Posted by: Belfint, Lyons & Shuman, CPAs | July 22, 2014

The Gift of Giving Back Could Become More Valuable…Permanently

Posted by Jennifer Ziegler, BLS Intern

Gift if Giving BackWith several charitable giving bills awaiting a House vote, the gift of giving back could become more valuable…permanently. Certain critical charitable giving incentives expired on December 31, 2013. On May 29, 2014, the Ways and Means committee approved four individual bills which would permanently reinstate three of the expired charitable giving incentives and extend the deadline through April 15 for individuals making charitable contributions. Below is a brief summary of each individual bill.

  • H.R. 4719 (The “Fighting Hunger Incentive Act of 2014”), which would reinstate and make permanent the enhanced deduction for contributions of food inventory.
  • H.R. 4619 (The “Permanent IRA Charitable Contribution Act of 2014”), which would reinstate and make permanent the exclusion from gross income for up to $100,000 of qualified charitable distributions from an individual retirement account.
  • H.R. 3134 (The “Charitable Giving Extension Act”), which would permit an individual to elect to deduct for a taxable year charitable contributions made after the close of the taxable year but before the date the individual’s income tax return was due to be filed.
  • H.R. 2807 (The “Conservation Easement Incentive Act of 2013”), which would reinstate and make permanent some of the liberalized rules for deducting the value of charitable contributions of conservation easements.

These bills now move on to a floor vote by the House. The hope is that these bills encourage charitable giving and strengthen the financial position of nonprofit organizations so that they may continue to meet the needs of their communities.

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Posted by: Christina Bell, CPA | July 8, 2014

Follow Up to ‘Applying for Tax Exemption Just Got EZer’

Posted by Christina K. Bell, CPA

1023 EZAs a follow up to my most recent blog entitled Applying for Tax Exemption Just Got “EZ”er the IRS made available, beginning July 1, 2014, a final Form 1023-EZ on www.IRS.gov. The new EZ form must be filed online. The instructions include an eligibility checklist that applying organizations must complete before filing the form. Most organizations with gross receipts of $50,000 or less and assets of $250,000 or less are eligible

The Form 1023-EZ must be filed using www.pay.gov, and a $400 user fee is due at the time the form is submitted. Further details on the new Form 1023-EZ application process can be found in Revenue Procedure 2014-40, posted on www.IRS.gov.

 

Posted by: Christina Bell, CPA | June 25, 2014

Applying for Tax Exemption Just Got “EZ”er

Posted by Christina K. Bell, CPA

EZLast summer I wrote a blog entitled “IRS Determination – Why the Wait“ that described the IRS’s process for evaluating application forms of organizations applying for tax exempt status under Section 501 (c)(3). This process often took months and in some cases over a year. Well, good news has arrived this summer as the IRS just recently released a draft of Form 1023-EZ. A copy of the draft can be found here. The goal of the new form is to simplify the application and approval process and allow smaller organizations to gain exemption more easily.

Form 1023-EZ

According to the draft instructions, only certain organizations will be eligible to use the EZ form when it becomes final. Some of the organizations that will not be able to file the EZ form include churches, schools, hospitals, foreign organizations, limited liability companies, and supporting organizations. In addition, organizations that meet the following criteria cannot apply for tax exempt status using this form.

  • Have projected annual gross receipts expected to exceed $200,000 in any of the next 3 years.
  • Have annual gross receipts that exceeded $200,000 in any of the past two years.
  • Have total assets in excess of $500,000.

The Form 1023-EZ is extremely less complex than Form 1023. Form 1023 is a 26-page application while the draft EZ form consists of only 3 pages.  One of the biggest changes is that an applying organization will no longer have to submit lengthy explanations about whether they compensate officers and directors, engage in grant making, or participate in financial transactions with interested persons. The EZ form requires only a series of simple yes or no answers to these questions.  In addition, an organization will now attest that it will adhere to the following by simply checking a single box.

  • Refrain from supporting or opposing candidates in political campaigns in any way.
  • Ensure that net earnings do not inure in whole or in part to the benefit of private shareholders or individuals (that is, board members, officers, key management employees, or other insiders).
  • Not further non-exempt purposes (such as purposes that benefit private interests) more than insubstantially.
  • Not be organized or operated for the primary purpose of conducting a trade or business that is not related to your exempt purpose(s).
  • Not devote more than an insubstantial part of activities attempting to influence legislation or, if a section 501(h) election was not made, not normally make expenditures in excess of expenditure limitations outlined in section 501(h).
  • Not provide commercial-type insurance as a substantial part of activities

Further, unlike Form 1023, Form 1023-EZ does not require the applicant to include multiple years of actual and/or projected financials, thus significantly reducing the preparation time of the application.

The form also encompasses a short section for those organizations that are seeking reinstatement following automatic revocation.

While the Form 1023-EZ is a huge step in improving the efficiency of the application process, organizations should carefully read the instructions when finalized by the IRS. Currently, the IRS expects to have the Form 1023-EZ and its instructions finalized by mid to late summer.

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Posted by Jonathan D. Moll, CPA

Tax Deductibility of Contributions to ScholarshipThe academic year is coming to an end for many of the nonprofit independent and parochial schools across the nation. Business offices at those schools are making the final push to collect outstanding tuition payments before their families break for the summer and, in some cases, make their re-enrollment decisions. As we know, situations arise during the year that may affect a family’s ability to meet their expected tuition obligation. It is not uncommon for schools that have a mission or philosophy that is rich in helping those in need and supporting the local community to have a benevolence fund established for providing tuition assistance to their families in need. However, the deductibility as a charitable donation for a contribution to that fund might not be as straightforward as you think.

Tax Deductibility Scholarship Contributions

There are three items of tax literature that indicate deductibility of a payment into the scholarship and tuition fund as a charitable contribution ultimately comes down to who determines the award recipient.

  • If the qualifying nonprofit school makes the selection of the award recipient, payments into the fund are considered a deductible charitable contribution.  This is supported by Rev Rul 68-484, 1968-2 CB 105.
  • If the donor makes the decision as to the specific individual(s) that will benefit from the award, the payments to the fund are not considered charitable donations. In Tripp, Chester v. Com., (1964, CA7) 14 AFTR 2d 5810, 337 F2d 432, 64-2 USTC, payments described by a taxpayer as scholarship grants were made to a qualifying school but earmarked for a specific person.  These payments were not considered to be deductible charitable contributions.  In Rev Rul 79-81, 1979-1 CB 107, payments to an exempt education institution that were earmarked for a particular student’s use and in an amount approximating the cost of their education were not considered to be deductible charitable contributions.

What do nonprofit schools need to do? Primarily, schools that are receiving donations for the benefit of specific students should make sure their acknowledgment of the payment does not imply it is a deductible charitable contribution. Further, for schools with documented gift acceptance policies, I would recommend the policies include wording to further document a school’s position that payments received for the benefit of specific individuals are not considered deductible charitable contributions by the school. As always, if any confusion exists, consult your CPA.

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Posted by Christina K. Bell, CPA

Reporting of Services Rendered from Personnel of an AffiliateMy two young sons who live, eat, and breathe baseball often say the best baseball teams have two distinguishing characteristics — consistency and chemistry. The Financial Accounting Standards Board (FASB) believes the best financial statements have the same characteristics as well.

In April 2013, the FASB issued Accounting Standards Update (ASU) 2013-06, Not-for-Profit Entities: (Topic 958): Services Received from Personnel of an Affiliate. ASU 2013-06, effective for fiscal years beginning after June 15, 2014, clarifies how nonprofit entities recognize and measure services received from personnel of an affiliate to ensure consistency amongst financial statement presentations.

An affiliated entity is defined as a party that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with an entity. Many nonprofit entities are recipients of services performed on their behalf by personnel of an affiliated nonprofit. In some cases, the affiliated nonprofit will charge the receiving nonprofit for the services being performed. In these instances, the nonprofit receiving the services will recognize an expense based upon the amount they were charged; however, in other cases, the affiliated nonprofit will not charge the recipient for the services performed.

In these cases, the question was whether the recipient should recognize the value of the contributed services performed. Some nonprofits concluded that all services provided by an affiliate should be recognized within their financial statements, whether paid for or not, while others followed generally accepted accounting principles for recognizing contributed services. By following generally accepted accounting principles, contributed services were only recognized for those services that created or enhanced nonfinancial assets or required specialized skills, were provided by individuals possessing those skills, and would have been purchased if not provided by donation. As such, some nonprofits were not recognizing any services provided by an affiliate within their financial statements. ASU 2013-06 was enacted to resolve this diversity and ensure all services received by affiliated entities are being recorded consistently by receiving nonprofits.

ASU 2013-06 requires a recipient nonprofit to recognize all services received from personnel of an affiliate that directly benefit the recipient nonprofit. Those services should be measured at the cost recognized by the affiliate for the personnel providing those services (compensation and payroll-related fringe benefits). However, if measuring a service received from personnel of an affiliate at cost will significantly overstate or understate the value of the service received, the recipient nonprofit may elect to recognize that service received at either (1) the cost recognized by the affiliate for the personnel providing that service or (2) the fair value of that service.

ASU 2013-06 does not prescribe presentation guidance for the increase in net assets associated with services received from personnel of an affiliate other than prohibiting reporting it as a contra expense or a contra-asset. Therefore, it is reasonable to conclude that recipient nonprofits will record the increase in net assets associated with the services received as contribution revenue and report the corresponding decrease in net assets similar to how other such expenses are reported.

If you believe ASU 2013-06 applies to your nonprofit, consider coordinating with your affiliate’s management now to obtain the necessary accounting data in order to properly record the value of the services performed, because a little chemistry and consistency go a long way in preparing fair and accurate financial statements.

Contact Us

For additional information on Reporting of Services Rendered from Personnel of an Affiliate, or our nonprofit services,  please contact Belfint Lyons & Shuman at 302-225-0600, or click here to contact us.

Posted by: Maria T. Hurd, CPA | March 13, 2014

Does your ERISA 403(b) Plan need a financial statement audit?

Posted by Maria T. Hurd, CPA

403b Plan ChecklistChecklist for Counting Participants as of the Beginning of the Year

Many nonprofits who sponsor ERISA 403(b) plans are not aware that they need an audit, because counting participants involves much more than knowing how many full-time employees the organization has or how many account balances are in the plan. Especially in the case of nonprofit organizations, the universal availability rules and the ability to exclude certain contracts pursuant to DOL Field Assistance Bulletin 2010-1 add a layer of complexity that requires the employer to give careful consideration to the participant count.

To assist 403(b) plan sponsors in computing an accurate participant count as of the beginning of each year, we have created the following step- by-step checklist:

________ Enter Number of Forms W-2 issued in the Prior Year
+ ________ Enter Number of Terminated Employees With a Balance in the Plan
= ________ Total: If this total is greater than 120, please continue.
- ________ Subtract: <Excluded employees per the plan document as applicable>
- ________ 1) Number of employees who normallywork less than 20 hours per week:
a) For first year of employment, does the er reasonably expect the employee to work less than 1,000 hours
b) For subsequent years, if the employee worked less than 1,000 hour in the previous year
- ________ 2) Employees who had not met the plan’s eligibility requirements as of the end of the Prior Year
- ________ 3) Identify excludible contracts pursuant to DOL’s Field Assistance Bulletin as follows:
a) contract issued to a current or former employee before January 1, 2009
b) employer ceased   contributions and has no obligation to contribute to the contract before   January 1, 2009
c) the individual owner of the contract can exercise all rights and benefits under the contract without the employer’s involvement
d) the individual owner of the contract is fully vested in the contract or account
= ________ Subtotal: Total Number of eligible participants as of December 31st of the Prior Year
+ ________ Add: Newly Eligible participants whose entry date was January 1
= ________ Total:If this number is greater than 120, this plan definitely needs an audit for the plan year beginning January 1.
If this number is between 80 and 120 participants, please refer to our blog regarding the 80-120 rule

 

Each step on the list above results from specific legislation regarding the correct way for a 403(b) to count its participants as of the beginning of the year.  An accurate participant count is an important first step in determining whether an ERISA plan needs to attach audited financial statements to their Form 5500. Large ERISA plans must engage an independent qualified public accountant (IQPA) to audit the plan’s financial statements.  Most small plans are not required to have audited financial statements. For more detail on the rules affecting each step of this determination, please refer to our previous blog entries:

Counting Participants is not as easy as 1, 2, 3! – From The Art of the Qualified Plan Audit

403(b) Plans: Universal Availability Exclusions – From The Art of the Qualified Plan Audit

Field Assistance Bulletin No. 2010-01 – From the United States Department of Labor

A Nonprofit’s Guide to Navigating the ERISA Audit Requirements – From The Belfint Nonprofit Ledger

I don’t want to grow up, I want to be a small plan! – From The Art of the Qualified Plan Audit

BLS is available to assist any ERISA 403(b) plan sponsors who need assistance with this complicated determination. Contact me at 302.225.0600 or mhurd@belfint.com.

 

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Posted by: Maria T. Hurd, CPA | March 5, 2014

Counting participants is not as easy as 1, 2, 3!!!

Posted by Maria T. Hurd, CPA

Counting Plan ParticipantsIn a time when nonprofit organizations are facing higher demand for their services with fewer financial resources available to them, maintaining compliance with the ever-changing landscape of regulatory requirements is becoming increasingly difficult. As a result, it’s no surprise that we are seeing more and more organizations fall victim to noncompliance with DOL regulations regarding retirement plan audits.

Every year, we become aware of at least one organization that needs several years of plan audits because the participant count was not performed accurately. Inevitably, a plan official or service provider failed to count a group of participants that they did not THINK should be included. Unfortunately, the participant count is not a matter of opinion. For a defined contribution retirement plan, such as a 401(k) or a 403(b) plan, the rules are clear.  The number of participants reported on the Form 5500 must include:

1-Any employee who is ELIGIBLE to participate in the plan, regardless of actual participation

and

2-Terminated or retired employees who have left their account balance in the plan

In many cases, the preparer of the Form 5500 erroneously counts only participants whose accounts were allocated a contribution during the year, or participants who have account balances. Both methods are incorrect and result in an inaccurate participant count. In many cases, the understated participant count results in a small plan filing, when the plan is actually a large plan that would have been required to attach audited financial statements for the plan to the Form 5500.

Plan officials who annually submit census information to the plan’s third-party administrator should ensure that all employees are listed, including employees that are not yet eligible, and employees who are eligible but not participating. A good way to verify the completeness of the census information is to reconcile the number of employees listed on the census with the number of W-2s and/or K-1s. Reporting all employees is especially important for 403(b) plan sponsors such as schools, which may have a substantial number of employees who are eligible due to the universal availability rules, but who do not choose to make any elective contributions to the plan. Universal availability rules for 403(b) plans are discussed in a previous post in our Employee Benefit Plan Audit Blog, 403b Plans: Universal Availability Exclusions.

After ensuring that all employees are listed in the census, plan officials must make sure they submit a list of participants who have separated from service due to termination of employment, retirement, disability, or death, but still have an account balance in the plan. Once an accurate participant count is achieved, plan sponsors can refer to I don’t want to grow up, I want to be a small plan, also from our firm’s sister blog, to determine whether prior small plan filings need to be amended to attach a financial statement audit. If so, our blog archive includes several entries to assist with the selection of a qualified retirement plan auditor.

Contrary to popular belief, counting participants is not as easy as 1,2,3, but with practice, the process becomes much more intuitive and plan sponsors can file accurate Form 5500 information returns before learning the hard way as a result of an IRS or a DOL audit.

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Posted by: Scott G. Sipple, CPA | February 18, 2014

ACA Update: Final regulations announced regarding shared responsibility

Posted by Scott Sipple, Jr., CPA

On February 13, 2014, IRS has issued final regulations that provide guidance to employers that are subject to the shared responsibility provisions for employee health coverage under Code Sec. 4980H , which was enacted by the Affordable Care Act (ACA).

Companies with 50-99 employees that do not yet provide quality, affordable health insurance to their full-time workers will report on their workers and coverage in 2015, but have until 2016 before any employer responsibility payments could apply.  Thus, the aforementioned reporting requirements and responsibility payments, respectively, are extended for one year.

Posted by Scott G. Sipple, CPA

Employer Shared Responsbility When last we saw the Winter Olympics take place in Vancouver, Canada, Congress was putting the finishing touches on the 2,049 pages of legislation known as the Patient Protection and Affordable Care Act (PPACA) which President Barack Obama signed into law on March 23, 2010. Nearly 4 years later and 5,962 air miles away, Sochi, Russia is hosting the XXII Winter Olympic Games while the United States of America begins to enforce the provisions of PPACA on its constituents.

Even though the U.S. Supreme Court rendered a final decision to uphold the PPACA on June 28, 2012, plans were set in motion to change existing federal laws to comply with every intricate detail. Under PPACA, all nonprofit organizations (NPOs) are considered employers; to date, there are no exceptions. NPOs must evaluate whether they employ more than 50 full-time equivalent (FTE) employees; if so, they are subject to the Employer Shared Responsibility provisions and are required to offer health care coverage to full-time employees (and their eligible dependents).

Individuals with no previous health insurance coverage are mandated to enroll in the public or private exchanges by March 31, 2014. Those individuals are looking for guidance from their NPO employers as to whether health insurance coverage will be provided to the employees before going to the designated marketplaces.

Internal Revenue Bulletin 2012-41 provides guidance for employers to calculate the number of FTEs for its tax year. The basic criteria are as follows:

  • An employee who works more than 30 hours per week meets the statutory definition of full-time employee (at least 1,560 hours per year). Each full-time employee is recorded at 1.00 FTE.
  • An employee who works less than 30 hours per week is classified as either:
    • A variable hour employee (VHE): The NPO cannot determine that the employee is reasonably expected to work on average at least 30 hours per week. To determine the FTE fraction, per current guidance, take the total number of hours worked by the VHE for each month and divide by 120 separately; then, take the sum of the fractions and divide by the total months worked in the tax year (up to 12) to produce a weighted average for each VHE; finally, total all of the weighted averages for each VHE to produce total FTEs and add to the full-time employee FTEs (rounded down to nearest whole number).
    • A seasonal employee: A worker performs labor or services on a seasonal basis, as defined by the Secretary of Labor, including (but not limited to) workers covered by 29 CFR 500.20(s)(1)  and retail workers employed exclusively during holiday seasons. Normally, seasonal employees are omitted from the calculation; however, by statute, seasonal employees are not permitted to work more than 4 calendar months in a tax year; otherwise they would be considered VHEs and are subject to the calculation.

Unlike for-profit businesses, NPOs have the ability to solicit and utilize volunteers to carry out their missions. If NPOs, other than public agencies, provide benefits to their volunteers, such as stipends, pensions, housing or other tangible services, those volunteers will be deemed employees and will have to be evaluated for inclusion in the FTE calculation.

Even though the reporting provisions in PPACA for employers (Sections 6055 and 6056) take effect on January 1, 2015, and the first reports are due to the Internal Revenue Service in early 2016, NPOs should react to the changing environment by updating its internal control structure and documenting its position to mitigate the risk of noncompliance.

Contact Us

For additional information, BLS dedicates an entire section of its website, ACA Resource Center, for guidance regarding the PPACA. BLS also established an internal committee to interpret and discuss PPACA issues internally and externally. As always, please direct all questions and comments to your practitioner for clarification as it relates to your specific situation.

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Posted by: Saaib Uppal, CPA | February 4, 2014

990 Changes – Better Read Each One

Posted by Saaib Uppal, CPA

IRS Form 990 ChangesIn its latest “Exempt Organizations Update,” the Internal Revenue Service (IRS) listed significant changes to forms and instructions for the Form 990 series. Form 990, of course, is the required tax return for most tax-exempt organizations. It is an informational tax form and must be filed on an annual basis. If your organization is exempt from federal income tax under Internal Revenue Code section 501(a) and you are not exempt from filing, it is important that you remain up to date with these changes to ensure that your 2013 return is both accurate and in compliance.

The changes include those related to required documentation, terminology clarifications, information that must be reported, and more. The IRS-provided chart can be found here.

We recommend reviewing the chart and discussing any applicable topics with your CPA for clarification. Keep the consequences of not doing so in mind. The IRS has 990 changes, so be sure to read each one.

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