Nothing was hidden, but nothing was neatly documented either. What they needed was a clear way to decide what belongs on Schedule L, how to document it, and how to explain it in plain English. If that feels familiar, you are in the right place.
This guide gives you a practical, step by step path through Schedule L. You will see what each part covers, who counts as an “interested person” or a section 4958 “disqualified person,” where thresholds apply, and what to include in Part V so reviewers move on fast. We checked the latest IRS instructions that apply for the 2024 and 2025 filing seasons, so you can file with confidence.
Key Takeaways
- Schedule L has four buckets, excess benefit transactions, year end loans, grants or assistance, and business transactions that cross IRS thresholds. Each bucket has its own rules and definitions.
- You attach Schedule L when your answers on Form 990 Part IV or Form 990‑EZ show that a reportable insider transaction occurred. The instructions map each “Yes” to the part you must complete.
- Part I uses the section 4958 “disqualified person” test with a five year lookback, plus family and 35 percent controlled entities. Parts II through IV use the broader “interested person” list.
- For Parts I, II, and III there is no dollar threshold, report all that apply. Part IV has bright lines, including totals over 100,000, a single transaction over the greater of 10,000 or 1 percent of revenue, compensation to a family member over 10,000, and joint ventures that meet specific levels.
- Part V is your narrative hub. Cross reference the exact Part and line, name the parties and relationships, give dates, amounts, approvals, and any corrections or excise taxes.
Quick win, keep one living “interested person” register, updated quarterly, and tie every Schedule L line to minutes, agreements, and simple valuation support. It saves hours in review and avoids frantic rework at filing time.
What Schedule L Covers, The Short Version
Schedule L, Transactions With Interested Persons, is where you report insider dealings tied to Form 990 or 990‑EZ. It doubles as an independence check for Form 990, Part VI, line 1b. You report the who, what, when, amounts, terms, approvals, and, if needed, corrections or excise taxes, all in one place.
- Part I, Excess benefit transactions with section 4958 disqualified persons, reported regardless of amount, including any corrections and taxes.
- Part II, Loans to or from interested persons that are still outstanding at year end, with terms, approval, and written agreement status.
- Part III, Grants or assistance to interested persons, cash or noncash, including scholarships, prizes, discounts, or use of facilities, subject to narrow exceptions.
- Part IV, Business transactions with interested persons that meet the IRS thresholds, including service contracts, leases, asset transfers, and certain management company relationships with former insiders.
Who Must File Schedule L
You must attach Schedule L if your Form 990 Part IV lines 25 through 28, or related 990‑EZ questions, come up “Yes.” The instructions show exactly which answer triggers each part. If payments with an interested person exist but stay below Part IV thresholds, you answer “No” on line 28 and do not file that part. The IRS confirms this in a public FAQ updated in 2025.
Quick Trigger Map You Can Trust
- Excess benefit transactions, Form 990 Part IV 25a–25b or 990‑EZ Part V 40b, complete Schedule L Part I.
- Loans with interested persons, Form 990 Part IV 26 or 990‑EZ Part V 38a, complete Part II.
- Grants or assistance to interested persons, Form 990 Part IV 27, complete Part III.
- Business transactions with interested persons, Form 990 Part IV 28a–28c, complete Part IV.
If you have a relationship with a bank because a director works there, the IRS has examples that show when ordinary deposits are not reported and when a bank counts as an interested person. Use those examples to avoid over or under reporting.
“Interested Person” vs “Disqualified Person,” Use the Right Lens
These terms are close, but they do different jobs.
- Part I, use the section 4958 disqualified person test, anyone with substantial influence in the five year lookback, plus family and 35 percent controlled entities by statute and regulation.
- Parts II through IV, use the broader interested person list from the Schedule L instructions, current or former officers, directors, trustees, and key employees listed on the return, founders, substantial contributors from Schedule B, their family, 35 percent controlled entities, and in Part III, certain grant committee and donor related situations.
If you are on the fence, decide first which part applies to the transaction. That choice tells you which definition to use. Then document your reasoning and keep it with the return.
Part I, Excess Benefit Transactions, What to Report and How to Prove It
Part I reports every excess benefit transaction with a section 4958 disqualified person, no minimum amount. An excess benefit happens when the person receives more economic value than the organization receives in return, for example, compensation above fair market value or a bargain sale. For each item, identify the disqualified person, describe the relationship and substantial influence within the past five years, list the date and terms, and state whether you corrected the transaction. If excise taxes apply, note them and remember that managers who knowingly approved can also be taxed on Form 4720. Keep your comparability data, job descriptions, and minutes with the return.
Practical pattern you can copy:
- Build a one page summary, person, relationship, facts, values, conclusion, correction, approvals.
- File the supporting studies and bids behind that sheet.
- Mirror that summary in a clean Part V narrative that cites the Part and line.
Part II, Loans To or From Interested Persons, Year End Is The Gate
Part II asks for loans to or from interested persons that are still outstanding at year end. That includes demand loans, salary advances treated as loans, split dollar amounts treated as loans, and third party debts that became loans between your organization and an interested person. For each loan, list the name and relationship, purpose, direction of the loan, original principal, year end balance including accrued interest and fees, whether there was a default, whether the governing body approved it, and whether a signed agreement exists. Report each loan separately.
Common exclusions, do not report accountable plan advances, normal trade receivables on public terms, pledges that would be charitable when paid, accrued but unpaid compensation, and certain ordinary bank deposit situations noted by the IRS. The instructions list the full set of exclusions with cross references to other parts of Form 990 for tie outs.
Loan Documentation, A Simple Four Point Check
- Approval and conflict disclosures before funds move.
- A signed note with principal, interest, repayment schedule, and collateral if applicable.
- Year end balance that ties to Part X, lines 5, 6, or 22 as applicable.
- Default monitoring and minutes if you modify terms.
Part III, Grants or Assistance to Interested Persons, No Dollar Floor
Part III covers every grant or assistance to an interested person during the year, cash or noncash. You list the recipient, relationship, amount, type of assistance, and purpose. Think scholarships, fellowships, internships, prizes, awards, tuition discounts, or use of facilities. The IRS provides narrow exceptions for objective, nondiscriminatory programs funded by a substantial contributor or a 35 percent controlled entity, and special aggregation rules for schools. Keep selection criteria, committee rosters, award letters, and recusal notes ready to summarize in Part V if asked.
Who Counts as “Interested” in Part III
Add to the usual list, grant selection committee members and, in certain donor directed scenarios, employees or a child of an employee of a substantial contributor when the grant is intended to benefit them. When in doubt, document the objective process, show the committee was independent, and explain the criteria in your files.
Part IV, Business Transactions With Interested Persons, Know the Lines
Part IV has bright line thresholds. Report if, during the year, either all payments between your organization and the interested person are more than 100,000, or a single transaction exceeds the greater of 10,000 or 1 percent of your total revenue. Also report compensation to a family member of a current or former officer, director, trustee, or key employee when it exceeds 10,000, and report joint ventures when you have invested 10,000 or more and both you and the interested person each had over a 10 percent profits or capital interest at some point during the year. The ordinary course exception from Part VI does not apply here, but there is a limited exception for publicly traded companies if your terms match or beat public terms.
Management Companies Linked to Former Insiders
If you hire a management company, and a former officer, director, trustee, or key employee within the last five tax years owns at least 35 percent or serves as an officer, director, or trustee of that company, treat it as an interested person for Part IV testing. The five year look matters even if the person is no longer listed in Part VII.
Part IV Thresholds at a Glance
| Threshold type | When it applies | What to measure |
| Aggregate payments | Total paid between you and the interested person during the year is more than 100,000 | Add all payments between the same parties for the year |
| Single transaction | One transaction is over the greater of 10,000 or 1% of total revenue | Measure the individual payment stream for that transaction |
| Family compensation | You paid a family member of a listed current or former officer, director, trustee, or key employee more than 10,000 | Compensation to that family member during the year |
| Joint venture | You invested 10,000 or more and both parties each held more than 10% profits or capital during the year | Your investment and both ownership percentages |
These lines come straight from the current IRS instructions for Schedule L, Part IV, along with examples you can mirror for edge cases.
How to Use Part V, Your Narrative Hub
Part V is where you make the record clear. Identify the exact Part and line, name the interested or disqualified person, list dates, amounts, terms, approvals, and any corrections or section 4958 excise taxes. Use this space to show how you determined fair value, why a payment falls into Part I instead of Part IV, or how a grant program meets the objective selection exception. Duplicate Part V if you need more space.
A Clean Cross‑Reference Pattern
- Start with the cross reference, for example, “Part II, line 1.”
- Name the parties and relationships that make the person “interested.”
- List dates, dollar amounts, terms, approvals, and minutes citations.
- For excess benefits, describe the correction and who paid section 4958 tax, if any.
Practical Examples You Can Model
Family member on payroll
You paid 15,000 to the spouse of a current officer for seasonal work. That is a Part IV business transaction due to the 10,000 family compensation check. Answer the written agreement and approval questions accurately and be ready to summarize your procurement in Part V.
Year end loan balance
You advanced 8,000 for moving expenses to a key employee in May. A signed note shows a 2,500 balance at year end. Report it in Part II because loans are reported if outstanding at year end, regardless of amount. If it was a proper accountable plan advance and not a loan, it would be excluded.
Scholarship linked to a donor
A substantial contributor funds scholarships reviewed by an independent committee using preset criteria. Those awards can be excluded if the program meets the objective, nondiscriminatory rules described by the IRS. Keep the criteria and committee records in case you need to explain them in Part V.
Management company with a former executive
You hired a management company in 2025. Your former COO, who left in 2023, owns 35 percent and sits on its board. That is an interested person relationship for Part IV testing due to the five year rule for management companies. Apply the thresholds and report if met.
Documentation You Should Have Ready
- Annual and event driven conflict of interest disclosures.
- Board and committee minutes showing approvals and recusals.
- Independent valuation or comparable bids for pay and contracts.
- Loan agreements, schedules, and default monitoring.
- Grant criteria, committee rosters, award letters, and recusals.
- Joint venture agreements and proof of ownership percentages.
These are the exact items the IRS expects you to summarize in Part V when questions arise.
A Simple Pre‑Filing Checklist
- Map every “Yes” on Form 990 Part IV to the correct Schedule L section.
- Confirm all year end loans to or from interested persons and tie balances to Part X.
- Test payments against Part IV thresholds, including the 10,000 family compensation check.
- Draft Part V narratives now, not at midnight, and include approvals, agreements, valuations, and any corrections or Form 4720 filings.
Keep your Schedule L workpapers in a standing folder with a one page index. Your future self will be grateful next season.
Where Accountably Fits, Briefly and Only If You Need It
When teams miss Schedule L details, it is usually a delivery problem, not a knowledge problem. If your reviewers are stuck in long loops because files are inconsistent, or if you lose time chasing names, minutes, and loan terms, that is a process gap. Accountably integrates trained offshore teams inside your systems with standardized workpapers, named files, and a multilayer review pattern. That structure shortens reviews without giving up control, security, or your templates. If capacity strain is putting filings at risk, that is the right moment to ask for help, not to outsource judgment.
FAQs
What is Schedule L for Form 990?
It is the schedule used to disclose specified transactions with interested persons and section 4958 disqualified persons, including excess benefits, year end loans, grants or assistance, and business transactions that meet IRS thresholds. It also supports independence testing on Form 990.
Who is a section 4958 disqualified person?
A person with substantial influence in the five year lookback, plus family members and 35 percent controlled entities. The definition and family list are set by statute and regulations.
Who counts as an “interested person” for Parts II through IV?
Current or former officers, directors, trustees, and key employees listed on the return, founders, substantial contributors from Schedule B, their family, 35 percent controlled entities, grant committee members for Part III, and specific donor related cases described by the IRS.
What are the Part IV business transaction thresholds?
Report if aggregate payments exceed 100,000, a single transaction exceeds the greater of 10,000 or 1 percent of revenue, compensation to a family member exceeds 10,000, or a joint venture meets the 10,000 investment and 10 percent ownership checks.
Do ordinary bank deposits with a board member’s bank go on Part IV?
Not when your terms match public terms. The IRS gives examples on banking, scholarships, and space limits that show what is and is not reportable.
Final Guidance and Next Steps
If this stirred a memory or two, you are not alone. Most Schedule L issues fade when you build an early list of interested persons, test payments and loans against thresholds, and write clean narratives while details are fresh. Use the current Schedule L instructions for 2024 and later years until the IRS publishes a new version, and file Form 4720 if section 4958 taxes apply. Keep your documentation simple, current, and easy to retrieve. You will file faster and sleep better.
Compliance note
This article is general information for U.S. nonprofits and reflects IRS guidance current through November 27, 2025. It is not legal or tax advice. For your facts, consult your tax advisor and the latest IRS pages linked in the citations.