Not-for-Profit Accounting Blog

A gift from the IRS – those small nonprofit organizations that missed the filing deadline of May 17, 2010 (automatic revocation on May 18, 2010) can come to the surface for air. 

The following is a statement from IRS Commissioner Doug Shulman:

“Now that the May 17 filing deadline has passed, it appears that many small tax-exempt organizations have not filed the required information return in time…I want to reassure these small organizations that the IRS will do what it can to help them avoid losing their tax-exempt status.”

“The IRS will be providing additional guidance in the near future on how it will help these organizations maintain their important tax-exempt status-even if they missed the May 17 deadline.  The guidance will offer relief to these small organizations and provide them with the opportunity to keep their critical tax-exempt status intact.”

The Commissioner urged these organizations to “go ahead and file – even though the May 17 deadline has passed.”

To read about how nonprofit organizations were expected to be affected on May 18th, click here to read a recent blog post.  Or, for more information, post a comment below or contact our Not-for-Profit Industry Group at 440-449-6800.

The Pension Protection Act of 2006 made two important changes for tax-exempt organizations.  First, it mandated that organizations required to file Form 990 series informational returns will automatically lose their exempt status if the forms are not filed for three years in a row.  Second, the Act created a new form, Form 990-N, which is an electronic postcard for most small organizations (other than private foundations) with less than $25,000 in gross revenues.  Previously, these small organizations were not required to file any return at all.  Thus, small organizations that never had to file previously not only now have a filing requirement, but will lose their exempt status if this requirement had been ignored for three consecutive years.

Because 2009 is the third year for this requirement, calendar year organizations of any size that have not been filing the required Form 990, Form 990-EZ or Form 990-PF will automatically lose their exempt status if a return is not filed or extended by May 17, 2010.  Because there is not an extension process for the Form 990-N, these small organizations with the new filing requirement will face automatic revocation on May 18, 2010, if the form is not filed.  Form 990-N filers that have not filed for 2007 or 2008 will not be penalized as long as the 2009 Form 990-N is filed timely.  Entities that were required to file Form 990, 990-EZ or 990-PF that did not file in 2007 or 2008 will face possible penalties for not filing for those years, but will not automatically lose their tax-exempt status if the 2009 form is filed timely (including extensions).

It is important to note that most churches and church affiliates or not required to file any of the 990 series informational forms (although they might have a Form 990-T income tax return filing requirement if they have unrelated business income).

The Form 990-N is a very simple form and is only available to file on-line.  It requires only a few lines of non-financial information and confirmation that gross receipts were less then $25,000. To file, go to epostcard.form990.org/.  More information can be found on the IRS Web site www.irs.gov/charities/.

Any organization which automatically loses it exempt status will be allowed to apply for reinstatement by going through the entire exemption process again, by filing Form 1023 or 1024.

For more information, contact our Not-for-Profit Industry Group at 440-449-6800.


Information Courtesy: BDO

This issue of the Nonprofit Organization Update includes the following articles:

• Moving Toward Clarity - IRS Releases 2009 Form 990 Changes
• Foreign Accounting Reporting - More IRS Guidance is Here!
• SFAS 157 Fair Value Measurements - Additional NFP Perspectives
• Effective Policies - Building the Foundation of Your Organization
• Employee Benefits Security Administration's (EBSA) 2010 Priorities
• FIN 48 Update for Nonprofit Organizations

Moving Toward Clarity - IRS Releases 2009 Form 990 Changes
By Joyce Underwood, CPA

With the first year of filing the new Form 990 well on its way, the Internal Revenue Service (IRS) has released the revised 2009 forms for calendar year 2009 and fiscal year 2010 returns. In addition to improving the wording of the trigger questions, revising definitions, and clarifying many instructions, IRS has attempted to guide organizations in preparing a more complete return. Among the top errors reported on 2008 forms was the omission of Schedule O which requires certain disclosures from all organizations. IRS has added instructions to elicit a more complete filing and ensure all necessary disclosures are made.

Click here for more of this story.

Foreign Accounting Reporting - More IRS Guidance is Here!
By R. Michael Sorrells, CPA

As we have reported previously, Treasury and the IRS have greatly stepped up enforcement of the filing requirements for Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts ("FBAR"). Penalties for non-compliance are steep: $10,000 per occurrence. There is generally a filing requirement for both organizations with such accounts and individuals with signature authority (but no financial interest in) a foreign financial account. The FBAR report is filed on a calendar year basis and is due annually on June 30.

Click here for more of this story.

SFAS 157 Fair Value Measurements - Additional Not-for-Profit Perspectives
By Dick Larkin, Director, Institute for Nonprofit Excellence

Now that SFAS 157 has been in effect for a while, it is worthwhile to discuss a few practical issues that often arise during its implementation.

First a couple reminders:

Nonprofit organizations use fair value accounting when they are:

1. required by certain accounting standards to use fair value for certain transactions and balances, and
2. permitted by certain other accounting standards to use fair value for certain other transactions and balances
    

Effective Policies - Building the Foundation of Your Organization
By Lee Klumpp, CPA

Policies are guidelines that regulate organizational action and control the conduct of individuals within an organization and ensure that an organization has the foundation to accomplish its mission. Procedures on the other hand describe the normal operating method and provide the protocol for implementation of the policies or the "how to." Both policies and procedures are required by all organizations in order to operate efficiently, avoid confusion among employees, and ensure that an organization is in compliance with its legal and regulatory requirements. In this article we will explore the best practices for developing sound and effective policies for an organization.

Click here for more of this story.

Employee Benefits Security Administration's (EBSA) 2010 Priorities
By Bob Lavenberg

Recently the Department of Labor’s (DOL) EBSA revealed its priorities for 2010 and at the top of the list is enforcement relating to the timely remittance of employee deferral contributions to defined contribution plans.

Click here for more of this story.

FIN 48 Update for Nonprofit Organizations
By Laura Kalick

Nonprofit organizations are now beginning the process of documenting tax positions. Material uncertain tax positions will have to be disclosed in a footnote to the financial statements and that footnote is now required to appear on Schedule D of Form 990. Most organizations were not required to implement FIN 48 (now called ASC 740-10) until years ending on December 31, 2009 or later. Thus, all nonprofits that have not previously implemented this provision will have to do so soon.

Click here for more of this story.

For more information, post a comment below or contact our Nonprofit Services Group at 440-449 6800.

Information courtesy: BDO

SFAS 157 – A Not-for-Profit Perspective
By Dick Larkin

Nonprofit organizations use fair value accounting when they are:
(1) required by certain accounting standards to use fair value for certain transactions and balances, and
(2) permitted by certain other accounting standards to use fair value for certain other transactions and balances.

Click here for more of this story.

Endowment Funds and FSP 117-1
By Dick Larkin

A question has come up as to just what constitutes an endowment fund for purposes of application of Financial Accounting Standards Board (FASB) Staff Position (FSP) 117-1, Endowments of Not-for-Profit Organizations: Net Asset Classification of Funds Subject to an Enacted Version of the Uniform Prudent Management of Institutional Funds Act (UPMIFA) and Enhanced Disclosures for All Endowment Funds, (now part of ASC 958-205). For example,must a perpetual, irrevocable third-party trust be included with endowments?

Click here for more of this story.

Budgeting in the Current Economic Environment
By Lee Klumpp

In the not-for-profit world it is often the case that the budget is not issued on time, nor is the first issuance typically the last. Instead there are a multitude of last minute changes that force the budget process to continue into the next year. As a result the budget may not be usable on a comparison basis as an effective management tool until several months into the next year.

Click here for more of this story.

GAAP Codification

The Financial Accounting Standards Board (FASB) has issued its "Accounting Standards Codification" (ASC) which includes all Statements on Financial Accounting Standards and Interpretations (SFAS’s and FIN’s), Emerging Issues Task Force (EITF) consensuses, Accounting Principles Board (APB) opinions, American Institute of Certified Public Accountants (AICPA) Statements of Position (SOP) and AICPA Audit Guides and other literature. The codification was formally issued July 1, 2009 and is effective for all periods ending after September 15, 2009.

Click here for more of this story.

Summary of Recent Accounting Pronouncements and Effective Dates
By Tammy Ricciardella

There have been numerous accounting pronouncements issued and the following is a brief summary of those applicable to nonprofit organizations and their effective dates.

FIN 48, Accounting for Uncertainty in Income Taxes

Effective for fiscal years beginning after December 15, 2008 for a nonpublic entity unless they are a consolidated entity of a public enterprise or have already issued a full set of financial statements in accordance with generally accepted accounting principles that included the disclosure requirements of FIN 48. A nonpublic entity is one that does not have (a) debt or equity securities that are traded in a public market or (b) whose financial statements are filed in accordance with a regulatory authority.

The effective date above reflects the two deferrals of FIN 48 for nonpublic entities addressed by FSP FIN 48-2 and FSP FIN 48-3.

Click here for more of this story.

Schedule of Expenditures of Federal Awards Illustrative Auditee Practice Aids
By Tammy Ricciardella

In response to the federal study on the quality of audits performed under Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations (OMB Circular A-133) the American Institute of Certified Public Accountants’ Governmental Audit Quality Center (GAQC) launched a series of task forces to address the deficiencies noted in the study. One of the task forces established was the SEFA (Schedule of Expenditures of Federal Awards) task force.

Click here for more of this story.

IRS Extends FBAR Filing Deadline for Persons with Signature Authority
By R.Michael Sorrells

With the growing number of investments in offshore funds, the IRS is boosting its scrutiny of accounts established in certain tax havens to identify possible sources of income that are not currently being taxed. As part of its efforts, the IRS is focusing more attention on Form TD 90-22.1, Report of Foreign Bank and Financial Accounts ("FBAR"). The FBAR is required to be filed by US persons (including tax-exempt organizations) having a financial interest in or signature authority over any financial account in a foreign country if the aggregate value of those accounts exceeded $10,000 at any time during the calendar year. The FBAR is due annually on June 30, with no permissible extension. Penalties for failure to file this form are significant: $10,000 per return.

Click here for more of this story.

403(b) News
by Bob Lavenberg

On July 20, 2009 the Department of Labor ("DOL") Employee Benefits Security Administration ("EBSA") issued Field Assistance Bulletin ("FAB") 2009-02 Annual Reporting Requirements for 403(b) Plans which provides some relief with regard to the reporting requirements for 403(b) plans beginning with the 2009 plan year.

Click here for more of this story.

Update on Management and Governance
By Laura Kalick

Although there is no specific Internal Revenue Code section that grants IRS authority to ask management and governance questions on the new Form 990, IRS takes the position that a well-governed organization is more likely to be tax compliant. In fact, the IRS has agent training materials on its website and will produce a post-audit checklist to see if an organization has fewer adjustments to an audit if the organization has used best management and governance practices.

Click here for more of this story.

Each and every year, the Federal government pours billions of dollars into the pool for non-profit organizations and state and local governments.  Attached to these dollars are strict stipulations that these organizations must follow.  To ensure adherence, the Single Audit Act, as amended, requires each reporting entity that spends $500,000 or more in a year to obtain what is known as a “single audit.”  In this type of audit, an opinion is not only expressed on the reporting entity’s financial statements, but also on the financial and compliance aspects of Federal awards.

The auditee has important roles and responsibilities in a single audit.  One of these responsibilities is the preparation of a statement known as the Schedule of Expenditures of Federal Awards (SEFA).  This schedule details, amongst other things, total Federal awards expended by the reporting entity during the year and is required under Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations.  If this schedule is prepared incorrectly or if the schedule is incomplete, there is the potential that a control deficiency exists which will need to be reported.   

To ensure that that the SEFA is prepared correctly and that it represents the complete picture of Federal awards expended, the American Institute of Certified Public Accountants’ Governmental Audit and Quality Center has released illustrative practice aids.  Click here to access these practice aids.

For more information on issues facing the not-for-profit industry, contact Skoda Minotti at 440-449-6800.

Unfortunately, the downturn in the economy has effected many not-for-profit organizations that provide invaluable services to numerous communities and individuals.  For some of these organizations, management has thrown its hands in the air, determined that they just cannot provide these services anymore, and closed their doors.

A recent survey of about 100 not-for-profit organizations indicated that about 90% of those organizations have been directly affected by the downturn in the economy, some even severely.  Another survey indicated that, of approximately 1,000 not-for-profit organizations, only 16% expect to cover operating costs in 2009 and 2010.

Public funding is down, endowments are down and earned income is likely down.  There are a few steps that organizations can take to try and stop the bleeding, or at least slow it down:
 

• Take a closer look at how you are operating internally and how you are administering your programs.  Do the programs align with your mission?  Can you change the way you administer programs, achieving the same results but in a less costly manner?
• Make your mission known.  Let others know how important your services are, and how you are providing benefit to the community and individuals.  Be vocal.
• Take advantage of the situation to eliminate inefficient programs and expenses.  
• Work with existing funders to try and overcome the roadblocks.
• Take the time to analyze the situation, and develop a realistic plan to deal with the situation at hand.

We have seen first-hand how the downturn in the economy has effected not-for-profit organizations.  These are just a few steps you can implement to help your organization survive, and continue to provide the invaluable services that it does.  

For more information on the issues facing the not-for-profit industry, contact Skoda Minotti at 440-449-6800 or visit us online.

Topics covered: Cleveland Accounting Services, Akron Accounting Services, nonprofit organizations