Schedule L (Form 990): Transactions with Interested Persons (Parts I–IV)

Last reviewed: 2025-10-27

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Schedule L (Form 990) is used by organizations that file Form 990 or 990-EZ to disclose certain financial transactions or arrangements with disqualified or interested persons. The schedule captures four categories: excess benefit transactions (Part I), loans to or from interested persons (Part II), grants or assistance benefiting interested persons (Part III), and business transactions with interested persons (Part IV). For Part I, disclosures relate to section 4958 intermediate sanctions, including whether the transaction was corrected. For Parts II–IV, the term “interested person” is defined in the instructions and excludes certain tax-exempt and governmental entities.

1. Who must file: Complete Schedule L if you answered “Yes” on Form 990 Part IV lines 25a–25b (Part I), 26 (Part II), 27 (Part III), or 28a–28c (Part IV); or on Form 990-EZ Part V lines 38a (Part II) or 40b (Part I).
2. Key definitions: For Part I, an interested person is a section 4958 disqualified person. For Parts II–IV, interested persons include (among others) current/former officers, directors, trustees, key employees, substantial contributors, creators/founders, 35%-controlled entities, and certain family members; note the exclusions for section 501(c)(3) organizations with the same status, other exempt orgs of the same status, and governmental units.
3. Deadlines: File Schedule L with your Form 990/990-EZ by the usual due date (generally the 15th day of the fifth month after the end of the accounting period, including extensions).
4. Thresholds (Part IV only): Report business transactions if payments exceeded $100,000 in the year; or payments from a single transaction exceeded the greater of $10,000 or 1% of total revenue; or compensation to a family member of a listed officer/director/trustee/key employee exceeded $10,000; or for a joint venture, if investment was $10,000+ and each party’s interest exceeded 10% at any time.
5. Accuracy tips: Use the definitions for each Part, disclose whether excess benefit transactions were corrected, and use Part V for explanations where required. Keep consistent naming, relationships, and dollar amounts across the return.

Excess benefit transactions (Part I): These are transactions in which an applicable tax-exempt organization provides an economic benefit to a disqualified person that exceeds the value received in return, triggering section 4958 excise taxes. The schedule requires you to identify each disqualified person, describe the transaction, and indicate whether it was corrected. Managers who knowingly participated must be identified in supplemental information. Treat correction and documentation seriously—poorly supported valuations are a common exam focus.

Loans to/from interested persons (Part II): Report loans outstanding at any time during the year between the organization and an interested person—including loans that began with third parties but were later transferred so they became debts between the organization and the interested person. Do not report advances under an accountable plan, pledges receivable that qualify as contributions when paid, ordinary-course receivables on public terms, certain credit-union loans on member terms, or tax-exempt bonds purchased on public terms. Clearly state the relationship, purpose, balance, and terms (including any forgiveness).

Grants or assistance benefiting interested persons (Part III): Report grants/assistance regardless of amount, including goods, services, or use of facilities. Protect substantial contributor confidentiality as instructed (use generic labels where allowed). Schools may group scholarships or similar aid by program type rather than listing recipient names, but still disclose amounts and narratives. Ensure that the assistance aligns with exempt purposes and is provided on similar terms to the relevant charitable class.

Business transactions with interested persons (Part IV): The ordinary-course exception used on Form 990 Part VI, line 2 does not apply here. Apply the specific dollar and percentage thresholds, and consider aggregating multiple transactions with the same party when appropriate. Describe the nature of each relationship and transaction (for example, management fees, leases, royalties, co-venturing) and use supplemental information for clarity.

Determining who is an interested person: The definition changes across parts. For Parts II–IV, there are explicit exclusions for section 501(c)(3) organizations of the same status as the filer and governmental units/instrumentalities; there is also a special 5-year lookback for management company transactions. Build your internal checklist against these rules before you answer the gateway questions on Form 990 Part IV to avoid inconsistent filing positions.

Governance and independence linkages: Schedule L disclosures interact with Form 990 independence reporting and conflict-of-interest policies. Ensure the board understands how a disclosed transaction can affect independence determinations and public perception, particularly where family members are compensated or where founders hold related interests. The IRS maintains public filing tips emphasizing clear, consistent reporting.

Tips for Efficient Filing

Run an annual insider questionnaire to make a “reasonable effort” to identify reportable transactions; retain confirmations, valuations, and board approvals with minutes. Questionnaires should ask about family members, 35%-controlled entities, loans, grants, joint ventures, and compensation from related orgs.

Map each transaction to exactly one part of Schedule L and cross-check against Form 990 Parts IV, VI, and VII to ensure names, roles, and amounts match. Where correction of an excess benefit transaction occurred, document timing, method, and any related excise taxes to support Part I and supplemental narratives.

Best Practices & IRS Compliance Strategy

Implement pre-approval procedures for related-party dealings (competitive bids, independent comparability data, and contemporaneous minutes). For joint ventures, track both the dollar investment threshold and the 10% profits or capital interest test during the year; disclose even if the investment was made in a prior year but thresholds were met this year.

Before filing, reconcile all transactions against the general ledger, grant module, and accounts receivable/payable to avoid omissions. Use supplemental information to explain complex structures (management companies, pass-throughs, or transfers of loans) and any confidentiality substitutions allowed for substantial contributors. Maintain consistent rounding and descriptions across the return to reduce exam risk.

Important Notes

All calculations are estimates for guidance only. Always review your return and consider professional advice when submitting official filings.