Archive for Jeanne Pagnozzi

Advertising vs. Qualified Sponsorship Payments

iStock_000001334173MediumAs a follow-up to our “What is Considered Unrelated Business Income?” blog post regarding unrelated business income tax (UBIT), written by Shannon Crowley, the following highlights some of the key factors used when determining whether or not advertising and sponsorship revenue are considered unrelated business income (UBI).

Generally, the IRS considers revenue derived from commercial advertising activities to be UBI; however, advertising revenue is not UBI if:

  • It is not regularly carried on;
  • It is substantially related to the organization’s exempt purpose;
  • Substantially all the advertising activity is conducted by volunteers;
  • The purchaser of the advertising does not expect more than a negligible commercial benefit by the advertisement; and
  • It is simply a listing of names of businesses with no advertising message or index to advertisers.

Advertising

Often, a non-profit will produce a periodical (e.q., newsletter, magazine, etc.) that is related to their exempt purpose and sell commercial advertising space within the publication. When the advertising is purchased for the purpose of inducing a reader to purchase the goods or services of that business, the revenue is likely UBI. Indications of advertising usually include messages that contain qualitative language, promotion of the business entity’s products, services or facilities, or statements of pricing or value.

Qualified Sponsorship Payments

Revenue derived from qualified sponsorship payments (QSP) are excluded as UBI. Typically, this is seen with fundraising or program events and acknowledgements of corporate sponsors in an event program. A QSP is a payment (cash, property or services) by a business entity to an exempt organization, without an arrangement or expectation that the sponsor will receive any substantial return benefit from the payment. A substantial return benefit generally does not include use of the business entity’s name, logo, slogans or contact information. If there is some element of advertising (as described above) provided to a sponsor in return for their payment, the amount exceeding the fair market value of the advertising purchased would be considered to be a QSP.

For more information, see IRS Publication 598.

Jeanne Pagnozzi Boston AccountantJeanne Pagnozzi is a manager in BlumShapiro’s Accounting and Auditing Department, based in Quincy, Massachusetts, Jeanne oversees attest and tax engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects.

Introducing MassTaxConnect!

123shutterstock_90695362On November 30, 2015, the Massachusetts Department of Revenue (DOR) will replace the existing WebFile for business system with the new MassTaxConnect system. All entities that file and pay taxes to the DOR electronically will now be utilizing the new online system. Tax filings and payments include unrelated business income tax, sales tax, meals tax, withholding tax and more, so this change will impact a wide variety of organizations in the Commonwealth.

Some of the new features that promise to make the tax filing and paying experience more efficient include:

  • Send and receive secure e-messages
  • View errors prior to submission
  • File early and schedule payments online
  • Assign third-party access electronically
  • 24/7 access

Click here for more information and to get an advance look at the new system.

Jeanne Pagnozzi Boston AccountantJeanne Pagnozzi is a manager in BlumShapiro’s Accounting and Auditing Department, based in Quincy, Massachusetts, Jeanne oversees attest and tax engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects.

What have you done for your employee handbook lately?

In November 2014, Massachusetts citizens voted to entitle Massachusetts workers to earn and use paid sick time. In April 2015, the Attorney General released proposed regulations in order to help businesses comply with the new law. All employers are impacted by the law; however, only employers with 11 or more employees (not full-time equivalents (FTE’s)) during the calendar year are required to provide paid sick time to any employee whose primary workplace is located in Massachusetts, including part-time, full-time, seasonal or temporary employees. The new law takes effect on July 1, 2015.

According to a summary and the draft regulations published by the Attorney General’s office, some of the highlights of the new law are as follows:

• Massachusetts workers whose employers have 11 or more employees for at least 20 weeks during either the current or preceding calendar year (whether consecutive or not) can earn and use up to 40 hours of paid sick time per calendar year

• For employers with less than 11 employees for at least 16 weeks during either the current or preceding calendar year, workers can earn and use unpaid sick time

• The use of earned sick time can be used for:

o Caring for a physical or mental illness, injury or medical condition affecting the employee, spouse, child, parent or parent of a spouse

o Attending routine medical appointments for the employee, spouse, child, parent or parent of spouse

o Addressing the effects of domestic violence on the employee or employee’s dependent child

• Employees will earn at least one hour of sick time for every 30 hours worked

• Hours will begin to accrue on the date of hire, or July 1, 2015 (whichever is later) and employees can begin to use the sick time 90 days after that date (July 1, 2015 or date of hire, whichever is later).

• Up to 40 hours of earned sick time can be carried over to the next calendar year, but the employer is not required to provide more than 40 hours of paid sick time in one calendar year

• Earned sick time is not required to be paid out upon termination from employment

• Employers cannot require workers to make up the used sick time

• Other provisions exist within the law regarding requirements to provide notice, certification, documentation, retaliation, confidentiality, breaks in service, exempt employees and other responsibilities on the part of the employer and employee.

The above highlights are just a sample of what is in the draft regulations. All employers should be reviewing their employee handbooks containing human resource and PTO policies to ensure that their policies are up-to-date and compliant with the new law. An experienced employment attorney is recommended to ensure that circumstances specific to each organization are considered when reviewing for compliance.

Jeanne Pagnozzi Boston AccountantJeanne Pagnozzi is a manager in BlumShapiro’s Accounting and Auditing Department, based in Quincy, Massachusetts, Jeanne oversees attest and tax engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects.

FASB Exposure Draft on Not-for-Profit Financial Reporting Issued

Last month, the FASB issued a much anticipated exposure draft relating to the proposed accounting standards update relating to not-for-profit and health care entity financial reporting.  BlumShapiro Partner Reed Risteen summarized the exposure draft in a recent article to help explain the proposed changes, and provided some practical examples of how financial statements may look under the new proposed guidelines. Read the full article here.

Jeanne Pagnozzi Boston AccountantJeanne Pagnozzi is a manager in BlumShapiro’s Accounting and Auditing Department, based in Quincy, Massachusetts, Jeanne oversees attest and tax engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects.

990 Policy Compliance Series – Compensation Policies

Compensation is one of the hottest topics facing non-profit organizations in recent years. The IRS has developed questions for non-profits to answer in order to shine a light on the compensation practices for the top earners of the entity. Again, these are not legally mandated policies, however, there are very specific requirements relating to the entity’s process in order to favorably answer the questions surrounding compensation practices.

The process for determining compensation for the individuals listed in Part VI, questions #15a and 15b must include following three elements:

1. Review and approval by a governing body or compensation committee. The members of the governing body or committee must be free of conflicts of interest surrounding the compensation arrangement under review. A conflict of interest by a member of the committee is deemed to be present if:

a. The member or his or her family member is participating in or economically benefitting from the compensation arrangement.
b. The member is in an employment arrangement subject to the direction or control of any person participating or economically benefitting from the compensation arrangement.
c. The member receives compensation or other payments subject to approval by any person participating or benefitting from the compensation arrangement.
d. The member has a material financial interest affected by the compensation arrangement.
e. The member approves a transaction benefitting the person participating in the compensation arrangement, who then, in turn, has approved or will approve a transaction providing economic benefit to the member.

2. Use of comparability data regarding the compensation arrangement being determined. The data being used must be for similarly qualified persons in functionally comparable positions at similarly situated organizations. Typically, non-profits will review the compensation for officers and key employees, which is disclosed in the 990s of other similar organizations. Form 990s of other organizations can be downloaded from websites such as Guidestar, or in Massachusetts, the Attorney General’s website for public charities.

3. Finally, all of the processes above should be documented in a timely manner with proper records kept as to what data were used, who participated in the process (and if they were free of conflicts of interest), when the discussion occurred, what deliberations transpired and what decisions were made.

If you follow the above process and you answer yes to either #15a or #15b, you must include a description in Schedule O. In that description you are required to identify the positions that were covered in the process to determine compensation above, and the year the process was last performed. If the organization did not compensate its officers, directors, top management official or other key employees, or if any of the above elements were not met, the answer should be “no”. A disclosure of why the answer is no is not required, but is allowed and could be helpful to explain the reason for answering “no”.

Read other articles in our “990 Policy Compliance” series:

Jeanne Pagnozzi Boston Accountant

Jeanne Pagnozzi is a manager in BlumShapiro’s Accounting and Auditing Department, based in Quincy, Massachusetts, Jeanne oversees attest and tax engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects.

990 Policy Compliance Series – Conflict of Interest Policy

Continuing with our 990 policy compliance series is a discussion about what is required for a sound conflict of interest policy. Everyone can agree that an entity that uses public, government or donated funds should have a policy to address potential conflicts of interest with those that are controlling the organization. On Part VI of the 990, there is a three-part question regarding the existence of a conflict of interest policy and its components.

First, what is a conflict of interest (COI)? The IRS defines COIs as a circumstance that arises “when a person in a position of authority over an organization, such as an officer, director, manager or key employee (as defined by the IRS), can benefit financially from a decision he or she could make in such a capacity, including indirect benefits, such as to family members or businesses with which the individual is closely associated.”

The following criteria must be met in order to answer “yes” to the three-part question on Part VI of the 990 regarding your COI policy:

  • #12a: Is there a written policy? Answer yes only if a written policy is in place, as of the last day of the tax year, that defines conflicts of interest, identifies the class of individuals to which the policy applies, facilitates disclosure of information that can help identify potential conflicts of interest, and specifies procedures to be followed in managing conflicts of interest.
  • #12b: Are covered individuals required to disclose potential conflicts? Answer yes only if officers, directors, trustees and key employees (as defined by the IRS) are required to disclose or update annually (or more frequently) information regarding their interests and those of their families that could give rise to conflicts of interest.
  • #12c: Did the Organization regularly and consistently monitor and enforce compliance with the policy? The IRS does not define how this is to occur, but, if the answer is yes, then a narrative disclosure describing the process of how the policy is monitored and how conflicts are dealt with is required on Schedule O. Schedule O is the supplementary schedule that is used to provide any narrative or other information to answer required questions throughout the 990 or to provide any information that would be useful to the IRS or reader of the 990. In describing the process on Schedule O, include the following:
    • Explanation of which persons are covered by the COI policy.
    • The level at which determinations of whether a conflict exists are made and at what level they are reviewed.
    • Explanation of what restrictions, if any, are imposed on individuals with a conflict, such as prohibiting them from participating in the deliberations and decisions regarding the transaction under review.

In our next post we’ll cover the process for determining compensation for top earners at organizations.

Read other articles in our “990 Policy Compliance” series:

Jeanne Pagnozzi Boston AccountantJeanne Pagnozzi is a manager in BlumShapiro’s Accounting and Auditing Department, based in Quincy, Massachusetts, Jeanne oversees attest and tax engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects.

990 Policy Compliance Series – What is an Independent Board Member?

On the 990, the first questions regarding the governing body are how many voting members are on the board and how many of those members are independent. A member of the governing body is considered “independent” only if ALL of the following four circumstances were applicable at ALL times during the organization’s tax year (fiscal year):

1. The member was not compensated as an officer or other employee of the organization or a related organization (simply put, any entity that is a parent, subsidiary, brother/sister, supporting/supported organization to the filing entity at any point during the year – see Schedule R instructions for more complete definitions). The member also was not compensated by any unrelated organizations for services provided to the filing entity or to a related organization. There is an exception for receiving compensation as an agent of a religious order (there are specific conditions that must be met).
2. The member did not receive total compensation exceeding $10,000 during the tax year from the filing entity and/or a related organization as an independent contractor (not including reasonable compensation for services provided in the capacity as a board member).
3. Neither the member nor any of his or her family members was involved in any transaction with the filing entity which is reportable on Schedule L (Transactions with Interested Persons – see IRS Schedule L filing tips for more detailed reporting requirements).
4. Neither the member nor any of his or her family members was involved in any transaction with a related organization that is reportable on Schedule L.

The IRS specifically states that the following circumstances do not indicate a lack of independence as a board member:

1. The member is a donor to the organization.
2. Religious exception (as discussed above).
3. The member receives benefit from the organization by being a member of the charitable or other class that is served by the organization.

Further, the IRS expects the organization to engage in all reasonable efforts to obtain the necessary information in order to determine whether members are independent. A good conflict of interest policy can help with this effort. Stay tuned for a future blog post on effective conflict of interest policies.

Read other articles in our “990 Policy Compliance” series:

Jeanne Pagnozzi Boston AccountantJeanne Pagnozzi is a manager in BlumShapiro’s Accounting and Auditing Department, based in Quincy, Massachusetts, Jeanne oversees attest and tax engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects.

 

990 Policy Compliance Series – Ensuring Transparent Governance and Operational Policies

As a tax-exempt organization, you are subject to a greater level of scrutiny from various sources than many other types of entities. Within the annual Form 990 filing, the IRS inquires about certain compliance, governance and management practices, which allows the government, donors and the general public to gain detailed knowledge about your organization. In Part VI of the 990, there are several policy and governance questions asked of filing entities, and, as laid out in the detailed instructions, there are some very specific requirements with which you must comply in order to answer affirmatively. Many of these policies are not legally mandated, and the non-profit faces no fines or penalties for not adopting the policies. However, all 990 filers are required to answer these questions, and certainly it is in the non-profit’s best interest to consider and adopt policies that help to ensure transparent and sound operational processes.

In the coming weeks, we will publish a series of posts on how to stay in compliance with certain 990 governance and operational policies as well as some further information to help you answer the questions appropriately.

Read other articles in our “990 Policy Compliance” series:

Jeanne Pagnozzi Boston AccountantJeanne Pagnozzi is a manager in BlumShapiro’s Accounting and Auditing Department, based in Quincy, Massachusetts, Jeanne oversees attest and tax engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects.

Communication Between the Business Office and The Board

As a member of the business or finance office, you hold some of the most sensitive and important information regarding the operation of your non-profit.  Budgets, cash flows, obligations, covenants, financials, audit, internal controls, legal and regulatory matters….all of these can have a tremendous impact on how the individuals running the program activities accomplish their goals. Matters surrounding finance can provide stepping stones or significantly hinder the progress of the organization’s mission.

The finance office is charged with providing the most useful and pertinent information to the Board, which will enable them to fulfill their responsibilities of providing guidance and decision-making, most importantly surrounding fiscal matters.

Nonprofit Board meetingAs the CFO, Controller or Business Manager, have you thought about what you should be providing to the Board and in what format? Boards typically meet for an hour or two once a month or quarter. Given the limited time frame, this should be the time that they discuss critical matters, review accurate and timely financial reports and vote on high-level governance matters. Providing a great deal of extraneous data can muddle the waters and prevent them from understanding the true issues and being able to make timely resolutions. Here are a few areas to focus on which will help to ensure the Board has the tools to be most effective in fulfilling their responsibilities.

Organizational, legal and regulatory matters: 

First and foremost, the Board should be well informed of any and all potential risks that arise in these areas. Has the organization consulted an attorney for any claims or potential litigation? Are there new financial, reporting or other regulatory matters that are coming down the pike that may affect the organization? Significant accounting or audit standards, personnel matters, 990 reporting, communications from regulators, filing complications, due dates, donor matters, etc. can all have an impact on the organization and its ability to continue with its mission.

Finances: 
The Business Office should be preparing timely, summarized financial reports that are relevant to the Board’s responsibilities. Reports should be formatted in a way that does not confuse, overwhelm or complicate discussions surrounding finance.  Discuss with the Treasurer of the Board the most effective method of providing these reports. Have the Treasurer review the reports, and other more detailed information prior to submission to the Board, which may help to identify any questions or concerns ahead of time. It is probably helpful if the Board can review current month/quarter budget vs. actual reports as well as year-to-date compared to budget and prior years. A concise analysis of the significant activities of that period, such as large new contributions, significant past due balances or write offs and reserves, unanticipated expenses or capital purchases as well as high level departmental budget to actual comparison. Most importantly, having the most relevant and timely reporting available will enable the Board to make decisions on a timely basis, and avoid surprises at the end of the year.

Conflict of Interest and Related Party Activity: 
All Board members should be reading and signing a conflict of interest (COI) policy each year. All possible related parties and transactions should be disclosed in full, and any interested person should be excused from those discussions and determinations.  One misconception is that it is undesirable to have any related party activity, such as a Board Member who can provide professional services to an organization. Often times, a Board member can give back to an organization by providing expertise that the Organization would otherwise have to incur significant expenses for. This is ok, as long as regulation allows for it (for example, a financial statement audit must be conducted by an Independent Auditor), and provided that the Organization follows its COI policies surrounding disclosing, understanding and voting on these relationships and the transactions.  The Business Office liaison is often times the individual who ensures that the Board has all of the relevant information, that these matters get on the agenda and that the process adheres to approved policy.

Form 990: 
The Business Office is typically the department that ensures that the Form 990 is prepared timely and accurately. One section of the 990 includes several questions surrounding governance and policy. It goes without saying that the Board should be well aware of these policies at the time that they sign on to be a Board member. However, one question asks whether the Board has received a full copy of the 990 (as filed), and what the process is for the review of the 990. These questions are really aimed at shining a light on the Organization’s responsibility for ensuring that the 990 contains accurate information. Typically, the auditor/CPA is preparing the form, however there is so much more than quantitative data on the 990 as compared to any other IRS tax form. The qualitative data must come from the leadership of the Organization.  Each Board member should be aware of what is contained in the filing, and be expected to understand the questions and implications of the Organization’s responses.

Timeliness:
As the key financial officer of a non-profit, the CFO or Business Manager should aim to provide the financial reports to the Board members in advance of their meeting dates. Having the appropriate amount of time to carefully review reports, budgets, forecasts and analysis will enable the Board members to prepare thoughtful questions and commentary on the information given.  This will set the stage for a more meaningful discussion and proposed responses, ultimately benefitting the mission of the Organization.

 

Jeanne Pagnozzi Boston AccountantJeanne Pagnozzi is a manager in BlumShapiro’s Accounting and Auditing Department, based in Quincy, Massachusetts, Jeanne oversees attest and tax engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects.

5 Areas to Consider When Planning a Fundraising Event

Planning a fundraising event such as a gala or golf tournament can be a daunting task, but with a little direction and planning, your event is sure to not only be financially rewarding for your non-profit but also a memorable experience for the organization and the donors. As you begin thinking about what your event will entail, consider these five steps:

Mission – Identify what the primary purpose of the event is. Is it to raise much needed funds for a new building, to fund a new and exciting program or maybe just for general operating support?  Ensure that all of your materials for the event are consistent and concise with what the message and theme of the event is meant to be.  The clearer your message, the clearer the reporting and accounting treatment will be.

Timeline – Work backwards from the time of the event, to determine the proper timing for all of the planning that goes into an event. It generally takes several months, up to a year, to properly plan for an event, depending on how elaborate it is.

Delegate – A great event has great teams behind them. Ensure that all tasks are divided among the various needs, such as marketing, vendor relationships, expense budget, entertainment and food, staffing, ticket sales, social media communication, cash management and credit card processing, data entry/tracking, etc. This will ensure that all tasks are being addressed timely and by the right people.  Importantly, to reduce the risk to your organization, make sure there is one committee or person assigned to gathering information regarding regulatory items, such as permits for a raffle, police detail, credit card processing or other town regulation.

Communicate – This is likely the most critical item contributing to the success of your event.  Make sure to communicate your mission and financial goal of the event well in advance and in multiple mediums to your membership, donors, stakeholders and community. Using email, social media, mail, phone and maybe even texts all can help reach as many varied prospective attendees as possible.  Also, communicate multiple times to ensure your invitees respond as early as possible to help you with securing a solid headcount for the event in advance.  Also, remember the tip from the first bullet above, be consistent and clear with your message and purpose of the event, to ease the burden later when trying to classify the revenue and expenses from the event.  Don’t forget to report back to supporters of the event regarding how the event measured against the goals and what will be done with the funds raised.

Tracking & Reporting – You should have a database of all of your attendees, with number of tickets sold and price, additional donations given, sponsorships, etc. Also, keep a comprehensive list of all non-cash items donated for auctions or raffles. IRS reporting requires you to break out the fair value of the items donated, then separately state the amount those donated items were “purchased” at auction for. You should also be able to report the type and number of items donated. Finally, if you have different appeals at your event, ensure that you are tracking these separately, as accounting and reporting treatment will vary based on the purpose of the gifts given. When in doubt, call your auditor/990 preparer to find out what information is needed to be tracked separately so you know ahead of time.

 

Jeanne Pagnozzi Boston AccountantJeanne Pagnozzi is a manager in BlumShapiro’s Accounting and Auditing Department, based in Quincy, Massachusetts, Jeanne oversees attest and tax engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects.