Archive for November 23, 2016

Year-end planning: What can non-profits do now to prepare for 2017?

shutterstock_228440362As a non-profit, you are likely in the middle of your annual appeal and evaluating how to raise funds for the coming year’s operational budget. While you’re closing the calendar year and finalizing the last of your annual contributions, make sure you are also keeping tax processes top of mind. In this article, I offer some tips and best practices to save you time and frustration during tax season.

1. Be prepared – don’t let tax season sneak up on you

Have you collected W-9s for service providers and/or vendors? You’ll be getting those 1099 forms out in January so now is the perfect time to make sure you have what you need.  Be aware of deadlines and avoid getting stuck with interest and penalties. Due dates for the IRS 990 Form vary based on the end of your fiscal year. The 990 is due 4 1/2 months after the close of your fiscal year. If your fiscal year follows the calendar year, they are due May 15.

2. Spend your grants

One of the quickest ways to lose out on getting the same grant the following year is to not use all the money you initially received. Make it a practice to have multiple people regularly review your grants and ensure your programs are running as promised.

3. Say thank you (and document it)

All donations – regardless of size – deserve a quick and heart-felt recognition of thanks. Nothing makes donors happier, and more likely to repeat a donation, than receiving a prompt thank you from a charity they just supported.

Sometimes, you’ll need to do more than offer thanks. Donors who make contributions more than $250 need a donor acknowledgement letter to claim the deduction on their individual tax returns. A donor acknowledgment letter can be a letter, an email, or a postcard – the IRS doesn’t have a required format.

However, there are specific details you need to include in the acknowledgement to ensure that the donor gets his/her deduction. You must include the name of your organization and non-profit status (e.g. 501(c)(3) and the details of the contribution (date, method of payment, or description of contribution).

Include a statement that no goods or services were provided by the organization in exchange for the contribution, if that was the case. If any goods or services were provided by the organization in exchange for the contribution, include a description and good faith estimate of the value of those goods or services (e.g. a fundraising dinner event where some of the funds received from the donor pays for the actual dinner, while the rest is a donation). Certain insubstantial goods or services like a sticker or coffee mug may be disregarded. Or, provide a statement that goods or services (if any) that the non-profit provided in return for the contribution consisted entirely of intangible religious benefits, if that was the case.

4. Come tax time, fill out the proper forms

Are you tax-exempt? According to the IRS, certain organizations and their affiliates that are: religiously based, a federal or state non-profit, or a disregarded entity of a larger charity, do not need to file an annual form.

If you don’t fall into any of the exemption categories, you’ll need to complete the 990 Form. However, there are several different versions of this form so make sure you are choosing the appropriate one. For example, if your organization’s gross receipts for the year total $50,000 or less, you must fill out Form 990-N. If your non-profit received more than $50,000 but less than $200,000 during the year and has less than $500,000 in assets, you can complete either Form 990-EZ or Form 990. On the other hand, if your group receives $200,000 or more annually, you’ll be obligated to complete Form 990. Private foundations must submit Form 990PF.

5. Consult tax professionals

Consulting professional tax help is always advised to make sure that you get the most out of your tax-exempt status, cover your bases, and protect your non-profit status. There are many tax professionals that offer pro bono help for non-profits and the benefits of properly filed taxes will only help the organization continue to fulfill its mission.

 

Shannon Crowley Massachusetts CPAShannon Crowley is an Accounting Manager at BlumShapiro. She can be reached at scrowley@blumshapiro.com. BlumShapiro, with more than 400 professionals and staff, offers a diversity of services, which include auditing, accounting, tax and business advisory services. In addition, BlumShapiro provides a variety of specialized consulting services such as succession and estate planning, business technology services, employee benefit plan audits, and litigation support and valuation. The firm serves a wide range of privately held companies, government and non-profit organizations, and provides non-audit services for publicly traded companies.

Implementation of ASU 2016-14 Not-for-Profit Entities (Topic 958), Presentation of Financial Statements of Not-for-Profit Entities

iStock_000010827673_Small-300x199Now that the nonprofit reporting standard has been issued in its final form, it’s time to think about implementation.

Transition Guidance

The update is effective for annual financial statements for fiscal years beginning after December 15, 2017, which means calendar year 2018 and after. Earlier adoption is permitted. The provisions should be applied on a retrospective basis to all prior years presented. However, when presenting comparative financial statements for periods prior to adoption, the following may be omitted from the prior period financial statements presented:

  • Analysis of expenses by both natural and functional classification, unless previously required under the old standard for voluntary health and welfare organizations.
  • Disclosures about liquidity and availability of resources

In the period that the update is applied, the nonprofit should disclose the nature of any reclassifications or restatements and their effects, if any, on changes in the net asset classes for each period presented.

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The Tax Exempt and Government Entities Group (“TE/GE”) Releases 2017 Work Plan

The Tax Exempt and Government Entities Group (TE/GE) of the Internal Revenue Service (IRS) recently released its Fiscal Year 2017 (FY2017) Work Plan. The work plan summarizes the IRS’s accomplishments for FY2016 and outlines its focus for FY2017.

TE/GE explains that it is focusing on improving processes and doing more with less. The work plan states that the department’s gold standard for any new program or process change will be that it is transparent, efficient and effective.

The use of “data-driven decision making” for audit selection is one iStock_000010827673_Smallof the IRS’s more important and effective process changes. The IRS previously indicated that there are over 190 queries in its data-driven case selection technique for Form 990, Return of Organization Exempt From Income Tax. The filters used in its return selection modeling process for examination of Forms 990 have not been made public, though tax-exempt organizations and their tax advisors are certainly aware of many of the exposure areas. Please see our blog published in February 2016 that highlights some common audit selection indicators.

The five strategic issue areas for FY2017 are a continuation of the FY2016 IRS work-plan focuses, and include the following:

Exemption – issues such as non-exempt purpose activity and private inurement.

Protection of assets – issues including self-dealing, excess benefit transactions and loans to disqualified persons.

Tax gap – tax liabilities arising from employment tax and from unrelated business income tax – audit adjustments for items such as excessive expense allocations, net operating loss deductions, rental activity, advertising, debt-financed rental and investment income.

International – issues such as funds spent outside the U.S., exempt organizations operating as foreign conduits and Report of Foreign Bank and Financial Accounts (FBAR) filing requirements.

Emerging issues – such issues as non-exempt charitable trusts and the new compliance requirements for tax-exempt hospitals.

The Exempt Organizations Rulings and Agreements group is expecting to continue to improve processing and timeliness of applications for tax-exemption. To increase its efficiency, last year the IRS began to reject incomplete applications, which they return with an explanation of the reason for the rejection. This ensures that only completed applications are assigned to review agents for review, thereby allowing for a more efficient and speedy process.

The IRS’s examination group is expecting to review private foundation returns that have irregularities. They are also planning on developing an “ongoing rolling statistical sample” review of tax-exempt organizations to assess the overall level of compliance of the exempt organization community. The IRS’s Exempt Organizations Examinations plans are expected to identify and address high-risk areas of noncompliance with the federal tax laws applicable to tax-exempt organizations.

Please contact us if you would like to discuss how the FY17 IRS work plan may affect your organization

For more information please contact Laura J. Kenney at lkenney@blumshapiro.com or at 617.221.1944.

BlumShapiro offers the accounting, tax and business consulting expertise non-profits need today. We are one of the largest non-profit accounting service providers in New England, our blend of accounting expertise and knowledge of non-profit organizations means we can offer you tremendous added value. We can assist you in complying with state and federal grant requirements, charitable giving rules, capital campaigns, endowment fund responsibilities and other specialized needs. Learn more >>

Laura J. Kenney, CPA
Tax Director

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Disclaimer: Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein. Such content, comments, or advice may be based on tax statues, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities. This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law.