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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

View Laura’s Bio Here >>

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.

Best Practices to Keeping Your Board of Directors Engaged

A strong, engaged board of directors is crucial to the success of any non-profit organization, no matter the size, mission or vision of that organization. Ensuring the board is engaged should be a focal point for the leadership of the organization and the board itself. It is not enough to have a full slate of board members. Each of those board members should have a clear role within the organization’s board of directors. Following are best practices in order to keep the board engaged and facilitate the fulfillment of the organization’s mission:

  1. Keep the focus on the organization’s mission. The organization’s culture should assist with all employees and board members in carrying out the mission of the organization. The mission should be at the center of all decisions made by the board and the organization. Board members and potential board members should understand the mission and continually review the activities of the organization to ensure they are in line with the mission of the organization.

  2. Continuously monitor the organization’s strategic plan, including the goals set by the strategic plan. The organization’s strategic plan is not something to file drawer or put on a bookshelf. At least twice a year a significant portion of the board meeting should be devoted to the review of the strategic plan. In addition, the strategic plan should be updated periodically, especially if significant events take place, such as staffing changes or program changes.

  3. Review the needs of the board continuously. How often does someone say to their fellow board members during a meeting, “I wish we had someone who could do that for us.” I’m sure every board has had this conversation. The board should continuously review the skills of the existing board members and identify the holes they may need to fill. For example, if the organization’s social media presence is not quite up to par, the board should seek out a potential board member that can help with social media, or someone who can guide the organization’s staff members, depending on the size of the organization.

  4. Create a clear committee structure. Committees are particularly important to small organizations that rely on board participation and volunteers. Committees are equally important to large organizations that require governance over several different programs and activities. The board should ensure all board members are part of a committee and that each committee has clear marching orders and tasks to complete. This helps board members understand their roles within the organization and keeps them engaged.

  5. Plan for the future. Succession planning for non-profit boards is important. Current leadership must work with their fellow board members to identify the future leadership of the board. This is extremely important in small organizations that are managed by the board of directors or volunteer organizations where the board members take on staff responsibilities. The current leadership should look for opportunities for those future leaders to take on responsibilities within the organization to allow them to grow their skills. They also need to keep an open dialogue with fellow board members regarding the future of the board’s leadership.

  6. Communicate. Keeping the board engaged requires a lot of communication. It is not enough anymore to fill a seat at a monthly board meeting and vote on the issues put forth by the chairperson. Decisions constantly need to be made, and committees and subcommittees are constantly working to accomplish the goals of the organization. The leadership of the organization, the board and the committees must continuously communicate with each other in order to make timely, informed decisions.

There is a lot of responsibility that comes with participating on the board of directors for an organization. The easier the organization and the current board leadership makes getting involved in the organization, the more talented future board leaders they will attract. Also, the clearer and more structured the board is, through use of committees and communications from leadership, the more engaged the board members will be. This will result in a more productive and effective board for the organization, allowing for the organization’s success in fulfilling their mission.

Jessie Kanter, CPA, is a manager in the firm’s Accounting and Auditing Department with 15 years of public accounting experience. She has provided audit services to a variety of clients, including non-profit organizations. Jessie’s focus is in quality control of financial statement audits in which she provides consulting on complex technical accounting matters and internal support and review for the firm.

How Does the Affordable Care Act Impact Non-Profit Organizations?

Several non-profit organizations have recently asked how the Affordable Care Act (ACA) impacts them. The ACA treats non-profit organizations no differently than any other employer in the United States, and, therefore, its provisions are applicable. Pretty simple, right? In order to determine how it applies to your organization, it is important to understand how many full-time equivalents you have on staff. For example, the ACA requires employers with more than 50 full time equivalents (FTEs) (100 for 2015) to offer minimum health insurance coverage to their staff or be subject to penalties. This is often referred to as the “pay or play” provision and is effective beginning in 2015. The ACA defines an FTE as an individual who is employed on average for at least 30 hours of service per week (see IRS FAQ on FTE determination at http://www.irs.gov/pub/irs-drop/n-12-58.pdf).

While organizations with less than 50 FTEs (100 for 2015) are not subject to the pay or play penalties for not offering health coverage, the ACA provides those employers with access to a Small Business Health Options Program (SHOP), which is a health insurance marketplace available in each state. In general, small organizations tend to pay more than large organizations for health insurance. Thus, the purpose of the SHOP is to allow employers to pool their risk and purchasing power in order to obtain lower premiums. While SHOPs are currently available only to employers with 50 or fewer employees, they will open up to employers with 100 or fewer FTEs in 2016.

In addition to having access to a SHOP, organizations with less than 25 full-time equivalents may also be eligible for a Small Employer Health Credit to assist in defraying the cost of health insurance for staff. In order to qualify for the credit, your organization must have fewer than 25 FTEs, pay at least 50% of health insurance premiums (purchased through a SHOP) for those employees and have an average annual employee salary of less than $50,000. The credit is refundable, so even though your organization is tax-exempt, you may be eligible to receive the credit as a refund as long as it does not exceed your income tax withholding and Medicare tax liability

Other important requirements under the ACA are that employer-offered health insurance needs to be affordable and meet minimal coverage standards. A plan is considered affordable if the employee’s share of premiums for the lowest cost employee-only coverage that meets the minimum coverage standard is less than 9.5% of his/her family’s income. In other words, an employee’s share of the premiums for a plan that covers only him or her (the employee), not the entire family, is less than 9.5% of the family’s income, the plan is considered affordable. Employees may pay more than 9.5% of their income on premiums for spouse or family coverage from your employer. Further, the ACA indicates that a health plan meets the minimum coverage test value standards if it is designed to pay at least 60% of the total cost of medical services.

Health Insurance Notifications

The ACA also requires virtually all employers to provide the appropriate health insurance notifications to their employees. The necessary notifications vary based on the size of the organization and whether or not employer-sponsored insurance is offered. Further, starting in 2016, employers will be required to file informational returns on behalf of employees regarding the health insurance coverage offered during the year. Form 1095-B provides details of the coverage for each employee, including the name of the provider, months covered and whether the coverage meets the minimum coverage provisions of the law. The 1095-C will only be required to be filed by employers with 50 or more employees and is used to determine if the employer is offering the correct health insurance coverage and cost sharing to its employees. If the employer is offering the appropriate coverage, no penalties will be incurred.

With ACA provisions becoming effective, and given the complexities of the law and its varying levels of applicability based on the size of an organization, it is important that organizations work with their benefits providers and/or brokers to ensure they are compliant. The government website, www.healthcare.gov, is also a very useful resource and outlines how the law impacts both employees and employers.

Chris Ernest, CPA oversees audit and tax engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects.  Chris provides services to a wide range of  non-profit organizations, including independent schools, country clubs, museums and trade associations. In addition, he specializes in audits of employee benefit plans.

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.

How to Record Non-Cash Donations

Recording Noncash DonationsOne of the most frequent questions I receive from clients surrounds recording and tracking of in-kind and non-cash donations. Non-cash donations fall under two main categories: goods/property and services.  The treatment is different for each, both from a financial reporting and tax perspective.  While the generally accepted accounting principle (GAAP) treatment for these items can get tricky, there are a few things to keep in mind that can help to simplify the process.

Goods

Donated goods, long-lived property, use of property, securities (or promises to give any of those items in the future) are recorded at the fair value on the date of donation. The organization should record the fair value of the donated assets as increases in unrestricted net assets, with a few exceptions.  If a donor places a restriction on how long a long-lived asset (i.e. property and equipment) is to be used,  then it should be recorded as temporarily restricted net assets, and released to unrestricted net asset over time, as the restriction expires.  Also, an organization may adopt a policy to imply a time restriction for the use of long-lived assets. If so adopted, the organization would record donations of long-lived assets to temporarily restricted net assets, and release to unrestricted over the useful life (along with depreciation).

If an organization received a donation of the use of a long-lived asset (i.e. donated rent), the donation should be recorded at fair value as unrestricted revenue in the period in which it was received, along with the corresponding related expense (i.e. rent expense).  If the donation is a promise to give the use in future periods for a specified period of time, the promise should be recorded as a temporarily restricted contribution receivable, and released over time as the benefit is used.

Services

The nature of many non-profit organizations is to utilize the manpower and skills of many volunteers.  GAAP sets forth specific criteria that must be met in order to recognize a contribution.  The requirements are: 1) services that create or enhance a non-financial asset (i.e. property and equipment) or 2) meet all of the following:

  • The service requires specialized skill (typically accountants, attorneys, architects, teachers, electricians, doctors, other professionals, etc.)
  • The service is provided by someone who possesses those specialized skills
  • The service would typically need to be purchased if not contributed

If the donated service meets the definition set forth above, the donation should be recognized at fair value on the date of the donation as an increase to unrestricted net assets, with an offsetting recognition of an asset or the related expense.

Note on Auctions

Organizations often receive gifts from donors to be used in auctions at fundraising events.  These items should be recognized as an asset at fair value on the date of donation.  Any difference between the fair value and the amount received from the “sale” of these items at auction should be an adjustment to contribution revenue.

Acknowledgments
The IRS sets the specific compliance rules for charities regarding acknowledgments to donors.  See previous blog post on Written Acknowledgements for Donors.

The IRS has many complex rules relating to various types of donations, such as artwork, antiques, collection items, cars, boats, aircraft, intellectual property and many more.  See Publication 561 for more detailed information.

 

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.

 

Ask Not What You Can Do for Your Software; But What Your Software Can Do for YOU

Nonprofit Accounting SoftwareYour key software, whether accounting, donor management or payroll, should be constantly evolving. Because of limited time and resources, it is easy to lose track of what your software’s capabilities are and should be. A few quick items to review on a regular basis:

Version:
What is the current version? Which version are you on? The further behind you are, the more costly upgrades will become in regards to both money and time.  If you do not have the immediate resources to upgrade, it is still important to confirm the current hardware and software requirements. This will ensure you are budgeting for what could otherwise be hidden costs for new required hardware and related software.

Current Features:
Occasionally, updates are performed to address a specific issue such as fixing a software bug or updates for W-2/1099 processing. Chances are these updates include other enhancements that you should know about! Even if you don’t plan on installing the latest release, make sure to ask your vendor for a list of enhancements on a regular basis.

Also, do not forget to have someone attend training on a regular basis. At worst, current knowledge will be reinforced. More likely, attendees will learn additional tips and tricks.

You can do that?
From the early 1900s to the 1960s, the average kitchen changed in dramatic fashion – candles and windows to light bulbs; ice boxes to refrigerators; your kids speaking with you to watching TV. Report generation has evolved dramatically as well – 15 years ago, you would have to print 25 reports and distribute to each manager via interoffice mail; if you were being “efficient,” you might have scanned each of the reports and created 25 separate emails. Now you can press a button and everyone gets their information immediately. Even better, they have their own direct access from wherever they are.

This is one example, but it’s important to know not just what your software can do, but what it should be able to do. Make sure to ask colleagues, new employees or simply talk to those salespeople who call you to make sure you actually know what is available.

Look for a follow-up post on how to find the time to review items outlined above.

As a manager in our Consulting Group, Matt provides implementation, conversion assistance, training and ongoing support for the firm’s clients. His industry experience includes non-profit organizations such as independent schools, health and human service organizations, arts and cultural organizations and municipalities.

5 Questions to Ask Before Joining a Board

Joining a Nonprofit BoardAs we gain experience and grow in our respective “day jobs,” some of us will be offered the opportunity to serve on the board of a non-profit organization.  Others among us may seek out such an opportunity as a way to give back to the community that has given them so much.  In either case, there are some questions that you will need to ask yourself before committing to such a position.

1.    What is the organization’s mission?

First and foremost, what does the organization do and is it something that you believe in.  Your duty as a board member will be to act in the best interest of the organization. For this reason, you should make sure that the mission does not conflict with any of your personal beliefs/interests (or interests of any other organization (your employer or other) that you may represent). Identify any potential conflicts of interest prior to joining a board.  And above all, you want to make sure that it is an organization whose mission you can stand behind.  As we discuss with the next question, a lot may be asked of you, with little to no compensation.  So make sure you are putting your efforts towards an organization and a mission that you truly believe in.

2.    What responsibilities would you have?

Discuss with the executive director or chairman of the board, some of the responsibilities that will be expected of you.  Some of the items to discuss are:

  • Frequency, typical duration, dates and location of meetings
  • Expected availability of board members between meetings and involvement on other committees
  • Length of your term as well as any term limits, and other limits on a board member’s continuing involvement, including any mandatory terminations for failure to attend meetings
  • Any meeting, travel, meal and expenses you will be expected to absorb or contribute

3.    What’s in the organization’s Form 990 (and other documents)?

I recommend reviewing the organizations Form 990 before agreeing to serve on a board.  The Form 990 provides detailed financial information and governance information about the organization. Other documents that you should review are the organization’s governing documents, including articles or the certificate of incorporation, bylaws or regulations as well as any board policies or guidelines, especially those regarding conflicts of interest and statements of mission. You’ll definitely want to review the latest (hopefully audited) financial statements as well.  Also, check the organization’s website, to gather additional information.

4.    What protections are available to the organization’s board members?

You should confirm the extent that board members of the organization will be entitled to protection of laws limiting liability of volunteers under federal and any applicable state law, as well as the protections of a business judgment rule and of statutory indemnification under state law. More importantly, you should determine the extent that the organization’s board members will be protected by:

  • Contractual indemnification; and
  • D&O insurance policies

The most important of these protections is likely volunteer protection. Typically, you lose volunteer protection if you are paid other than reimbursements of out-of-pocket expenses or you are enriched through a conflicting relationship.

5.    Can you be a valuable asset for this organization and are you willing to dedicate the time and effort to be that valuable asset?

Assuming the questions above were all answered to your liking, the true question is whether or not you are willing to make the sacrifices necessaryto help the organization in whatever way you can.  If the organization is something that you truly believe in and it appears that they have their house in order, then it’s a matter of determining how much you are able and willing to offer.  If you feel like you have a little extra to give (pro bono) back, there are plenty of organization that would love the help.  I hope you find a great organization that you can be proud to be a part of and I know they’ll be proud (and glad) to have you.

Sean Niland, Intacct ConsultantSean Niland is a manager in our Consulting Group, Sean provides implementation, conversion assistance, training and ongoing support for the firm’s clients.  His industry experience includes privately held businesses such as hospitality and professional service firms; non-profit organizations such as health and human service agencies and arts and cultural organizations; and municipalities.

Sean is certified in Intacct, AccuFund and Tagetik.

 

Written Acknowledgements for Donors

As a tax-exempt entity, you are provided with the privilege of receiving charitable donations from the general public; however you are also responsible for complying with federal laws applicable to charities and churches that receive such tax-deductible donations.  These rules exist for not-for-profit entities in order to facilitate the strict recordkeeping and substantiation requirements imposed on donors, in order to receive a tax deduction on his/her federal income tax return.

Rules for donors:  A donor must have a bank record or written communication from a charity for any contribution before taking a tax deduction.  A donor is responsible for obtaining a written acknowledgement from a charity for any single donation of $250 or more.  For in-kind donations, the donor is responsible for obtaining/assigning the fair market value of the donated item.

Written Acknowledgements for gifts over $250

While this requirement is technically the donor’s responsibility, the donor may not claim a tax deduction without this written acknowledgement.  Therefore, to best serve its generous supporters, the organization should provide a timely statement containing the following information:

  • Name of Organization
  • Amount of cash contribution
  • Description (but NOT the fair value) of non-cash donations
  • Statement that no goods or services were provided by the organization in return for the contribution (if that is a factual statement)
  • Description and good faith estimate of the value of goods or services, if any, that an organization provided in return for the contribution (commonly referred to as “Quid Pro Quo” – see below)
  • All acknowledgements should be contemporaneous – typically no later than January 31st  of the calendar year following the donation. Best practice would be to provide this acknowledgement within 30 days of receiving the gift.
Written Disclosure for Quid Pro Quo

When a charity provides any goods or services in exchange for a donation, this is partly an exchange transaction and partly a contribution.  A donor may only take a contribution deduction to the extent that the contribution exceeds the fair market value of the goods or services received.  It is the organization’s responsibility to provide the estimated fair market value, which must be in writing if the original payment exceeds $75. Penalties may be assessed if an organization does not meet the written disclosure requirement. The penalty is $10 per contribution, not to exceed $5,000 per fundraising event or mailing.

The written disclosure statement must:

  • Inform the donor that the amount of the contribution that is eligible for deduction for federal income tax purposes is limited to the excess of money (and fair market value of property other than money) contributed by the donor over the value of goods and services provided by the organization.
  • Provide the donor with a good-faith estimate of the fair value of the goods or services provided by the organization.
  • Be in writing and be made in a manner that is likely to come to the attention of the donor.  The statement may be included in the solicitation of the donation or provided along with a receipt of the donation.

There are exceptions for certain “token gifts” and “intangible religious benefits” which are received by the donor in exchange of gifts, in which case written acknowledgements are not required.

Other:

  • Unreimbursed expenses may be another form of contribution, such as out of pocket transportation expenses in order to perform donated services or provided supplies for a program activity.  In this case, the donor must obtain a written acknowledgement from the organization containing the same information listed above for donations over $250, except it also should include a description of the goods or services provided by the donor.
  • Non-cash donations with claimed fair market value greater than $5,000 generally require a qualified appraisal, which is the responsibility of the donor, not the charity.

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.