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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.

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.

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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.

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.

Cultivating a Relationship Between the Finance and Development Offices

It is not uncommon for the relationship between the finance and development offices at non-profit organizations to be strained or non-existent. Yet this relationship is probably one of the most important within a non-profit organization, especially for those organizations that rely heavily on donations and grants. Poor communication between these two offices can result in the improper receiving and handling of contributions and, ultimately, lost funding and upset donors.

Effective two-way communication is vital to cultivating the relationship between the finance and development offices. Below are specific situations in which communication is important:


Most organizations have two independent systems that track contributions, one used by the development office and one used by the finance office. Also the treatment used by each office to track contributions can be different, resulting in variances when comparing reports for the same time period from one system to the other. If the two systems are not reconciled, this can be very confusing to a finance committee or management when reviewing the reports. Therefore, it is important that a reconciliation between the two systems is completed monthly, or at least quarterly. Monthly reconciliations will enable the two offices to ensure that there are no errors (such as incorrect, duplicate, late or missed postings) and confirm that the reports are complete and accurate. The only reconciling items should be the differences in treatment of the contributions.

Reconciling the two systems requires cooperation and good communication between the development and finance offices. In order for a reconciliation to be completed, the two offices must first understand the underlying differences in the treatment of various types of contributions. There could be several differences. For example, when a verbal pledge is received, the development office will usually record the pledge; however, the finance office might not record a pledge unless it is agreed to formally in writing, or if it is contingent upon an event or a matching contribution. Once these differences are understood, the two offices should then work collectively to reconcile the reports. The two systems should be set up so that they are in alignment with each other as much as possible (for example, having the same tracking number for each type of contribution, e.g. annual fund, endowment), which will assist with the reconciliation process.

Restricted Donations and Grants

Many times, only the development office is involved during the beginning stages of a grant. Not involving the finance office early in the process could result in important deadlines being missed, restrictions being broken and, the worst case situation, the funding falling through. It is important that, during the RFP stages, the development office communicates to the finance office any deadlines for reporting requirements and details on any restrictions. This will enable the two offices to work together to evaluate the opportunity, prepare a proposal budget (or complete any other necessary paperwork or reporting requirement) and ensure that the restrictions meet the goals and fiscal needs of the organization. The finance office will also need to adequately understand the restrictions for financial statement reporting purposes and to ensure the funds are spent in accordance with the restriction and the proper information is tracked for reporting purposes.  

Campaigns and Pledges

Likewise, with restricted contributions, the development office should involve the finance office, senior management and the board in the beginning stages of a campaign for funds. In particular, the offices should work together and agree on the purpose of the campaign to ensure that any restrictions on the funds are in accordance with the goals and fiscal needs of the organization. 

When pledges are made, the development office should communicate the details (donor, amount, restrictions, timing of the pledge, as well as verbal or written) to the finance office as soon as possible. It is important that the finance office records the pledges in the correct fiscal year and spends the funds in accordance with the restriction.

Effective two-way communication requires the willingness of the personnel within both the development and finance offices. Both offices should be proactive and seek out necessary information, rather than waiting or assuming the other office will communicate the information. Scheduling frequent meetings between the two offices is also recommended. Agenda discussion items can include new grant opportunities, new campaign initiatives, reporting requirements and other topics. While both the development and finance offices are essential to a non-profit organization, the two offices working together collectively is invaluable.

For more information, please contact Shannon Crowley at scrowley@blumshapiro.com or 781-610-1245.

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.

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.