Part IV — 0121 Inst 1024-A (PDF)

Part IV, Line	Part IV. Compensation and Other Financial Arrangements
1	Answer “Yes” if you do or will pay compensation to your officers, directors, trustees, employees, members, or independent contractors.
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.
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.
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 to which you will purchase or sell goods, services, or assets from or to; or • Possesses more than 35% ownership interest in any organization to which you will purchase or sell goods, services, or assets from or to. 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.
3	Answer “Yes” if any of your officers, directors, or trustees: • Is an officer, director, or trustee in another organization that has a lease, contract, loan, or other agreement with you; or • Possesses more than a 35% ownership interest in any organization that has a lease, contract, loan, or other agreement with you. For example, answer “Yes,” if one of your directors is an officer for a section 501(c)(3) organization with whom you have a lease for office space or if one of your directors owns more than 35% of the voting stock of a corporation to which you made a loan.
4	Indicate if you perform any services for any other organization or individual for which you receive a fee.
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.

Instructions for Form 1024-A -9-