Legislative & Regulatory Update – IRS 990 – A Reminder Summary
IRS 990: A reminder summary
The Internal Revenue Service (IRS) has instructions for financial disclosure that have in the past been improperly applied to Association Management Companies (AMC’s). While the form has remained much the same since 2008, the IRS continues to be interested in this issue. As recently as the summer of 2011 they sought public comment – asking if reporting requirements should be expanded. We will continue to monitor the yearly changes to the instructions to make sure they are not improperly applied to AMC’s in the future as they have in the past. If they are using the 990 as a way to solve a perceived problem we must make sure that it does not create another through unintended consequences. Here is a summary just to remind everyone about the importance of this issue:
As you know AMC’s are for-profit companies that manage and provide services to nonprofit, tax-exempt associations. Most tax-exempt organizations are required to file with the IRS an annual information return known as the Form 990. The Form 990 requires disclosure of the salaries of officers, directors and key employees of the tax-exempt organization. For tax-exempt organizations that are managed by an AMC there are no salaries paid; instead there is a management fee paid to the AMC. This fee is disclosed in the Form 990. Past interpretations have considered AMC personnel as employees of the tax-exempt organization client. A completely illogical thought process.
Management fees paid to an AMC covers much more than staff time. Those fees cover a multitude of services performed by numerous AMC personnel. Any “salary” amount reported for AMC personnel, in fact, will not reflect their salary. Rather, this amount will be a function of the management fee, which encompasses numerous services. Therefore, any amount reported will be arbitrary and useless, if not misleading.
There are fundamental privacy concerns too. AMCs are for-profit companies who report salary data on their own tax returns. This data is highly confidential and protected by federal privacy laws. If disclosed on the Form 990, it will become publicly available. Additionally, by requiring AMC’s to report a fictional salary, AMC employees could be required to pay personal income tax on this amount – an amount they never received.
If there are changes to the 990 that will positively or negatively affect your business we will let you know. If they are negative changes we will let you know what can be done about it. In the meantime, hope for the best.
Chair, AMC Institute Legislative & Regulatory Affairs Task Force