

If you would like to discuss these Schedule L, Part III, please contact your local office.