Part IV. Compensation and

Other Financial Arrangements

Line 1. Answer “Yes” if you pay or will pay compensation to your officers, directors, trustees, employees, members, or independent contractors.

Line 1a. A conflict of interest arises when a person in a position of authority over an organization, such as a director, officer, or manager, may benefit personally from a decision he or she could make. Adoption of a conflict of interest policy is not required to obtain tax-exempt status. However, by adopting a policy, you will be choosing to put in place procedures that will help you avoid the possibility that those in positions of authority may receive an inappropriate benefit.

Reasonable compensation is the amount that would ordinarily be paid for like services by like organizations under like circumstances as of the date the compensation arrangement is made. Establishing and documenting reasonable compensation is important because excessive compensation may result in excise taxes on both the individual and you. In addition, excessive compensation may jeopardize your tax-exempt status.

Line 1b. 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 base salary of $200,000 that is adjusted annually based on the increase in the Consumer Price Index is a fixed payment.

A nonfixed 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 nonfixed payment because the governing body has discretion over whether the bonus is paid and the amount of the bonus.

Line 4. You are a successor to another organization if you:

• Took or will take over activities previously conducted by another organization,

• Took or will take over 25% or more of the fair market value of the net assets of another organization, or

• Were established upon the conversion of an organization from for-profit to nonprofit status.

Line 4a. A for-profit organization is one in which persons are permitted to have an ownership or partnership interest, such as corporate stock. It includes sole proprietorships, corporations, and other entities that provide for ownership interests.

Line 5. Answer “Yes” if you have members and enter the requested information.

Line 6. Indicate if you distribute, or plan to distribute, any of your property or funds (such as a distribution of profits) to your shareholders or members.

Line 7. Answer “Yes” if you have or will issue stock as a means of indicating ownership by your members or others. Enter the requested information.

• You and the recipient organization were created at approximately the same time and by the same persons.

• You and the recipient organization operate in a coordinated manner with respect to facilities, programs, employees, or other activities.

Persons who exercise substantial influence over you also exercise substantial influence over the recipient organization.

Lines 10d–10f. The Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against certain governments, entities, and individuals, as directed in Executive Orders. As part of the comprehensive and sustained campaign against terrorist financing, all U.S. persons, including U.S.-based charities, are prohibited from dealing with persons (individuals and entities) identified as being associated with terrorism on OFAC's Specially Designated Nationals and Blocked Persons List (OFAC SDN List). Information about OFAC sanction programs and the OFAC SDN List are available at treasury.gov/ ofac . If you make grants, loans, distributions, or you provide goods or services to a foreign organization or engage in activities in a foreign country, you are responsible to know whether an OFAC sanctions program applies and whether your activities require a license from OFAC to engage in a transaction that otherwise would be prohibited.

Line 11. A foreign country is a country other than the United States, its territories and possessions, and the District of Columbia.

Lines 11a–11c. The Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against certain governments, entities, and individuals, as

-6- Instructions for Form 1024

Line 3. Enter your gross income from dividends, interest, payments received on securities, loans, rents, and royalties that are held for investment purposes.

Line 4. Enter your net income from unrelated business activities. Unrelated business income generally is income from any trade or business activity that is regularly carried on, not conducted with substantially all (at least 85%) volunteer labor, and not related to your exempt purposes. Special rules apply to organizations described in section 501(c) (7), (9), or (17). In addition, unrelated business income can be generated by assets you acquire with debt (“debt-financed income”). (You can take this amount from Form 990-T, if filed.)

See Pub. 598 for additional information regarding unrelated business income.

Line 5. Enter amounts any local tax authority collects from the public on your behalf.

Line 6. Enter the value of services or facilities a governmental unit furnishes to you. Use the fair market value of the services or facilities. Don't include the value of services or facilities generally provided to the public without charge.

Line 7. Enter the total income from all sources not reported on lines 1 through 6, or lines 9, and line 11. Provide an itemized list showing each type and amount of income included on this line. Also, briefly describe each type of income.

Line 2. 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. Answer “Yes” if any of your officers, directors, or trustees:

• Is an officer, director, or trustee in another organization from or to which you will purchase or sell goods, services, or assets; or

• Possesses more than 35% ownership interest in any organization to which you will purchase or sell goods, services, or assets.

An arm's length standard exists where the parties have an adverse (or opposing) interest. For example, a seller wants to sell his goods at the highest possible price, while a buyer wants to buy at the lowest possible price. These are adverse interests.

In negotiating with a person, an adverse interest is assumed if that person is otherwise unrelated to you in the sense of not being in a position to exercise substantial influence over you or your affairs. If the person is in a position to 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 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.

Line 5. A joint venture is a legal agreement in which the persons jointly undertake a transaction for mutual profit. Generally, each person contributes assets and shares risks. Like a partnership, joint ventures can involve any type of business transaction and the persons involved can be individuals, groups of individuals, companies, or corporations.