Today, many independent schools operate on a global stage. They may welcome international students from around the world, engage in mission-based trips outside of the US, and provide funding to a variety of international students and entities.
There’s no question that equipping students with the experiences and skills for success in our increasingly global world is a valuable educational experience. But many of these activities trigger additional foreign reporting requirements that independent schools must comply with. These go beyond the scope of the standard Form 990 filing and include a series of disclosures that outline the school’s foreign activities throughout the year.
Understanding exactly what types of activities prompt these reporting requirements is key to ensuring your school remains in compliance and avoids any penalties.
In this guide, we outline several activities that typically trigger foreign reporting requirements for independent schools and explore the steps that school leaders can take to ensure their organization satisfies all its obligations.
There are several distinct categories of activities that can trigger foreign reporting requirements for an independent school. Each of these comes with distinct reporting thresholds. Here is a brief overview of each of these activities:
If an organization holds foreign assets valued at more than $100,000, they must disclose these on Form 990 Schedule F. These can often be triggered by moves to build a more diverse, robust portfolio of assets including alternative assets, hedge funds, and ownership stakes in foreign limited partnerships and corporations.
Owning assets such as these can trigger additional reporting requirements beyond Form 990 Schedule F, including Form 8865, which discloses ownership in a foreign partnership or Form 5471 which discloses ownership in a foreign corporation. While there is no penalty for failing to file Schedule F if the Form 990 itself is filed on time, failure to file Form 8865 or 5471 can result in significant fines ranging from $10,000 to $60,000.
If an independent school has a financial interest in or signature authority over a foreign bank account(s) with aggregate assets exceeding $10,000, it must report these accounts.
This is done by filing a Report of Foreign Bank and Financial Accounts, more commonly known as an FBAR. Again, the penalties for failing to file an FBAR can be significant, ranging from $10,000 to $100,000 or 50% of the account balance, whichever is greater.
Many independent schools complete international trips each year. The purpose of these varies: it could be for board meetings, fundraising, or mission-based trips.
Regardless of the purpose, if the aggregate revenue or expenses of all international activities in a year exceeds $10,000, the expenditures from these trips or other activities outside the U.S. must be disclosed on Form 990 Schedule F. Because so many independent schools exceed this $10,000 threshold, it’s vital for administrators to accurately record all expenses related to international trips to provide accurate information on filings.
Schools often provide financial support to students. This can take a variety of forms: scholarships, awards, stipends, non-cash assistance, travel grants, and so on. When grants are made to non-US students or entities and exceed $5,000 in aggregate value, they must be disclosed on Form 990 Schedule F.
Schedule F also requires nonprofit organizations to disclose how the organization selected foreign recipients for grants and to outline how funds are disbursed and monitored. If the nonprofit fails to include this information on its return, the IRS may have follow-up questions.
There are a couple of intricacies that leaders must keep in mind around foreign grants. Grants distributed to domestic organizations and individuals may have to be reported if the benefit is received by a designated foreign beneficiary. Grants disbursed to non-US agencies located in the US, such as foreign government agencies, are also considered international grants and must be disclosed.
Assessing an independent school’s foreign reporting requirements can be a complex task and should be carried out in partnership with an experienced CPA firm. Requirements can often be determined through a series of questions in the initial request stage.
A good reference point for independent school leaders is Form 990 Part IV, which provides a checklist of the required schedules. Answering Questions 14 through 16 will help nonprofits determine which parts of Schedule F they must complete to disclose their international activities in the correct manner. Additionally, Part IV of Schedule F has a checklist that helps nonprofits determine whether they have additional reporting requirements outside of Form 990, including Form 926, Form 8865, Form 5471, and others.
Many independent schools tend to have relatively consistent reporting requirements from year-to-year. They may hold the same investment for several years and disclose this each year or conduct an annual student trip to a foreign country. In these instances, filing requirements typically only change when the nature of the school’s international activities changes.
A proactive approach is important to determining foreign reporting requirements. We advise school leaders to embrace organized record-keeping throughout the year that accurately documents all foreign investments, grants, and expenses. By ensuring this information is well-organized and easily accessible, schools can prepare for a much smoother filing process.
It’s vital for the leaders of nonprofit independent schools to be aware of the school’s reporting requirements. The more knowledge an organization has of these requirements, the less likely they are to fall out of compliance with regulations.
At Smith + Howard, we focus on educating our independent school clients about these reporting requirements through constructive, long-term relationships. Our nonprofit accounting practice contains a dedicated group of advisors focused on independent schools, offering clients access to a team of highly-qualified professionals with deep expertise in this field.
We prioritize reliable, responsive service that creates and sustains enduring value for the independent schools that we work with. By educating our clients on their foreign reporting requirements throughout the year, we lay the groundwork for a smooth filing process that empowers school leaders to focus on what they do best: providing a first-class education to children across the world.
Interested in learning more about how Smith + Howard can help your independent school navigate foreign reporting requirements? Contact an advisor.
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