EisnerAmper Blog

Not-for-Profit Trends and Tips Blog

Not-for-Profits: Governance, Reporting and Compensation

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November 3, 2015

By Morgan Piscitelli

Julie Floch, Partner-in-Charge of EisnerAmper’s Not-for-Profit Services, will be a Co-Chair at PLI's Nonprofit Organizations 2015 program titled Governance, Form 990 Reporting, and Compensation Issues.  This informative program will be held on November 24, 2015 in New York City, starting at 9:00am.  The event will also be viewable via a live webcast streaming on PLI’s website.

This program is aimed to bring attendees up-to-date on the latest developments and unique financial and regulatory issues that impact the not-for-profit sector. Whether you represent a nonprofit organization, serve in a management role or as a member of a nonprofit board of directors, or are simply interested in learning more about the rules governing nonprofit organizations, this program is for you.

Throughout the three sessions, attendees will hear expert analysis about the important developments impacting nonprofit organizations. They will learn about recent financial, regulatory, and legal developments and their impact on nonprofits. The program’s speakers will share details about compensation issues, including the federal and state statutory framework, what is “reasonable” compensation and proper financial reporting; as well as touch upon recent nonprofit governance developments and best practices.

If you are interested in attending this program or viewing the live webcast, Click here to register.

Corporate Sponsorships – Possible Tax Implications

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October 15, 2015

By Kevin Burdi, CPA

As corporate sponsorship revenues for not-for-profit organizations continue to increase, so does the issue of taxation. The question of whether this revenue is taxable is not as simple as one might think (thanks to the IRS). What it truly boils down to, and what the IRS is most concerned with, is whether the corporate sponsor has an expectation to receive a “substantial return benefit” for its sponsorship payments. If a substantial return benefit is provided, the IRS treats this revenue as taxable unrelated business income (“UBI”) for the not-for-profit organization in the form of advertising revenues for the not-for-profit organization.

So what forms of sponsorship are allowed before crossing into the world of UBI? As a general rule of thumb, raising awareness of the sponsor such as displaying its business name/logo, providing information about the products and/or services offered, or providing general business information such as website/contact info is acceptable, and is treated in the same way as a charitable contribution. These types of sponsorship are not subject to unrelated business income tax (“UBIT”) and are classified as “qualified sponsorship payments” by the IRS.

Now to the question all exempt organizations with sponsorships already in place worry about. What specific sponsorship agreements create taxable UBI? Taxable sponsorship agreements include: requirements to urge event goers to buy the commercial entity’s products or emphasize that the commercial entity has better or cheaper products; providing website links to a page which offers specific products or services; contingent sponsorships that are based on the level of attendance or viewership of an event/publication; and agreements that will provide the commercial entity additional return compensation, such as free services or merchandise with a value, in return for the funds provided. The IRS deems these situations to include a “substantial return benefit” and to be classified as UBI.

Another question that comes up is what if a sponsorship agreement has a mixture of both taxable and tax-exempt revenue? In these cases, a tax allocation must be done which details the amount of sponsorship dollars allocated to each activity. For example, if a commercial entity provides a $100,000 sponsorship, $50,000 of which is allocated towards displaying the corporate logo at an event with the remaining $50,000 allocated towards fully endorsing a specific line of products, this would result in $50,000 of qualified tax-exempt sponsorship payments and $50,000 of taxable UBI. This can get more and more complex depending on the type and amount of detail included in the sponsorship agreement.

To avoid unexpected tax liabilities, remember to review the actual agreement to make sure that what is expected to be provided to the commercial entity in return for the sponsorship is clearly understood.

When Are Scholarships Tax Free to the Recipient?

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September 30, 2015

Keiser_JeniferBy Jenifer Keiser, CPA
Many not-for-profit organizations (“NPOs”) provide grants to individuals in the form of scholarships as part of their charitable mission. It’s important to understand which scholarships are excludable from taxable income for the recipient, as opposed to other forms of remuneration which might have tax consequences.

A scholarship will be tax-free to the recipient if the following three criteria are met:

  1. The recipient is a candidate for a degree,
  2. The recipient attends an eligible educational institution which is defined by the Internal Revenue Code as an educational institution which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on, and
  3. Payments are made for qualified education expenses which include payments for either (i) tuition and fees required for enrollment or (ii) fees, books, supplies or equipment that is required as part of the curriculum.

In general, the NPO has no Form 1099 reporting responsibilities for awards as long as the payments meet the criteria listed above and are not considered compensation for services performed. In assessing whether the award represents compensation, the NPO must consider whether the award is funding a student’s activities that are performed for the primary benefit of the educational organization. If there is a component of the payment deemed to be a reimbursement for services performed, the payment would be taxable and therefore, the NPO will have to issue the recipient a Form W-2.

New Law: NYC Prohibits Criminal Record Inquiries Prior to Conditional Offer of Employment

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September 8, 2015

Schroeder_TimBy: Timothy Schroeder, CPA

The New York City Council approved the “Fair Chance Act” law on June 10, 2015, which was subsequently signed into law by Mayor de Blasio on June 29, 2015. The law prohibits public and private sector employers from inquiring about a job applicant’s criminal history until after a conditional offer of employment has been extended. The law prohibits not only verbal and written inquiries of the applicant about past criminal history, but also prohibits an employer from obtaining information using publicly available sources (background checks).

The reasoning behind the approval of the Fair Chance Act is to force employers to evaluate job applicants based on their resume, interviews, and qualifications for the job, rather than their criminal record. It affords applicants with previous low-level arrests and other minor violations a fair chance at obtaining employment. Upon signing the Fair Chance Act into law, Mayor de Blasio said “Today, we ‘ban the box’ in New York City. This bill opens the door to jobs for New Yorkers who have already paid their debt to society, rather than condemning them to a grim economic future. Now, all applicants will get a fair shot at the opportunities that can lead them on a pathway to success.”

Employers must now follow a three-step process when they make inquiries into an applicant’s criminal history after a conditional offer is extended. First, the employer is required to provide the applicant with a written copy of the inquiry which needs to comply with the New York City Human Rights Law. Second, if an employer revokes a conditional offer, the employer is required to submit to the applicant a written copy of its analysis of the criminal history along with an explanation of the revocation of the offer. Lastly, the employer must keep the position open while allowing the applicant a three day period to respond to the revocation of the offer.

It is critical that employers now implement policies and procedures in order to be in compliance with the Fair Chance Act.

Shared Services

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September 1, 2015

By Craig Maurer, CPA, CGMA

A few neighbors have donated storage space in their garages for their local church as it relocates to a smaller facility.  For my neighbors, it’s a way for them to give without donating time or money, and for the organization, it’s a free place to store tables, chairs, and holiday ornaments.  This is nothing new to not-for-profit organizations, but perhaps sharing can be taken to the next level. The key would be to have agreements in place that are mutually beneficial relationships and arm’s length transactions.

What about ways that not-for-profit organizations can share without stepping on each other’s toes? Two immediate ways that come to mind are administrative functions and physical space.  A not-for-profit could share with a for-profit, with private individuals, or with other not-for-profits that, on the surface, seem very different.  For example, a human rights advocacy organization and a 24-hour drug abuse crisis hotline can work together.  Their program goals and tax-exempt purposes are different, but their means to those goals might include share office space, equipment and supplies, telephones, utilities, and janitorial services.  Furthermore, when not-for-profits share space, it creates opportunities for collaboration of ideas and increased visibility.

Sharing doesn’t always involve working out of the same space. In the case of equipment-sharing, it may require working out logistical questions.  For example, a community garden could share equipment with a landscaping company.  While the landscaper shuts down over the weekend, the gardening group can use the landscaper’s shovels, clippers, and rakes for Saturday gardening.

The accounting concepts involved with shared services are easy as long as the sharing agreement is straight forward; for example - head count, hours of usage, and/or square footage used. It’s a concept worth thinking about.

The 5% Distribution Requirement

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August 19, 2015

Non-operating private foundations are required to follow a number of mandates, none more important the 5% distribution requirement, which states that the foundation must annually spend or pay out a minimum amount for charitable purposes. This keeps a foundation from simply raising money, investing assets, and then not disbursing funds in a way that would enable them to further their charitable mission.
IRC Section 4942 imposes a significant tax on “the undistributed income of a private foundation for any taxable year, which has not been distributed before the first day of the second (or any succeeding) taxable year following such taxable year (if such first day falls within the taxable period)….”

Bill Epstein, CPA, a director in our Not-for-Profit Services Group, has written an article developed to help the reader stay in compliance with this requirement. For more information, please read “Private Foundations – Understanding the 5% Distribution Requirement”. 

FASB’s Exposure Draft on Financial Statements of Not-for-Profit Entities

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August 5, 2015

By Candice Meth, CPA and William Epstein, CPA

In our previous blog relating to the Proposed Accounting Standards Update Not-for-Profit Entities (Topic 958) and Health Care Entities (Topic 954): Presentation of Financial Statements of Not-for-Profit Entities we discussed some of the broad sweeping changes included in the FASB’s exposure draft, which was released on April 22, 2015. The exposure draft can be accessed here.
The last time the not-for-profit community was asked to comment on significant changes to not-for-profit financial statements was 1993, and that pronouncement was much more focused in scope. Given the breadth of changes being suggested in the current exposure draft, respondents have been given a comment period of 120 days, ending August 20, 2015. Anyone who is interested in weighing in on the proposed changes is allowed to submit comments; there are several ways in which to do so such as through the FASB website or by mailing in a formal letter. Input is being sought from all stakeholders including not-for-profits, donors, board members and accountants. It is important that representatives from each of these groups share feedback so that the FASB has a broad range of opinions to help shape the final version of the draft. 

The exposure draft directs those who wish to comment to 22 specific questions relating to the proposed changes. In addition, open feedback is encouraged as well. To assist the community with their responses, the FASB has published three sets of frequently asked questions, the third of which was released July 27, 2015, which can be accessed here. The documents clarify areas such as: (i) taking materiality into account prior to enacting certain areas of the exposure draft; (ii) the types of direct internal expenses that should be netted against investment income; (iii) limiting liquidity disclosures to the reporting period (and known contractual obligations) rather than asking not-for-profits to forecast into the future, (iv) clarity on applying the direct method of cash flows, and many more.

Currently the FASB has received approximately 30 responses, which can be accessed here, with many more sure come by the due date. Additionally, the FASB has announced that it plans to hold roundtable discussions on the east coast in September 2015 and on the west coast in October 2015.
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