Related party transactions are required to be disclosed in the footnotes of your financial statements. Once you identify who the related parties are, then you need to disclose any transactions between the Organization and those parties. A common example is when the attorney on the board provides services to the Organization for a fee. But what if the Organization did not actually directly pay the related party?
For example, what if the involved board member receives a commission as a result of the Organization entering into an agreement with some other non-related party to whom the Organization pays a fee? Accounting standards address this situation and state that transactions between related parties are considered to be related party transactions even though they may not be given accounting recognition (ASC 850-10-05-5). For example, an Organization may receive services from a related party without charge and not record receipt of the services. Disclosure, in this case, is still required.
Then what about Schedule L of Form 990? Do you have to disclose this type of transaction there too? Per the 990 instructions for Part IV of Schedule L, “in general, an organization must report business transactions with an interested person if all payments during the tax year between the organization and the interested person exceeded $100,000.” Since the Organization did not actually make payments in the examples above, no amounts would be required to be reported in Part IV of Schedule L. However, in the interest of transparency, the Organization may still choose to describe this transaction on Schedule L with a zero-dollar amount.