Part V. Compensation and Other Financial Arrangements

Reminder. Answer all questions in this part as they pertain to your past, present, and future activities.

For purposes of Part V, compensation includes:

• Salary or wages;

• Deferred compensation;

• Retirement benefits, whether in the form of a qualified or non-qualified employee plan (pensions or annuities);

• Fringe benefits (personal vehicle, meals, lodging, personal and family educational benefits, low-interest loans, payment of personal travel, entertainment, or other expense, athletic or country club membership, and personal use of your property); and

• Bonuses.

• Vocational high school students to be used to purchase basic tools;

• Teachers to induce them to teach in a public school system in an economically depressed area; and

• A scientific researcher to underwrite that individual’s research project.

10 Instructions for Form 1023

interest policy doesn’t prescribe any specific requirements. Therefore, organizations should use a conflict of interest policy that best fits their organizations.

Adoption of a conflict of interest policy isn’t required to obtain tax-exempt status. However, by adopting the sample policy or a similar policy, you will be choosing to put in place procedures that will help your officers, directors, and trustees recognize situations that could present potential or actual conflicts of interest so that you can take steps to reduce the risk that those in positions of authority over you may receive an inappropriate benefit.

The sample conflict of interest

TIP policy in Appendix A includes

items marked “Hospital insert–for hospitals that complete Schedule C” that are intended to be adopted by hospitals.

Line 3. A fixed payment means a payment that is either a set dollar amount or fixed through a specific formula where the amount doesn’t depend on discretion. For example, a salary of $200,000 that is adjusted annually based on the increase in the Consumer Price Index is a fixed payment.

A “ non-fixed payment ” means a payment that depends on discretion. For example, a bonus of up to $100,000 that is based on an evaluation of performance by the governing board is a non-fixed payment because the governing body has discretion over whether the bonus is paid and on the amount of the bonus.

Line 4. Don’t include purchases or sales of goods and services in your normal course of operations that are available to the general public under similar terms and conditions.

exercise substantial influence over your affairs, then an arm’s length standard requires additional precautions to eliminate the effect of the relationship.

Using a conflict of interest policy, information about comparable transactions between unrelated parties, and reliable methods for evaluating the transaction, are examples of precautions that would help make the negotiation process equivalent to one between unrelated persons.

Fair market value. This is the price at which property or the right to use property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy, sell, or transfer property or the right to use property, and both having reasonable knowledge of relevant facts.

Completed less than 1 year. If you’ve existed for less than 1 year, provide projections of your likely income and expenses for your current year and projections of your likely income and expenses for the next 2 years based on a reasonable and good faith estimate of your future finances for a total of 3 years of financial information. Place financial information for the year you’re filing this application in the column marked Current tax year .

Completed more than 1 year, fewer than 5 years. If you’ve existed for more than 1 year but fewer than 5 years, provide your actual income and expenses for each completed year you’ve existed and projections of your likely income and expenses based on a reasonable and good faith estimate of your future finances for your current year and each year you haven’t existed, for a total of 4 years of financial information. Place financial information for the year you’re filing this application in the column marked Current tax year .

Completed 5 years or more. If you’ve existed for 5 years or more, provide your actual income and expenses for your 5 most recently completed tax years. Place financial information for your most recently completed tax year in the column marked Current tax year .

A. Statement of Revenue and Expenses

Preparing the statement. Prepare the statement using the method of accounting you use in keeping your books and records.

Prepare the statement using the accounting period entered on Part I, line 3. Enter “0” if a particular revenue or expense doesn’t apply to you.

Your financial information should reflect your activities described in this application.

Line 1. Enter the total gifts, grants, and contributions you receive (other than membership dues reported on line 2 and described below). Include items of value that you receive as gifts, grants, or contributions. For example, if one of your activities is a food drive, include the value of the donated food on this line. Also include on this line payments a governmental unit makes to enable you to both accomplish your exempt purpose(s) and to provide a service or facility directly to the general public.

See the instructions for line 9 if you’re uncertain whether revenue should be included as a grant on line 1 or as gross