One of the purposes of the Form 990 is transparency for nonprofit organizations. If a college or school provides tuition assistance, discounted tuition, scholarships or free tuition to family members of employees, they need to disclose it on the Form 990 using Schedule L.
Schedule L is used for transactions with interested persons. So just what is an ‘interested person’? For Schedule L, Part III purposes, an interested person is a current or former officer, director, trustee, or key employee. The same rules apply for substantial contributors – a person who contributed at least $5,000 during the organization’s tax year.
When an interested person, substantial contributor, or relative of either receives a scholarship, fellowship, discount on goods or services, internship, prize or award, you must report the transaction. This rule is in effect regardless of amount.
Important disclaimer for schools
Schools (primary and secondary schools, colleges and universities) don’t have to disclose the identity of the beneficiary or the interested person, but they need to quantify the type of financial assistance provided. Examples include need-based scholarships, merit scholarships, and discounted tuition. For each type of transaction, schools need to report the total aggregate amount and the purpose of the assistance. So, the transaction is still an important disclosure, but the identity must remain private to comply with the Family Educational Rights and Privacy Act.
As schools get organized over the summer for fall enrollment, it will help to be proactive about flagging records that will need to be reported on the next Form 990 Schedule L.
Like all Schedules, the rules are complex. Be sure to ask your tax advisor for more information regarding your specific situation.