- Donor advised funds;
- Conservation easements;
- Collections or art and historical treasures;
- Escrow and custodial arrangements;
- Endowment funds;
- Land, buildings, and equipment;
- Certain assets and liabilities; and
- Reconciliations of revenue and expenses between the base form 990 and the NPO’s audit report.
Specifically, this article will discuss the following:
- When Schedule D is required to be attached to base Form 990
- Additional information regarding donor advised funds
- Additional information regarding conservation easements
Although Schedule D covers much more than donor advised funds and conservation easements, there are disclosures in Schedule D not outlined in detail here because most of those disclosures are relatively straight forward.
When is Schedule D Required?
A NPO is required to attach Schedule D to its base form 990 if the NPO does any of the following:
- Maintains donor advised funds or any similar funds or accounts for which donors have the right to provide advice on the distribution of amounts in such funds or accounts.
- Received or holds a conservation easement, including easements to preserve open space, the environment, historic land areas, or historic structures.
- Maintains collections of works of art, historical treasures, or other similar assets.
- Has reported an escrow or custodial account liability on the base Form 990 balance sheet.
- Serves as a custodian for amounts not reported on the base Form 990 balance sheet.
- Provides debt counseling, debt management, credit repair, or debt negotiation services.
- Has endowments or quasi-endowments, whether directly held or held through a related organization.
- Reports land, buildings, or equipment on the base Form 990 balance sheet.
- Has certain investments or other assets that are 5% or more of its total assets.
- Reported other liabilities on the base Form 990 balance sheet.
- Has separate audited financial statements
- Has separate or consolidated audited financial statements that include a footnote regarding uncertain tax positions.
Donor Advised Funds
Generally, a donor advised fund is an amount irrevocably contributed to a NPO whereby the donor gets an immediate tax deduction and can make recommendations on the timing and beneficiary of distributions from the fund.
The IRS has taken issue with abusive practices in the use and administration of donor advised funds that generate questionable charitable deductions, impermissible economic benefits to donors and their families, and management fees for promoters of donor advised funds. Part I of Schedule D provides information about donor advised fund(s), including financial activity in the fund(s) and specific questions regarding the administration of the fund(s). Improper use of donor advised funds can result in the disallowance of charitable deductions to the donor; excise taxes to donors, NPOs, and managers of donor advised funds; and/or revocation of the NPO’s 501(c)(3) exemption.
Legitimate conservation easements are generally perpetual restrictions on the use of real property granted for conservation purposes. Conservation purposes include:
- Preserving land areas for outdoor recreation by or for the education of the general public
- Protecting the natural habitat of wildlife or plants
- Preserving open space where preservation will yield a significant public benefit
- Preserving historic buildings and/or structures
The IRS has been aggressively pursuing syndicated conservation easements in recent years. Promotors of these “pre-packaged” tax shelter instruments have drawn the ire of IRS officials who see them as a transaction that has no real economic substance beyond tax avoidance. As an example, a commercially marketed facade easement offering may receive scrutiny from the IRS because local zoning ordinances may already restrict modifications to buildings. This would mean the seller of interests in the property containing the easement is having its investors surrender nothing of actual value, producing no charitable deduction.
Schedule D requires a NPO with conservation easements to report the type(s), number of, and changes to conservation easements, as well as other information regarding conservation easements. Improper conservation easements or improper management of conservation easements can result in the disallowance of charitable deductions to the donor, excise taxes, and penalties to the grantor and others involved in the promotion and administration of the easement, and revocation of the grantee NPO’s 501(c)(3) exemption.
If your NPO is considering or has special reporting requirements on Schedule D and has questions, please contact us!