IRS Form 990 or 990-EZ (Schedule L) – In the world of nonprofit tax compliance, transparency is key to maintaining tax-exempt status. One critical component of this is IRS Form 990 or 990-EZ Schedule L, which focuses on transactions with interested persons. This schedule ensures that tax-exempt organizations disclose potential conflicts of interest, helping to prevent misuse of funds and uphold public trust. Whether you’re a nonprofit leader, accountant, or board member, understanding Schedule L is essential for accurate IRS Form 990 filing. In this guide, we’ll break down what Schedule L is, who needs to file it, how to complete it, and recent updates to keep your organization compliant.
What is IRS Schedule L (Form 990 or 990-EZ)?
Schedule L, officially titled “Transactions with Interested Persons,” is an attachment to IRS Form 990 (Return of Organization Exempt from Income Tax) or Form 990-EZ (Short Form Return of Organization Exempt from Income Tax). Its primary purpose is to report financial transactions or arrangements between the organization and “interested persons,” such as insiders who could potentially benefit personally from the nonprofit’s activities. This includes excess benefit transactions, loans, grants, and business dealings that might raise red flags for conflicts of interest.
The schedule also helps determine if members of the organization’s governing body are independent, which is reported on Form 990, Part VI, line 1b. By requiring detailed disclosures, Schedule L promotes accountability and helps the IRS identify potential violations of tax laws, such as those under section 4958 of the Internal Revenue Code.
For the most current version of the form, you can download it directly from the IRS website: Schedule L PDF.
Who Must File Schedule L?
Not every tax-exempt organization needs to file Schedule L – it depends on your responses to specific questions on Form 990 or 990-EZ. Here’s a quick overview:
- Section 501(c)(3), 501(c)(4), or 501(c)(29) organizations: File Part I if you answer “Yes” to Form 990, Part IV, lines 25a or 25b (regarding excess benefit transactions), or Form 990-EZ, Part V, line 40b.
- All organizations: File Part II if “Yes” to Form 990, Part IV, line 26, or Form 990-EZ, Part V, line 38a (loans to/from interested persons).
- All organizations: File Part III if “Yes” to Form 990, Part IV, line 27 (grants or assistance benefiting interested persons).
- All organizations: File Part IV if “Yes” to Form 990, Part IV, lines 28a, 28b, or 28c (business transactions with interested persons, subject to thresholds).
Even if not required, voluntary filers must complete the schedule fully if they choose to include it. Organizations exempt under section 501(a) generally file Form 990 electronically for tax years after July 1, 2019, with extensions available via Form 8868. For tax year 2025 (due in 2026), the deadline is typically the 15th day of the 5th month after your fiscal year ends – for example, May 15, 2026, for calendar-year filers.
Key Definitions for Schedule L
To navigate Schedule L effectively, familiarize yourself with these core terms:
- Interested Persons: Includes current/former officers, directors, trustees, key employees (listed on Form 990, Part VII, or 990-EZ, Part IV); founders; substantial contributors (those giving $5,000+ in the tax year, reportable on Schedule B); grant selection committee members; family members; and 35% controlled entities. Exclusions apply for other 501(c)(3) organizations, similar exempt entities, or government units.
- Disqualified Persons (for Part I): Overlaps with interested persons but focuses on those under section 4958 who could receive excess benefits.
- Excess Benefit Transaction: When the organization provides an economic benefit to a disqualified person exceeding the value received in return.
- Reasonable Effort: Organizations aren’t penalized if they can’t obtain info after diligent attempts, like sending questionnaires to potential interested persons.
Breaking Down the Parts of Schedule L
The form is divided into five parts, each addressing different types of transactions. The layout includes tables for detailed reporting, with columns for names, relationships, amounts, and descriptions. Parts I–IV can be duplicated for more space, and all transactions are reported for the tax year (or outstanding at year-end for loans).
Part I: Excess Benefit Transactions
Applicable to 501(c)(3), (c)(4), and (c)(29) organizations. Report each transaction where a disqualified person received more value than provided.
- Columns: (a) Name of disqualified person; (b) Relationship; (c) Description; (d) Corrected? (Yes/No).
- Line 2: Excise tax under section 4958 (file Form 4720 if applicable).
- Up to six transactions listed.
Part II: Loans to and/or From Interested Persons
Report outstanding loans at year-end, including salary advances and receivables.
- Columns: (a) Name; (b) Relationship; (c) Purpose; (d) To/From; (e) Original amount; (f) Balance due; (g) In default?; (h) Board approved?; (i) Written agreement?.
- Total balance at bottom; up to ten loans.
- Exceptions: Accountable plan advances, member loans on equal terms, etc.
Part III: Grants or Assistance Benefiting Interested Persons
Disclose grants, scholarships, discounts, or other assistance during the tax year.
- Columns: (a) Name; (b) Relationship; (c) Amount; (d) Type; (e) Purpose.
- Up to ten entries; schools can aggregate by type.
- Exceptions: Objective employee grants, compensation, or public charity grants.
Part IV: Business Transactions Involving Interested Persons
Report if thresholds met: >$100,000 aggregate, >$10,000 single transaction (or 1% of revenue), >$10,000 family compensation, or ≥$10,000 joint venture with >10% interest.
- Columns: (a) Name; (b) Relationship; (c) Amount; (d) Description; (e) Revenue sharing?.
- Up to ten transactions; aggregate multiples.
- Exceptions: Reported compensation, ordinary bank deposits, public company deals.
Part V: Supplemental Information
Use this for explanations or additional details on any part.
How to Complete Schedule L: Tips for Nonprofit Compliance?
Start by reviewing your Form 990/990-EZ responses to determine required parts. Gather records of all transactions with potential interested persons – use questionnaires for “reasonable effort.” Report all in Parts I–III regardless of amount; apply thresholds for Part IV. Use descriptors like “substantial contributor” for confidentiality where allowed. Attach to your main form and file electronically if required.
Exceptions and Reporting Thresholds
Many routine transactions are exempt, such as public-term bank deposits or nondiscriminatory employee grants. Report each transaction in only one part. For Part IV, aggregate payments but list separately if needed.
Penalties for Non-Compliance
Failing to report can lead to excise taxes under section 4958 (via Form 4720) and general penalties for incomplete Form 990 filings. Accuracy is crucial to avoid audits or loss of exempt status.
Recent Updates to Schedule L (2023–2025)
As of December 2024, Schedule L transitioned to a “continuous-use” format for tax year 2024 and beyond, meaning it applies until superseded – no annual revisions unless major changes occur. No significant updates were noted for 2025, with only minor clarifications in the 2024 instructions. Check IRS.gov/Form990 for future developments, especially post-legislation.
Conclusion: Ensuring Transparency in Nonprofit Transactions
Mastering IRS Form 990 Schedule L is vital for nonprofit tax compliance and avoiding conflicts of interest. By disclosing transactions with interested persons, organizations demonstrate integrity and protect their exempt status. Consult the official IRS instructions or a tax professional for personalized advice, and always use the latest forms from IRS.gov. Staying informed on updates ensures smooth filings – start preparing your 2025 return today!