Tag Archive for NonProfit

Tax Exempt and Government Entities Group FY2017 Work Plan – Part 2

shutterstock_117815818In one of our previous blogs we discussed that the Tax Exempt and Government Entities Group (TE/GE) of the Internal Revenue Service (IRS) released its Fiscal Year 2017 (FY2017) Work Plan. The work plan summarizes the Service’s accomplishments for fiscal year 2016 and outlines its focus for FY2017.

In addition to the five areas of focus for the TE/GE FY2017 work plan, there are a few additional areas of the IRS’s TE/GE FY2017 work plan that may be of interest to tax-exempt organizations, including:

  • 403(b) plan document requirement compliance checks;
  • Tax-exempt bond compliance; and
  • Fringe benefit tax exposure, unreported income and worker classification tax audits.
403(b) plan document requirement compliance checks

The IRS’s Employee Plans Examination Group will identify areas of noncompliance with employee benefit plans, and in FY2017 its compliance check projects will include a focus on reviewing 403(b) plan document requirements.

Tax-exempt bond compliance

The IRS’s Tax-Exempt Bond Group plans to continue to focus resources on areas of higher risk of noncompliance, new areas of noncompliance, and noncompliance identified through revised market segment areas. The principal exposure areas found in FY2016 referrals were “private use of bond financed property and arbitrage compliance failures.”

Fringe benefit tax exposure, unreported income and worker classification audits

The IRS is also planning to conduct specific Compliance Initiative Projects (CIP) in these high-risk noncompliance areas:

Fringe benefit tax exposure – this is a project to identify patterns of noncompliance with treatment of taxable fringe benefits and other unreported income.

Early retirement incentive plans – this project, due to constructive receipt rules, often results in employment tax exposure.

Worker classification project – this project identifies payments that are incorrectly reported on Forms 1099-MISC as consulting income rather than as Form W-2 employee wages, as well as identification of individuals whose primary source of earned income is from large dollar amounts reported on Form 1099-MISC.

As noted in our previous blog published, the IRS’s TE/GE group explained that it is focusing on improving processes and doing more with less.

Interestingly, one of the IRS’s newest transformational processes is for the TE/GE’s Knowledge Network teams to publish “Issue Snapshots.” These are brief technical analyses of specific audit issues commonly come across in examinations. These snapshots are published on the IRS website in furtherance of transparency to the public, which increases voluntary compliance. The IRS anticipates this will increase efficiency as IRS auditors will now have a starting point in developing tax positions and resolving audit issues raised in examinations. It will also allow the IRS to be more effective in ensuring consistency in their treatment across taxpayers.

The TE/GE has recently published a number of Issue Snapshots and is currently developing more than 20 additional snapshots applicable to tax-exempt organizations. One of the Issue Snapshots is an analysis of the difference between acknowledgements for corporate sponsorships of charitable events (charitable contribution revenue to the charity) versus advertising for the payors (unrelated business taxable income to the charity). Another Issue Snapshot is an analysis of tax guidance regarding what constitutes “reasonable cause” to eliminate penalties in certain situations for failure to file returns or to pay taxes. Click here to view TE/GE’s Issue Snapshots >>

Conclusions to tax issues are usually dependent on the specific facts and circumstances in a particular case, but tax-exempt organizations and their advisors should find the IRS’s thinking in these Issue Snapshots to be very informative guidance.

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 and tax expertise and knowledge of non-profit organizations means we can offer you tremendous added value. We can assist you in complying with federal tax requirements, state and federal grant requirements, unrelated business income regulations, employment tax rules, charitable contribution giving rules, capital campaigns, endowment fund responsibilities and other specialized needs. Learn more >>

Kenney, Laura Laura Kenney is a Tax Director at BlumShapiro and has over thirty years of experience providing tax compliance and consulting services for public charities, higher education institutions, cultural institutions, foundations, individuals, estates and trusts, nonprofit organizations and healthcare organizations.

For more information or to discuss your organization’s tax matters or how the FY2017 IRS work plan may affect your organization please contact Laura J. Kenney at lkenney@blumshapiro.com or at 617.221.1944.

The Tax Exempt and Government Entities Group (TE/GE) Releases New Tax Procedures for Examinations of Tax-exempt Organizations

Business people working in their office

The IRS’s Tax Exempt and Government Entities (TE/GE) division has recently issued significant new tax procedures for its examinations of tax-exempt organizations. The new process is expected to increase efficiency and accountability for both the IRS and the taxpayer. The Commissioner of TE/GE indicated that “(t)his process seeks to overcome issues that lead to prolonged cycle time and undue taxpayer burden.”

Highlights in the new tax procedures that specifically increase efficiency include:
  • The IRS examiner will research and identify the taxpayer’s specific potential audit issue(s) before he or she sends the audit letter to the taxpayer.
  • The auditor will call the taxpayer to discuss the issue(s) being audited and the items on the draft Information Document Requests (IDR), and will clarify the IDR, if needed, before finalizing.
Accountability will increase due to the following:
  • The taxpayer and auditor will agree on dates – taxpayer’s response date and examiner’s date to review the IDR response for completeness.
  • If the taxpayer’s response is complete, the examiner will let the taxpayer know that the response is complete, and the examination will proceed.
  • If the response is not complete, the examiner may grant certain extensions.
  • If the information request response remains incomplete, the examiner will follow certain enforcement steps, and will provide notification before each step –
    • Issuing a Delinquency Notice
    • Proposal of audit adjustment, summons for information, or proposal of revocation
    • If a summons will be issued, the IRS will first issue a “Pre-Summons Notice”.
  • If the taxpayer provides complete information prior to the response dates required for each of these enforcement steps, the examiner will notify the taxpayer, enforcement will end, and the examination will proceed.

In addition to these new procedures which will be in effect on April 1, 2017, the Commissioner of TE/GE also issued best practices as an attachment to its internal memo on the new IDR process.  Here is a link to the IRS‘s internal memo for the new required IDR process and suggested best practices.


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

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 and tax expertise and knowledge of non-profit organizations means we can offer you tremendous added value. We can assist you in complying with federal tax requirements, state and federal grant requirements, unrelated business income regulations, employment tax rules, charitable contribution giving rules, capital campaigns, endowment fund responsibilities and other specialized needs. Learn more >>

Kenney, Laura Laura Kenney is a Tax Director at BlumShapiro and has over thirty years of experience providing tax compliance and consulting services for public charities, higher education institutions, cultural institutions, foundations, individuals, estates and trusts, nonprofit organizations and healthcare organizations.

For more information or to discuss your organization’s tax matters please contact Laura J. Kenney at lkenney@blumshapiro.com or at 617.221.1944.

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.

Continue reading article >>

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 >>

Webinar: Critical Success Metrics for Your Non-profit Organization

shutterstock_119018866With all of the great work your non-profit does, how do you track and show results? How do you quickly and clearly validate, quantify, and report on the outcomes of your activities? Amid increasing demand for transparency and accountability, today’s non-profits are seeking ways to both produce and to demonstrate successful outcomes.

Outcome metrics are powerful, essential tools for demonstrating accountability and transparency. They can measure financial or non-financial criteria that reflect an organization’s, program’s, or initiative’s efficacy.

These metrics not only show funders and constituents how the organization is performing; they also help pave the way for sustainable growth and greater efficiency. This Intacct whitepaper describes how nonprofits can effectively leverage outcome metrics to boost their success.

Leading non-profits are utilizing key metrics and outcome measures to demonstrate success to donors and stakeholders.

Watch our webinar and learn what is driving forward-thinking non-profits to place a strong emphasis on success metrics—and the next steps you can take to put them into practice in your organization.

At the end of this webinar you will know:

  • What are the key metrics and outcome measures for non-profits?
  • Why are they critical to your non-profit’s success?
  • The key differences between performance and outcomes
  • What immediate steps you can take to be more successful

Download Webinar Here >>

 

What are the responsibilities of individual non-profit board members?

shutterstock_275563196In my previous article, I laid out the overarching responsibilities of non-profit boards, which include big-picture strategic planning; selecting executive staff members; overseeing executive leadership; approving the organization’s budgets; overseeing compensation for staff members and leadership; and fundraising.

In this article, I will focus on the responsibilities of each individual board member.

Understand your fiduciary responsibilities

As members of non-profit organizations’ governing bodies, individual board members must adhere to the legal responsibilities of fiduciaries. A fiduciary is a “person who has the power and an obligation to act on behalf of another under circumstances that require total trust, good faith and honesty.”

As fiduciaries, non-profit board members have three specific legal duties:

  1. Duty of Care: To act with such care as an ordinary, prudent person would employ in your position.
  2. Duty of Loyalty: To act in good faith and in a manner you reasonably believe is in the best interest of the organization.
  3. Duty of Obedience: To be faithful to the organization’s mission. You are not permitted to act in a way that is inconsistent with the central goals of the organization. A basis for this rule lies in the public’s trust that the organization will manage donated funds to fulfill the organization’s mission.

Long story short: board members must, at all times, act in the best interest of the non-profit organizations they represent.

Educate yourself on the organization you represent

In order to responsibly serve on a non-profit’s board, members should understand the organization’s mission, strategic vision and financial situation. That means reviewing:

  • Audited financial statements of past years
  • The organization’s Form 990
  • Missions and values of the organization
  • The organization’s bylaws
  • The organization’s most recent strategic plan
  • Current financial statements

Once new board members are initiated, they should review all provided information in advance of board meetings, including financial information, so that each member is prepared to make informed and responsible decisions.

Joining committees to stay involved with the organization

Most non-profit boards have committees dedicated to specific organizational efforts. These committees vary based on the size and operations of each organization.

Individual board members should actively seek out committees relevant to their specific skill sets and interests.

 

Hatch-Michelle-150x150Michelle Hatch is a partner in our Non-Profit Services Group. She oversees audit and accounting engagements for non-profit organizations, including independent schools, trade associations, health and human service organizations and art, cultural and membership organizations. Michelle is also a member of the Employee Benefit Assurance Group and oversees audits for 401(k), 403(b) and defined benefit retirement plans.

The firm, with over 400 professionals and staff, offers a diversity of services, which includes 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, 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.

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.

IRS Audits on the Rise for Tax Exempt Organizations

shutterstock_228440362Whether you are a board member, executive director, accounting manager or CFO of a non-profit organization, you should be aware that the Internal Revenue Service (IRS) is increasing their audits of the Form 990.

Effective for tax years beginning in 2008, the IRS extensively revised Federal Form 990to include a new summary page, a new governance section, enhanced reporting of executive compensation and an organization’s relationships with insiders and other organizations and new reporting for non-cash contributions, foreign activities, tax-exempt bonds and hospitals.

Now that several years have passed since the 990 revisions, the IRS has commenced auditing Form 990s based on “data-driven” criterion. This means organizations will be automatically selected for audit if certain data is detected by this automated process. The shift to “data-driven” assessments of an organization’s compliance with the federal tax laws, means that Form 990 preparation is more critical than ever. A properly prepared and executed information return will ensure that an organization’s chances for random audit selection are minimized and that exposure to income taxes, both on unrelated business income tax as well as other income by virtue of loss of exempt status, are kept at the lowest level possible.

Continue reading the article here >>

Recovering Indirect Costs from Federal Grants Under Uniform Guidance

shutterstock_228440362In previous articles, we have reviewed the major provisions of OMB’s Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards (Uniform Guidance, or UG) and implementation of grantee requirements.

In this article, BlumShapiro Partner Reed Risteen, takes a look at recovering indirect costs from federal grants under UG. One of the common issues our grant-driven clients face is ensuring they are recovering the maximum amount of indirect costs from their federal grants. He covers the following items:

  • Direct Costs
  • Indirect Costs
  • Methods for Charging Indirect Costs
  • Charging Indirect Costs Under Uniform Guidance
  • Use of De Minimis Rate
  • Use of Negotiated Rate
  • Subrecipients

Read the article >>

What is Considered Unrelated Business Income?

shutterstock_130231046Non-profit organizations that have gross income of $1,000 or more from an unrelated trade or business are required to file Form 990-T with the IRS. But what is considered unrelated business income (UBI)? According to the IRS, for most organizations, an activity is an unrelated business, and therefore subject to unrelated business income tax (UBIT), if it meets the following three requirements.

  1. It is a trade or business;
  2. It is regularly carried on; and
  3. It is not substantially related to furthering the exempt purpose of the organization.

An example of possible UBI is a non-profit organization that regularly holds weddings or other events not related to the organization’s exempt purpose on their facilities. Another is a non-profit university that regularly charges the public for usage of a parking garage for unrelated activities. Note that there are a number of exclusions and exceptions to the general definition of UBI. Determining whether a certain activity is UBI is not usually black and white and requires some judgment and analysis. Annually, management should consider their current year operations to determine if there could possibly be any UBI. Management should seek help from their tax preparer for guidance. All management decisions should be supported and documented in writing. For more information and detail on UBI and examples and exceptions, please click on the following link to the IRS Publication 598.

 

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.