How The Chronicle Tallied Loans Made by Charities

Nonprofit groups report loans they make to directors, officers, and other key employees in two sections of the Form 990 informational tax returns they file. The Internal Revenue Service defines key employees as people with powers similar to those of officers, directors, or trustees.

One part of the Form 990 in which loans are reported is a checkbox in which groups must indicate whether they have made loans or extended credit to their top officials. The other is a line on which they must report how much debt they are owed by the officials.

For the past several years, GuideStar, a nonprofit organization in Williamsburg, Va., has entered data from the tax returns into a computer database, including the information about loans to officers and directors. The Chronicle obtained from GuideStar data for all the 10,700 charities that reported having debt with officers and directors on returns filed from 1998 through 2001.

The debt listed on a tax return does not necessarily arise from a loan. It can include a pledge from a top official to the organization, or some other type of financial commitment.

The IRS instructions require charities to include with their returns attachments showing whether the debt arose from a loan and, if so, the amount of the loan, the interest rate and other repayment terms, and what the loan is to be used for.

The Chronicle found that 2,278 of the groups listed at least $10,000 in debt, and reviewed their returns to determine whether they had made loans and what were the terms of the loans that were identified. In about 200 cases, The Chronicle was able to determine that organizations had included non-loan debt, such as payments owed by related charities. In several cases, nonprofit groups mistakenly listed debts they owed on the line reserved for outstanding debt of officers and directors.