Seattle Children's Hospital Questionnaire Glossary

Transcription

1 35% controlled entity 35% controlled entity as defined by Schedule L, Part III. 35% owned entity as defined by Schedule L, Part IV. "Former" officers, directors, trustees, and key employees Attribution of Family Members' and Others' Interests An entity that is owned, directly or indirectly (e.g., under constructive ownership rules of section 267(c)*), by a given person, such as the organization's current or former officers, directors, trustee, or key employees listed in Form 990, Part VII, Section A, or the family members thereof (listed persons) as follows: 1. A corporation in which listed persons own more than 35% of the total combined voting power; 2. A partnership in which listed persons own more than 35% of the profits interest; or 3. A trust or estate in which listed persons own more than 35% of the beneficial interest. A 35% controlled entity of any of the organization's current or former officers, directors, trustees, or key employees listed in Form 990, Part VII, Section A; of a substantial contributor; or of a member of the organization's grant selection committee. A 35% owned entity is any entity (regardless of form: a stock corporation, a partnership or limited liability company, a trust, or a nonprofit organization, regardless of its tax-exempt status (other than a section 501(c)(3) organization, a section 501(c) organization of the same subsection as the filing organization, or a governmental unit or instrumentality)) that is more than 35% "owned" (as specified following this sentence) directly or indirectly, individually or collectively, by one or more current or former officers, directors, trustees, or key employees listed on Form 990, Part VII, Section A and their family members. "Ownership" for this purpose is measured in the case of a stock corporation by stock voting power or value, whichever greater; in the case of a partnership or limited liability company by profits or capital interests, whichever greater; in the case of a trust, by beneficial interests; and in the case of a nonprofit organization, by control*. Ownership includes indirect ownership (e.g., through multiple tiers of entities) and ownership by family members or others under the constructive ownership rules of section 267(c)**. Form 990 reporting requires inclusion of "former" trustees/directors, officers or key employees when reporting in the Part on "Managers and Their Compensation". An individual has "former" status when they: 1. are NOT reportable as a trustee/director, officer or key employee for the filing year (i.e., not holding "current" status); 2. were reported (or should have been) as a trustee/director, officer or key employee upon any of the five prior years' annual returns (Forms 990, 990-EZ, or 990-PF) applying the then-in-effect definitions with respect to each status category; AND 3. meet specific "reportable compensation" thresholds (in general, for Trustees/Directors, an amount >$10,000 and for Officers and Key Employees, an amount >$ 100,000) For purposes of Schedule L, Part IV's reporting of business transactions with "35% owned entities" as well as with professional corporations or partnerships in which a Form 990, Part VII, Section A listed person has an ownership interest in excess of 5%, Code Section 267(c)'s attribution rules apply. They stipulate that: (1) Stock owned, directly or indirectly, by or for a corporation, partnership, estate, or trust is considered as being owned proportionately by or for its shareholders, partners, or beneficiaries; (2) An individual is considered as owning the stock owned, directly or indirectly, by or for his family members (see "Family Members " below); and (3) An individual owning (otherwise than by the application of paragraph (2)) any stock in a corporation shall be considered as owning the stock owned, directly or indirectly, by or for his partner. Stock constructively owned by a person by reason of the application of paragraph (1) shall, for the purpose of applying paragraph (1), (2), or (3), be treated as actually owned by such person, but stock constructively owned by an individual by reason of the application of paragraph (2) or (3) shall not be treated as owned by him for the purpose of again applying either of such paragraphs in order to make another the constructive owner of such stock. Relationship #1 Relationship #2 Relationship #3 Transactions One person is employed by the other in a sole proprietorship or by an organization with which the other is associated as a trustee, director, officer, or greater-than-35% owner*, even if that organization is tax-exempt. One person is transacting business with the other (other than in the ordinary course of either party's business on the same terms as are generally offered to the public), directly or indirectly, in one or more contracts of sale, lease, license, loan, performance of services, or other transaction involving transfers of cash or property valued in excess of $10,000 in the aggregate during the organization's tax year. Indirect transactions are transactions with an organization with which the one person is associated as a trustee, director, officer, or greater-than-35% owner. Such transactions do not include charitable contributions to tax-exempt organizations. The two persons are each a director, trustee, officer, or greater-than-10% owner* in the same business or investment entity (but not the same tax-exempt organization). Transactions are business dealings with the organization outside one's capacity as trustee, director, officer, or key employee. transactions Include but are not limited to contracts of sale, lease, license, and performance of services, whether initiated during the organization's tax year or ongoing from a prior year. transactions also include joint ventures, whether new or ongoing, in which either profits or capital interest of the organization and of the interested person each exceeds 10%. The organization's charging of membership dues to its officers, directors, etc. is not considered a business transaction. Charitable class A group of individuals who may properly receive assistance from a charitable organization under 501(c)(3). The group must be large enough that providing aid to the member benefits the community as a whole.

2 Common Paymaster If two or more related corporations employ the same individual at the same time and pay this individual through a common paymaster which is one of the corporations, the corporations are considered to be a single employer. They have to pay, in total, no more in social security and Medicare taxes than a single employer would pay. Control: For purposes of determining related organizations. Note, there are four definitions (depending on the type of entity for which control may be present). Each corporation must pay its own part of the employment taxes and may deduct only its own part of the wages. The deductions will not be allowed unless the corporation reimburses the common paymaster for the wage and tax payments. See Regulations section (s)-l for more information. The common paymaster is responsible for filing information and tax returns and issuing Forms W-2 with respect to wages it is considered to have paid as a common paymaster. Control of a nonprofit organization (or other organization without owners or persons having beneficial interests, whether the organization is taxable or tax-exempt) One or more persons (whether individuals or organizations) control a nonprofit organization if they have the power to remove and replace (or to appoint or elect, if such power includes a continuing power to appoint or elect periodically or In the event of vacancies) a majority of the nonprofit organization's directors or trustees, or a majority of the members who elect the nonprofit organization's directors or trustees. Such power can be exercised directly by a (parent) organization through one or more of the (parent) organization's officers, directors, trustees, or agents, acting in their capacity as officers, directors, trustees, or agents of the (parent) organization. Also, a (parent) organization controls a (subsidiary) nonprofit organization if a majority of the subsidiary's directors or trustees are trustees, directors, officers, employees, or agents of the parent. Control: Examples of Brother/Sister Organizations Control of a stock corporation One or more persons (whether individuals or organizations) control a stock corporation if they own more than 50% of the stock (by voting power or value) of the corporation. Control of a partnership or limited liability company One or more persons control a partnership if they own more than 50% of the profits or capital interests in the partnership (Including a limited liability company treated as a partnership or disregarded entity for federal tax purposes, regardless of the designation under state law of the ownership interests as stock, membership interests, or otherwise). A person also controls a partnership if the person is a managing partner or managing member of a partnership or limited liability company which has three or fewer managing partners or managing members (regardless of which partner or member has the most actual control), or if the person is a general partner in a limited partnership which has three or fewer general partners (regardless of which partner has the most actual control). Control of a trust with beneficial interests One or more persons control a trust if they own more than 50% of the beneficial interests in the trust. A person's beneficial interest in a trust shall be determined in proportion to that person's actuarial interest in the trust. See Regulations sections , 3, and 4 for more information on classification of corporations, partnerships, disregarded entities, and trusts. "Example A: Organization A and B each appoint one-third of the board members of Organizations C and D, and are not otherwise related to Organizations C and D. Although neither Organization A nor Organization B is a parent of Organization C or Organization D, Organizations C and D are controlled by the same person, and therefore are brother/sister related organizations with the respect to each other. Example B: Organization E has 1,000 individual members who elect its board members. The membership of Organization E also constitutes the membership of Organization F, and elects the board members of Organization F, and elects the board members of Organization F. Organization E and F are brother/sister related organizations with respect to each other. Directors or Trustees Disqualified Person A member of the organization's governing body, but only if the member has any voting rights. A member of an advisory board that does not exercise any governance authority over the organization is not considered a director or trustee. Directors or trustees who served at any time during the tax year are considered current directors or trustees. Included any institutional trustees. For purposes of section 4958, any person who was in a position to exercise substantial influence (see definition below) over the affairs of the applicable tax-exempt organization at any time during a 5-year period ending on the date of the transaction. Persons who hold certain powers, responsibilities, or interests are among those who are in a position to exercise substantial influence over the affairs of the organization. A disqualified person includes: A disqualified person's family member, A 35% controlled entity of a (1) disqualified person and/or (2) family members of the disqualified person, A donor or donor advisor to a donor advised fund, or An investment advisor of a sponsoring organization. The disqualified persons of a supported organization include the disqualified persons of a section 509(a)(3) supporting organization that supports the supported organization.

3 Excess Benefit Transaction In the case of an applicable tax-exempt organization, any transaction in which an excess benefit is provided by the organization, directly or indirectly to, or for the use of, any disqualified person, as defined in section Excess benefit generally means the excess of the economic benefit received from the applicable organization over the consideration given (including services) by a disqualified person. Donor Advised Fund. For a donor advised fund, an excess benefit transaction also includes a grant, loan, compensation, or similar payment from the fund to a: Donor or donor advisor; Family member of a donor or donor advisor; 35% controlled entity of a donor or donor advisor; or 35% controlled entity of a family member of a donor or donor advisor. The excess benefit in this transaction is the amount of the grant, loan, compensation, or similar payments. For additional information, see the Instructions for Form Supporting organization. For any supporting organization, defined in section 509(a)(3), an excess benefit transaction also includes grants, loans, compensation, or similar payments provided by the supporting organization to a: Substantial contributor, Family member of a substantial contributor, 35% controlled entity of a substantial contributor, or 35% controlled entity of a family member of a substantial contributor. For this purpose, the excess benefit is defined as the amount of the grant, loan, compensation, or similar payments. Additionally, an excess benefit transaction includes any loans provided by the supporting organization to a disqualified person (other than an organization described in section 509(a)(1), (2),or(4)). Family Relationships Governing Body Grants and other assistance Indirect Control Unless specified otherwise, the family of an individual includes only his or her spouse, ancestors, brothers and sisters (whether whole or half blood), children (whether natural or adopted), grandchildren, great-grandchildren, and spouses of brothers, sisters, children, grandchildren, and great-grandchildren. (Under this definition, the sibling of one's spouse is NOT family (the IRS drew the line here so that it is only the spouse of one's sibling who is a same generation "in-law".) The group of persons authorized under state law to make governance decisions on behalf of the organization and its shareholders or members, if applicable. The governing body is, generally speaking, the board of directors (sometimes referred to as board of trustees) of a corporation or association, or the board of trustees of a trust (sometimes referred to simply as the trustees, or trustee if only one trustee). Include awards, prizes, contributions, noncash assistance, program-related investments, cash allocations, stipends, scholarships, fellowships, research grants, and similar payments and distributions made by the organization during the tax year. It does not include salaries or other compensation to employees or payments to independent contractors if the primary purpose is to serve the direct and immediate needs of the organization (such as legal, accounting, or fundraising services). Control can be indirect in line with the following general principles AND their application in the numbered examples that immediately follow. If the filing organization controls Entity A, which in turn controls Entity B, the filing organization will be treated as controlling Entity B. To determine indirect control through constructive ownership of a corporation, rules under section 318 apply. Similar principles apply for purposes of determining constructive ownership of another entity (a partnership or trust). If an entity (X) controls an entity treated as a partnership by being one of three or fewer partners or members, then an organization that controls X also controls the partnership. Example 1: B, an exempt organization, wholly owns (by voting power) C, a taxable corporation. C holds a 51% profits interest in D, a partnership. Under the principles of section 318, B is deemed to own 51% of D (100% of C s 51% interest in D). Thus, B controls both C and D, which are therefore both related organizations with respect to B. Example 2: X, an exempt organization, owns 80% (by value) of Y, a taxable corporation. Y holds a 60% profits interest as a limited partner of Z, a limited partnership. Under the principles of section 318, X is deemed to own 48% of Z (80% of Y s 60% interest in Z). Thus, X controls Y. X does not control Z through X s ownership in Y. Y is a related organization with respect to X, and (absent other facts) Z is not. Example 3: Same facts as in Example 2, except that Y is also one of three general partners of Z. Because Y controls Z through means other than ownership percentage, and X controls Y, in these circumstances, Z is a related organization with respect to X. The other general partners of Z (if organizations) are not related organizations with respect to X, absent other facts. Example 4: Organizations A, B, C, and D are nonprofit organizations. Organization A appoints the board of Organization B, which appoints the board of Organization C. A majority of the board members of Organization D are also board members of Organization A. Under these circumstances, Organizations B and D are directly controlled by Organization A, and Organization C is indirectly controlled by Organization A. Therefore, Organizations B, C, and D are subsidiaries of Organization A; Organization C is also a subsidiary of Organization B; and Organization B and C have a brother/sister relationship with Organization D. Joint venture A partnership, limited liability company, or other entity treated as a partnership for federal tax purposes, as described in Regulations sections through

4 Key Employees Management company For purposes of Form 990 reporting an employee of the organization (other than an officer, director, or trustee) who meets all three of the following tests applied in the following order: 1. $150,000 Test: Receives reportable compensation from the organization and all related organizations in excess of $150,000 for the calendar year ending with or within the organization's tax year. 2. Responsibility Test: The employee, at any time during the calendar year ending with or within the tax year: a. has responsibilities, powers or influence over the organization as a whole similar to those of officers, directors, or trustees; b. manages a discrete segment or activity of the organization that represents 10% or more of the activities, assets, income, or expenses of the organization, as compared to the organization as a whole; or c. or has or shares authority to control or determine 10% or more of the organization's capital expenditures, operating budget, or compensation for employees. 3. Top 20 Test. Is one of the 20 employees (that satisfy the $150,000 Test and Responsibility Test) with the highest reportable compensation from the organization and related organizations for the calendar year ending with or within the organization's tax year. Note: there is a different "responsibility test" for individuals providing services to a "disregarded entity." An organization that performs management duties for another organization customarily performed by or under the direct supervision of the other organization's officers, directors, trustees, or key employees. These management duties include, but are not limited to, hiring, firing, and supervising personnel; planning or executing budgets or financial operations; and supervising exempt operations or unrelated trades or businesses. Management fees Fees paid for management services to the organization. The management duties are customarily performed by or under the direct supervision of the organization's officers, directors, trustees, or key employees. These management duties included, but are not limited to, hiring, firing, and supervising personnel; planning or executing budgets or financial operations; and supervising exempt operations or unrelated trades or business. Member of a grant An individual who sits on one or more committees charged with choosing or selecting grantees or awarding grants. selection committee Officers Other class Ownership (other than for Schedule L, Part IV) Persons elected or appointed to manage the organization's daily operations, such as a president, vice-president, secretary, or treasurer. The officers of an organization are determined by reference to its organizing documents and bylaws (as well as by resolution of the governing body, or as otherwise designated consistent with state law) but at a minimum include those officers required by applicable state law. For purposes of the Form 990, the organization's top management official (e.g., the CEO or Executive Director) and its top financial official (the person who has ultimate responsibility for managing the organization's finances) are treated as officers. This term is used with respect to non-501(c)(3) organization, and refers to classes that the organization intends to benefit in further and of its exempt purpose (for example members of section 501(c)(5) union members, 501(c)(6) trade association members, or 501(c)(7) members of a social club. Ownership is measured by stock ownership (either voting power or value, whichever is greater) of a corporation, profits or capital interest in a partnership or limited liability company (whichever is greater), membership interest in a nonprofit organization, or beneficial interest in a trust. Ownership includes indirect ownership (for example, ownership in an entity that has ownership in the entity in question); there may be ownership through multiple tiers of entities. Privileged Relationships Reportable Compensation Related Organizations There are three "privileged relationship" exceptions: attorney/client, medical provider/patient, and clergy/communicant or priest/penitent. In general, the aggregate compensation that is reported (or required to be reported, If greater) on Form W-2, box 5 and/or Form MISC, box 7, for the calendar year ending with or within the organization's tax year. If the amount reported on Form W-2, box 5 is zero, such as for certain clergy and religious workers not subject to social security and Medicare taxes as employees, reportable compensation includes the box 1 amount rather than the box 5 amount. For foreign persons who receive U.S. source income, reportable compensation includes the amount reportable on Form 1042-S, box 2. For persons for whom compensation reporting on Form W-2, 1099-MISC, or 1042-S is not required (such as certain foreign persons, institutional trustees, and persons whose compensation was below the $600 reporting threshold for Form 1099-MISC), reportable compensation includes the total value of the compensation paid in the form of cash or property during the calendar year ending with or within the organization's tax year. An organization, including a nonprofit organization, a stock corporation, a partnership or limited liability company, a trust, and a governmental unit or other government entity, that stands in one or more of the following relationships to the filing organization at any time during the tax year. Parent: an organization that CONTROLS the filing organization. Subsidiary: an organization CONTROLLED by the filing organization. Brother/Sister: an organization CONTROLLED by the same person or persons that control the filing organization. Supporting/Supported: an organization that claims to be at any time during the organization's tax year, or that is classified by the IRS at any time during the tax year, as (i) a supporting organization of the filing organization within the meaning of section 509(a)(3), if the filing organization is a supported organization within the meaning of section 509(f)(3); (ii) or a supported organization, if the filing organization is supporting organization. CAUTION: If you are a VEBA, additional definitions apply to pick up the "sponsoring organization" as well as "contributing employers."

5 Responsibility Test Substantial Contributor as defined by Schedule L, Part III This test is met when an individual: a) has responsibilities, powers or influence over the organization as a whole similar to those of officers, directors, or trustees; b) manages a discrete segment or activity of the organization that represents 10% or more of the activities, assets, income, or expenses of the organization, as compared to the organization as a whole; OR c) has or shares authority to control or determine 10% or more of the organization's capital expenditures, operating budget, or compensation for employees. A person who contributed at least $5,000 during the tax year now reported upon and who fits the requirements to be inputted by name in Schedule B, Schedule of Contributors, for this tax year. Organizations not required to file Schedule B will thus have no "substantial contributors" per this definition. Substantial Influence A natural person who holds any of the following powers, responsibilities, or interests is in a position "automatically" by which they are deemed to exercise substantial influence over the affairs of an applicable tax-exempt organization: (1) Voting members of the governing body. (2) Presidents, chief executive officers, or chief operating officers. This category includes any person who, regardless of title, has ultimate responsibility for implementing the decisions of the governing body or for supervising the management, administration, or operation of the organization. A person who serves as president, chief executive officer, or chief operating officer has this ultimate responsibility unless the person demonstrates otherwise. If this ultimate responsibility resides with two or more individuals (e.g., copresidents), who may exercise such responsibility in concert or individually, then each individual is in a position to exercise substantial influence over the affairs of the organization. (3) Treasurers and chief financial officers. This category includes any person who, regardless of title, has ultimate responsibility for managing the finances of the organization. A person who serves as treasurer or chief financial officer has this ultimate responsibility unless the person demonstrates otherwise. If this ultimate responsibility resides with two or more individuals who may exercise the responsibility in concert or individually, then each individual is in a position to exercise substantial influence over the affairs of the organization. (4) Persons with a material financial interest in a provider-sponsored organization (this applies solely in instances of a hospital that participates in a provider-sponsored organization -- as defined in section 1855(e) of the Social Security Act, 42 U.S.C. 1395w being the applicable tax-exempt organization): any person with a material financial interest (within the meaning of section 501(o)) in the provider-sponsored organization has substantial influence with respect to the hospital. Facts and circumstances govern in all other cases Facts and circumstances tending to show substantial influence include, but are not limited to, the following (i) The person founded the organization; (ii) The person is a substantial contributor to the organization (within the meaning of section 507(d)(2)(A)), taking into account only contributions received by the organization during its current taxable year and the four preceding taxable years; (iii) The person's compensation is primarily based on revenues derived from activities of the organization, or of a particular department or function of the organization, that the person controls; (iv) The person has or shares authority to control or determine a substantial portion of the organization's capital expenditures, operating budget, or compensation for employees; (v) The person manages a discrete segment or activity of the organization that represents a substantial portion of the activities, assets, income, or expenses of the organization, as compared to the organization as a whole; or (vi) The person owns a controlling interest (measured by either vote or value) in a corporation, partnership, or trust that is a disqualified person. However, employees receiving economic benefits directly or indirectly from the organization, of less than the amount referenced for a highly compensated employee in section 414(q)(1)(B)(i) are deemed to NOT have substantial influence unless they are in an "automatic" position (per the first paragraph above), are a family member of a 4958(f)(1) person in substantial influence, OR are a substantial contributor to the organization within the meaning of section 507(d)(2)(A), taking into account only contributions received by the organization during its current taxable year and the four preceding taxable years. Unrelated An organization that is not a related organization with respect to the filing organization. Organization Volunteer Exception An organization need not report compensation from a related organization in column (E) or (F) of Part VII of the Form 990 if all of the following criteria are true: 1. The related organization paid compensation to a volunteer officer, director, or trustee of the filing organization; 2. The related organization is a for-profit entity; 3. The related organization is not owned or controlled directly or indirectly by the filing organization or one or more related tax-exempt organizations; and 4. The related organization does not provide management services for a fee to the filing organization.