In the annual information return (Form 990) of nonprofit organizations, there has long been an operational gray area regarding the reporting obligations for former directors. A filer, Kathleen, raised a question: her organization has consistently reported former directors on the 990 form over the past few years, even though these directors did not receive any compensation. She now wants to confirm whether, if these former directors did not receive more than $10,000 in compensation during the filing year, they can be omitted from the corresponding section of the 990 form.

Core Question: Does the Compensation Threshold Determine Reporting Obligations

According to the Internal Revenue Service (IRS) instructions for Form 990, the reporting requirements for directors, trustees, and officers are generally tied to the threshold of "compensation exceeding $10,000." However, this threshold primarily applies to current directors and officers. For former directors, the rules differ: if a former director did not provide services during the year and received no compensation, they typically do not meet the definition of a "key employee" or "compensated director," and therefore may not need to be reported on Schedule J or Part VII.

Kathleen's line of reasoning is largely correct, but several details need attention:

  • Definition of Compensation: The "compensation" referred to by the IRS includes salaries, fees, bonuses, deferred compensation, and any form of in-kind benefits. If a former director only receives nominal gifts or reimbursement for actual expenses, these are typically not counted as compensation.
  • Provision of Services: If a former director still provides consulting services or participates in committee work during the year, even without compensation, they may be considered a person requiring reporting due to "substantial services."
  • Historical Reporting Practices: Having reported them in past years does not constitute a legal obligation. If current rules no longer require it, the reporting approach can be adjusted, but it is advisable to maintain internal records to explain the reason for the change.

IRS Guidance and Practical Application

The IRS, in the general instructions for Form 990, clearly states that Part VII (Section A) requires reporting of "current directors, trustees, officers, and key employees," with criteria including compensation exceeding $10,000 and holding a "compensated position." If a former director did not hold any position during the year and received no compensation, they generally do not fall into these categories.

"If an individual did not serve as a director or trustee during the tax year and did not receive deferred compensation or similar payments for past services, they do not need to be reported in Part VII." — Based on an interpretation of the 2023 IRS Form 990 instructions.

However, there is an exception: if a former director receives "severance pay" or "deferred compensation" exceeding $10,000 during the year, they still need to be reported, even if they no longer hold a position. Therefore, Kathleen needs to confirm whether her former directors received any form of deferred or severance payments.

Conclusion and Recommendations

Overall, Kathleen's judgment is correct in most cases: if former directors received no compensation during the filing year (and did not exceed the $10,000 threshold) and provided no substantial services, they do not need to be reported on the 990 form. However, it is recommended to take the following steps to ensure compliance:

  1. Review payment records for all former directors to confirm whether any form of compensation (including deferred or in-kind) exists.
  2. Confirm whether former directors participated in any organizational activities during the year; if so, assess whether this constitutes "services."
  3. If deciding not to report them, document the basis for the decision in internal files to be prepared for explanation during an IRS audit.
  4. Consult with tax professionals, especially when the organization is large or involves related entities.

In summary, the reporting obligations on Form 990 center on "current positions" and the "compensation threshold." Former directors who are completely detached from their positions and receive no compensation can generally be safely omitted from reporting. However, each organization's situation differs, and it is advisable to make judgments based on specific facts.