Tag Archive for Non-Profit CPA Firm

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

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.

Navigating The Crowded Non-Profit Sector

Nonprofit donors

How organizations can set themselves apart to secure—and retain—donors

By Shannon Crowley, CPA, MSA
Accounting Manager

Despite the Great Recession and the long process of economic recovery of the 2000s, the non-profit sector has become one of the country’s fastest-growing industries. According to the National Center for Charitable Statistics’ most recent research, the United States is home to more than 1.5 million registered non-profit organizations—marking a nearly 20 percent increase over the last 10 years, a time frame in which many businesses in the for-profit sector have struggled.

This rapid growth is certainly a sign of success, and—as non-profits employ nearly 11 million American workers and contribute roughly $887 billion to the national economy—it is difficult for anyone to argue against the economic value of a thriving non-profit sector.

However, the unprecedented rate at which new organizations are being created is also creating a challenge. The non-profit sector is more crowded than ever before, making it very difficult for organizations to secure—and retain—their donor bases.

On a local level, there are 33,000 non-profit organizations registered in Massachusetts—each competing with one another for precious dollars from a limited pool of individual donors, corporate foundations and other fundraising sources. In a recent cover story in The Boston Globe, many industry experts argue the field of non-profit organizations in Massachusetts is simply too large to sustain.

However, the organizations themselves, and the tens of thousands of Massachusetts residents employed by non-profits, are doing everything they can to prove those experts are wrong.

And that starts with donor retention.

The Association of Fundraising Professionals reports that, on average, donor retention rates across the non-profit sector are around 43%, meaning less than half of an organization’s 2016 donor base will contribute. In order to grow in a competitive non-profit environment, organizations have to find a way to land recurring donors. To do this, non-profits are employing several strategies. For the purposes of this article, we’ll focus on three:

Differentiating themselves from other, potentially similar organizations

Many potential donors or grant-awarding foundations would love to support every deserving cause that asks for and needs their help. Realistically, though, donors need to choose between hundreds, if not thousands, of similarly operating organizations to which they can lend their financial support. Non-profits, especially non-profits working to support similar demographics, are under enormous pressure to set themselves apart to attract new sources of funding. It’s never been more important for a non-profit to have a very clear, very specific mission.

Investing in “fundraising infrastructure”

Fundraising success is entirely beholden to the amount of time and resources organizations are willing to invest. In order to succeed in today’s hyper-competitive non-profit sector, organizations must invest in fundraising professionals, such as high-ranking development officers, and fundraising “infrastructure,” such as top-notch technology and donor databases.

The clear, specific vision makes an organization attractive to donors. Development professionals and in-depth donor databases help organizations find them.

Increase efficiency by streamlining their accounting functions

Back-office financial work is crucial to the long-term success of the organization. That said, it’s also very time-consuming. As many organizations are investing significantly more time to their fundraising operations, some non-profit leaders are finding ways to take complex financial paperwork off their desk so they can focus on the organization’s core competencies. This may entail creating new jobs for a full-time accounting team, or hiring a third-party financial organization to take on those responsibilities.

How BlumShapiro Can Help

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 >>

View Shannon’s Bio Here >>

Donor Acknowledgment – Reminder as the end of the year approaches

iStock_000001334173MediumAs the calendar year end approaches, and we all get ready for 2016, this is to serve as a reminder about the requirements for donor acknowledgments. Many donors wait until the end of the calendar year to make their donations to non-profit organizations in order to receive an individual tax deduction. Management should make sure their procedures around donor acknowledgments are up-to-date and adhere to the IRS requirements.

In brief, a written acknowledgment for all contributions over $250 and for all quid pro quo contributions over $75 are typically required within 60 days after the contribution is received by the organization. For more information: Here is a link to a prior article on this matter as well as the IRS guidelines.

Shannon Crowley Massachusetts CPAShannon Crowley is a manager in BlumShapiro’s Accounting and Auditing Department, based in Quincy, Massachusetts, Shannon oversees audit engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects. Shannon has worked with clients in a variety of industries, including healthcare, higher education, non-profit, manufacturing and distribution.

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.

Four Thresholds Massachusetts Non-Profits Should Be Aware Of

Non-profits are subjected to several regulatory requirements. Below are four thresholds of which that managers of Massachusetts non-profits should be aware:

iStock_000003856109_ExtraSmall1. Review vs. Audit: The Massachusetts Attorney General’s Office requires any charitable non-profit organizations, with gross support and revenue between $200,000 and $500,000 in the fiscal year to have reviewed financial statements, and any revenue over $500,000 in the fiscal year to have audited financial statements. Both the reviewed and audited statements are required to be submitted with the annual Massachusetts Form PC filing.

2. Single Audit Threshold: For fiscal years beginning on or after January 1, 2015, the Office of Management and Budget (OMB) requires a single audit if there are expenditures using federal funds of $750,000 or more in a single fiscal year. This is an increase from the prior threshold of $500,000. Management should keep in mind that the threshold relates to expenses incurred, not revenues received or earned. Also, spending of federal monies does not just include those received directly from the federal government, but also includes any pass-through federal monies received from other non-profits, states, or agencies.

3. Massachusetts Uniform Financial Statements and Independent Auditors’ Report (UFR) Filing: The Operational Services Division (OSD) requires human and social service organizations that deliver services to consumers in Massachusetts using state contracts to file an annual UFR or a UFR cover page and Exceptions/Exemption documentation.

4. 403(b) Plan Audit: The Federal Department of Labor (DOL) requires an audit for 403(b) plans with participant counts greater than 120.   Participant counts should include the following: (a) eligible employees at the beginning of the plan year (whether they participate in the plan or not); and, (b) participants who terminated and still have account balances. For 403(b) plans you can exclude participants who terminated prior to January 1, 2009.

The above are brief descriptions of the requirements and are not all inclusive. If you have any questions or would like further information on any of the requirements above, please contact us.

Shannon Crowley Massachusetts CPAShannon Crowley is a manager in BlumShapiro’s Accounting and Auditing Department, based in Quincy, Massachusetts, Shannon oversees audit engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects. Shannon has worked with clients in a variety of industries, including healthcare, higher education, non-profit, manufacturing and distribution.