INVEST IN ECONOMIC DEVELOPMENT By Lena Combs, CPA, CGMA, RRP, Partner and Tom Durkee, CPA, CGMA, Partner

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1 INSIDE THE SUMMER 2016 ISSUE IS YOUR SELF-INSURED PLAN FOR YOU? YOU WANT TO START A CHARITY NOW WHAT? WITHUM FIRM NEWS EB-5 IMMIGRANT INVESTOR VISA PROGRAM: INVEST IN ECONOMIC DEVELOPMENT By Lena Combs, CPA, CGMA, RRP, Partner and Tom Durkee, CPA, CGMA, Partner The past few years have seen a rise in the popularity of the EB-5 Immigrant Investor Visa Program ( EB-5 Program or Program ). The Program has come more into focus as developers have begun exploring and using EB-5 funding for new projects. It was created by the Immigration Act of 1990, giving foreign investors the opportunity to qualify for a green card with a $1 million investment in U.S. business, lowered to $500,000 in a high unemployment or rural area. Immigrant investors who acquire a green card would then be granted U.S. residency. The projects are typically administered through a Regional Center. A Regional Center is a legal entity, organization or municipal or state agency that has been designated by the U.S. Citizenship and Immigration Services (USCIS) as a regional center and has a focus on promoting economic growth and job creation. The investment is required to create or preserve 10 or more jobs full-time jobs for qualifying U.S. workers in the local economy within a specific time period, so the investor may be granted a visa. There is currently a limit of 10,000 visas to be granted each year through the Program. History & Overview Projects that make use of EB-5 funding have the potential to benefit communities by providing both short- and long-term job opportunities. Although the numbers are up for debate, estimates show that the EB-5 Program has brought in more than $7 billion in investments and supported the creation of more than 77,000 jobs. So far, EB-5 financing has been used for projects that include large commercial property developments, assisted-living facilities and manufacturing plants. New York City s Hudson Yards project was able to raise $600 million using a cash-for-visa deal business structure. In Philadelphia, EB-5 money helped transform a closed Navy yard into an active multi-use development housing 130 companies and 10,000 employees. And Washington DC s Uline Arena, which is being converted into an office and retail center, has been funded by EB-5 money helping to revive the entire area. BE IN A POSITION OF STRENGTH SM withum.com

2 (CONTINUED) EB-5 IMMIGRANT INVESTOR VISA PROGRAM: INVEST IN ECONOMIC DEVELOPMENT But development and construction is not the only way EB-5 investments can be used, although it accounts for a large portion of the types of projects. Entrepreneurs may also apply them toward commercial enterprise, meaning any for-profit activity formed for the ongoing conduct of lawful business including, but not limited to: A sole proprietorship. Partnership (whether limited or general). Holding company. Joint venture. Corporation. Business trust or other entity which maybe publicly or privately owned. This definition includes a commercial enterprise consisting of a holding company and its wholly owned subsidiaries, provided that each such subsidiary is engaged in a for-profit activity formed for the ongoing conduct of a lawful business (including timeshare development). Caveats and Status There are some concerns with the Program, per the following: EB-5 money is being spent on projects in wealthy areas and not enough in low economic areas. Without much reliable data to assess Program performance, it is not clear whether the Program is meeting its goals. There is not enough regulation, which creates a greater risk for fraud. Some high-profile fraud cases related to regional centers damaged the Program s reputation and highlighted vulnerabilities both for the overall success of the Program and the immigrant investors. Unless regional centers or economic development entities attempt to measure the short- and long-term impacts and direct and indirect effects of EB-5 financing, it will continue to be difficult to assess the effects on communities that are supposed to benefit. The scale of the EB-5 Program is small in comparison to the entire permanent-resident admissions policy, accounting for less than 1% of green cards issued each year. The program is, however, gaining popularity and use. As recently as 2007, DESPITE THE LONG WAITING LIST, CONCERN AND POTENTIAL FOR CHANGES, EB-5 IS A SOLID CONSIDERATION. only 800 visas were issued under the program. That number increased to almost 7,000 by The Program reached capacity for the first time in 2014, and it is reported that as of December 2015, there are an estimated 57,000 people currently in line for an EB-5 visa. With a cap of 10,000 visas issued each year, that makes it a long waiting list. The program is extremely popular among Chinese investors who account for over 90% of all EB-5 visas granted and helps fuel big U.S. developers. Is EB-5 right for you? The future of the program was up for review by Congress and was set to expire on December 11, After discussions, the program got a five-day extension until December 16, Proposed changes to the program included increasing the price for U.S. residency to anywhere between $800K and $1.2M and preserving 2,000 of the visas for rural investors. After much debate, Congress has resolved to continue the program unchanged for another year and the same provisions were extended through September As 2016 is a presidential election year, there is unlikely to be any sweeping change or reform to the program. However, immigration is a current hot button with presidential candidates and as such, the provisions of the program are likely to be subject to change in the not-too-distant future. In summary, despite the long waiting list, concern and potential for changes, EB-5 is a solid consideration. It has had many successes and has helped fuel U.S. growth post-recession and its popularity continues to increase.

3 By John Mortenson, CPA, Partner IS A SELF-INSURED PLAN FOR YOU? In today s business environment of low inflation, it is extremely important to keep costs in line. It s no secret that the cost of health insurance is one of the most difficult expenses to keep in check with many entities seeing a double digit increase in premiums from year-to-year. At a time when finding skilled workers can become increasingly difficult, slashing employer provided benefits as a means of controlling costs can have a detrimental affect on your work force. The concept of being self-insured was typically reserved for large employers who cover several hundred lives but it is becoming increasingly more common place with smaller employers. For employers considering the impletion of a self insured plan, the following are some of the pros and cons to consider before pulling the trigger: Plan Design your rate). In order to minimize the risk of a small number This falls squarely in the corner as a major benefit of being self- of large claims having a significant impact on costs, most insured. Under a fully insured plan provided by an insurance self-insured plans will purchase stop loss insurance to cover company you have to pick from the plans offered, often with large claims that exceed a predetermined deductible (typically little flexibility in plan design. As the sponsor of a self-insured between $50,000 and $200,000 annual expense per claimant). plan, you have tremendous ability to design the plan to cover expenses that are important to you and your employees and Cash Flow exclude from coverage of other items. In addition, you can raise Similar to risk, cash flow can be a benefit or cause significant or lower deductibles and other features of the plan making cash flow issues based upon the timing of actual claims. certain the plan meets your specific needs. Under a fully-insured plan, a company can accurately project cash needs based upon employee head count. The premium Risk rates remain in effect for a full year and are paid monthly with Under a self-insured plan the risk for adverse claims falls the only variance in monthly cash outlay being caused by the on the employer but the benefits from lower claims are also number of covered lives. Under a self-insured plan you pay realized by the employer. Every employer under a fully-insured the claims as they are presented, which can result in large plan is charged a different premium for their coverage. fluctuations in cash flow on a monthly basis. The rates charged are generally determined based upon a projection of claims for your individual employees, plus There are a number of other critical items to review before administrative costs, plus a profit margin. Since the insurance making the decision to change plan design; but the first and company bears the risk for adverse claim development, they most important consideration is to determine if your company typically will build into the rate a cushion above projected can get past the risk for adverse claim development and claims when determining your company s premium amounts. potential variances in cash flow. If the answer is YES, then Under a self-insured plan you pay the individual claims and further discussion is warranted! therefore assume the risk if claims materialize above the projected amounts but also gain the benefits when total claims If you need more information on whether self-insured plans are are less than projected (and remember the insurance company right for you, please contact your local Withum advisor. typically builds in a cushion and profit margin when determining WITHUMSMITH+BROWN, PC AUDIT TAX ADVISORY

4 By Lisa Galinsky, CPA YOU WANT TO START A CHARITY NOW WHAT? YOU HAVE THIS WONDERFUL IDEA ABOUT HOW YOU CAN HELP OTHERS, AND YOU WANT TO START A PUBLIC CHARITY TO ACCOMPLISH YOUR GOAL. NOW WHAT DO YOU DO? What do you need to know about creating a public organization eligible for tax deductions on the donors return. charity? Here are a few items that you need to consider Tax-exempt status will excuse your organization from paying when creating a public charity. An exempt charitable organization, also known a 501(c)(3) organization, must operate exclusively for charitable purposes. It must serve the public interest rather than a private interest, and the activities that it is engaged in must further its exempt purpose. The organization must be created for one of the following purposes: income taxes on its income from charitable purpose activities and will only pay income taxes at a reduced rate on any unrelated business income it may have. Filing for federal taxexempt status is done by submitting Form 1023 with the IRS. You will need the following documents as part of that filing: the IRS website to apply for an EIN. Religious. Charitable. Scientific. Testing for public safety. Literary or educational. Preventing cruelty to children or animals. Fostering national or international amateur sports competition. When creating a not-for-profit entity, you must first create a legal entity under your state s law. The entity must be a trust, corporation or association. Every state has its own requirements on what is required to create a not-for-profit entity, which may differ from the requirements to create other types of entities. The IRS website provides a listing of contact information, website and phone number, for each state. Not-for-profit status is a state concept that may convey benefits such as exemption for state sales, income and/or property taxes. Tax-exempt status is a federal tax law concept. Being a not-for-profit at the state level does not automatically make the entity tax-exempt at the federal level. Once your organization has been created as a not-for-profit entity under your state s law, you will then want to apply for federal tax-exempt status in order to make donations to your Employer identification number (EIN). Here is the link to Organizing or enabling documents signed by a principal officer, such as articles of incorporation, articles of organization for limited liability company or declarations of trust. Bylaws, if they have been adopted by your organization. In order for your organization to obtain tax-exempt status from the first day of operation, you need to file Form 1023 within 27 months of the end for the first month it was organized. You can operate as a tax-exempt organization while waiting for approval from the IRS, but your donors will not have assurance that their contributions to your organization will be deductible until your application is approved. If the application is approved, donors contributions made while the application was pending will qualify as charitable deductions; however, if the application is denied, the contributions will not be deductible on donors income tax return, and the organization will be responsible for filing federal and state income tax returns. Every state has its own regulations regarding fundraising as well as soliciting donations. These include requiring registration of your organization, special rules when using the services of a paid solicitor or fundraising counsel, gaming activities and financial reporting. Every state is different, so you will need to make sure to check with each state in which you plan to solicit funds or hold fundraising activities.

5 Once you have your tax-exempt status, you certainly don t considered income from a trade or business that is regularly want to lose it. Here are five ways you can jeopardize your carried on and not substantially related to your organization s organization s tax-exempt status: tax-exempt purpose. Common types of UBI include advertising, sale of merchandise and services. There are some exceptions PRIVATE BENEFIT/INUREMENT. Tax-exempt organizations to the rule which includes the activity being run by volunteers, cannot serve substantial private interests, nor can they permit for the convenience of its members, selling donated articles assets or income to accrue to insiders. An insider is also known and income from traditional bingo games. Simply because the as a disqualified person and is defined as officers, directors, proceeds from the activity are used for an exempt purpose key employees, founders, certain family members and entities does not mean that the activity contributes significantly to the more than 35% owned by a disqualified person. Examples organization s exempt purpose and, therefore, does not exclude of inurement include payment of dividends, unreasonable that activity from unrelated business income tax. Organizations compensation and transfer of property for less than fair market with $1,000 or more of UBI are required to file Form 990-T and value. An excise tax can be assessed on a person who receives pay income taxes on their UBI. excess benefits and also on the organization s managers. The excise tax may be assessed instead of, or in addition to, FILING REQUIREMENTS. Most public charities are required revocation of tax-exempt status. to annually file one of the following forms: Form 990, 990EZ or 990-N (e-postcard) or if a private foundation, Form LOBBYING/LEGISLATION. Lobbying is defined as activities 990-PF. Failure to file for three consecutive years will result intended to influence foreign, national, state or local legislation. in automatic loss of your tax-exempt status. Religious Although certain tax-exempt organizations are permitted to organizations are exempt from these filing requirements. expend funds for lobbying, 501(c)(3) organizations are only permitted a limited amount of lobbying expenditures and Donors cannot claim a tax deduction for any single contribution excessive amounts can result in loss of tax-exempt status. of $250 or more unless the donor obtains contemporaneous, written acknowledgement of the contribution from the donee POLITICAL CAMPAIGN INTERVENTION. Your organization organization. Therefore, you will need to provide donors with cannot make statements for or against a political candidate. written acknowledgment for all donations of $250 or more. Your organization also cannot incur expenses related to The written acknowledgement needs to contain the name of the participation in a political campaign. Political campaign the recipient, the amount of cash donated or a description, intervention activities will not only result in the imposition but not a value, of any property other than cash contributed. of a two-tier excise tax on the political expenditures but can If the donor receives something of value in return for the result in the loss of your tax-exempt status. Although 501(c) contribution beyond a de minimis threshold, the organization (3) organizations are allowed to expend a very limited amount should describe and give a good faith estimate of the nature and on lobbying expenditures, expending so much as one dollar value of the goods or services it provided. If the organization did towards a political campaign could result in the loss of your not provide goods or services in return for the contribution, it exempt status. Be very careful. should provide a statement to that effect. OPERATING FOR A NON-EXEMPT PURPOSE. A public charity In conclusion, there are many rules and pitfalls involved in cannot conduct more than an insubstantial amount of non- creating and running a public charity. This article contains exempt activity without jeopardizing its tax-exempt status. A some information to help you get started. common type of non-exempt activity is conducting an unrelated trade or business. Unrelated business income ( UBI ) is BE IN A POSITION OF STRENGTH SM withum.com

6 PRSRT STD U.S. Postage PAID New Brunswick, NJ Permit No Newman Springs Road, Suite 125 Red Bank, New Jersey Return Service Requested The Journal is published by WithumSmith+Brown, PC, Certified Public Accountants and Consultants, for clients and friends of the Firm. The information contained in this publication is for informational purposes and should not be acted upon without professional advice. Please contact any one of our offices with your inquiries. Withum Announces New Princeton Corporate Office Location Withum is expanding and relocated its Princetonbased corporate office to 30,000 square feet at 506 Carnegie Center, Suite 400, effective June 10, This office is one of five the firm has located in New Jersey, with 110+ employees based in this location. This move represents an exciting time for Withum, stated Tom Suarez, partner-in-charge of the Firm s corporate office headquarters. Our new location will accommodate our continuing growth and help facilitate the future expansion of our service lines and practice areas. This ultimately enhances our ability to serve our clients at the highest levels. All of Withum s Princeton office phone numbers and fax numbers will remain the same. 506 Carnegie Center, Suite 400, Princeton, NJ T (609) F (609) Best Places to Work New Jersey On April 19, WithumSmith+Brown was once again a part of the NJBIZ Best Places to Work in New Jersey awards program in which 100 New Jersey companies (65 Small/ Medium sized companies; 35 Large) were competing for the top spot for Withum ranked #9 in the largesized company category, outranking six other accounting firms in both categories. This is the 12th consecutive year Withum has been recognized in this awards program. We are proud that, thanks to our incredible staff, our firm remains a leader in the public accounting profession. Best Companies New York Additionally, Withum was recognized as one of the 2016 Best Companies to Work For in New York on May 3. This exciting initiative is dedicated to finding and recognizing New York s best employers. This is the third year in a row that Withum was honored with this award. MORRISTOWN, NJ (973) NEW BRUNSWICK, NJ (732) PARAMUS, NJ (201) PRINCETON, NJ (609) RED BANK, NJ (732) NEW YORK, NY (212) PHILADELPHIA, PA (215) BLUE BELL, PA (215) BOSTON, MA (617) ORLANDO, FL (407) WEST PALM BEACH, FL (561) ASPEN, CO (970) GRAND CAYMAN (345) withum.com