Education & Not-for-Profit Update

Transcription

1 Education & Not-for-Profit Update GuideStar Works to Highlight Nonprofit Effec veness June 16, 2016 Along with other organiza ons interested in the health of the nonprofit sector as a whole, GuideStar has been involved since 2013 in efforts to focus donors' a en on more on program results and less on overhead costs. Many people and organiza ons involved in the nonprofit sector as donors, volunteers, and sponsors use GuideStar as a resource. Its mission is to gather, organize, and present informa on about nonprofit organiza ons in an easily accessible and neutral format. GuideStar's financial informa on about nonprofit organiza ons is built from the IRS database for organiza ons that file Forms 990, 990 EZ, or 990 PF. However, many nonprofit organiza ons choose to become members of GuideStar so they can submit addi onal informa on about their organiza on beyond what is included in the IRS filing. In one step to emphasize program effec veness, GuideStar has redesigned the way profiles of nonprofit organiza ons are displayed on its website. If you haven't visited your organiza on's profile recently, you may be surprised and pleased to learn you can respond to standard ques ons about goals and accomplishments that are aimed at highligh ng the organiza on's program results. Also, online profiles have been streamlined to make it easier for users to iden fy the organiza on's funding sources, financial stability, leadership, and geographic area. To provide a visible new recogni on tool, GuideStar also recently announced its GuideStar Pla num designa on. The designa on will reward individual organiza ons that share certain effec veness measures and outcomes for publica on on the website at a minimum, just one program success measure and one year of suppor ng data. If a nonprofit organiza on qualifies, the seal for the Pla num designa on will appear on its profile. While the new designa on will reward individual organiza ons that volunteer more qualita ve informa on about their effec veness, it is also meant to push poten al donors to pay a en on to more than financial ra os. SSARS 21 FAQ In the September 2015 edi on of The PPC Nonprofit Update, we discussed some of the confusion surrounding SSARS 21, Statements on Standards for Accoun ng and Review Services: Clarifica on and Recodifica on. As a reminder, SSARS 21 superseded all outstanding SSARS through SSARS 20, except SSARS 14, Compila on of Pro Forma Financial Informa on, and introduced a new level of service prepara on of financial statements. It was effec ve for periods ending on or a er December 15, Now that firms are implemen ng SSARS 21, we have received a lot of ques ons concerning the requirements of SSARS 21. This ar cle highlights some of the more common ques ons and our responses. Titles and Headings SSARS 21's requirements are a li le different. Related ques ons have included: Where is the tle on the compila on report? SSARS 21 doesn't carry forward the requirement to have a tle on the compila on report. Thus, the AICPA and Thomson Reuters don't illustrate a tle on the compila on report. However, nothing precludes the accountant from including one. Audit and review reports are required to have a tle. Why do you show a heading for the paragraph about supplementary informa on in the compila on report? AR C 80 doesn t include any headings in its standard illustra ve compila on reports. It does, however, include one at AR C 80.A36 in an illustra ve paragraph for when the accountant has compiled the supplementary informa on. So, we chose to illustrate a heading for the other ma er paragraph as well. The AICPA used Other Ma er and we used Supplementary Informa on. Either heading works. Audit and review reports have requirements about the use of headings for other ma er paragraphs such as those related to supplementary informa on as well as for other paragraphs in the report. cont d page 2

2 SSARS 21 FAQ Cont d Financial Statement Disclosures SSARS 21 allows the accountant to prepare or compile financial statements without disclosures so long as the statements aren't, to the accountant's knowledge, intended to mislead the user. Here's our ques on: Legends When will the financial statement disclosure checklist be updated for SSARS 21? The FASB, not the AICPA, determines financial statement disclosure requirements. Thus, SSARS 21 doesn't impact the disclosure requirements. Financial statement legends ques ons include: What does the AR C 70 legend need to say? AR C requires a statement (let's call it a legend) on each page of the financial statements, including the related notes to the financial statements. The SSARS is pre y flexible on wording. The minimum requirement is that it indicates that no assurance is provided on the financial statements. You can include the name of the CPA firm preparing the financial statements or not. You can combine it with a statement indica ng there are no accompanying notes to the financial statements, if applicable. Do I need a legend on a compiled or reviewed set of financial statements? SSARS 21 didn't carry forward the requirement to include a legend referencing the accompanying accountant's report. However, both AR C 80.A19 and AR C 90.A63 indicate that the accountant may choose to include a reference to the accountant's report on each page of the financial statements. Engagements without Reports Ques ons about engagements without reports include: What happened to the example engagement le ers for a compila on without a report in the most recent Thomson Reuters Guides? SSARS 21 eliminated the op on to compile management use only financial statements. If the accountant is engaged to prepare financial statements, but not to compile them, the accountant is being engaged to perform an AR C 70 financial statement prepara on service. That service doesn't require the accountant to issue a report unless the financial statements don't include the required legend discussed earlier. Then the accountant would issue a disclaimer. If the accountant is being engaged to compile financial statements in an AR C 80 engagement, the accountant is required to issue a compila on report. Phase 1 of FASB Project to Enhance Financial Statements of NFPs The FASB is working on a project to enhance the current repor ng model for financial statement presenta ons of nonprofit organiza ons. Phase 1 of the project focuses on improvements to (1) net asset classifica on requirements and (2) informa on provided by financial statements and related disclosures about a nonprofit organiza on's liquidity, financial performance, and cash flows. (The FASB plans to begin Phase 2 a er Phase 1 is completed.) In April 2015, the FASB issued an exposure dra of a proposed Accoun ng Standards Update (ASU), Presenta on of Financial Statements of Not for Profit En es. A final ASU is expected in August of 2016, and is expected to be effec ve for financial statements for fiscal years beginning a er December 15, 2017 (and for interim financial statements for periods a er that date). Applica on would be on a retrospec ve basis; however, the ASU would provide for a modified applica on for any compara ve years presented that occur prior to the date of adop on. 2

3 OMB Compliance Supplement and AICPA Audit Guide for Single Audits Expected Soon We are well into June, and the Office of Management and Budget's (OMB) 2016 Compliance Supplement and the 2016 edi on of the AICPA's Audit Guide, Government Audi ng Standards Audits and Single Audits, are not yet available. Here is the latest informa on we have on their status OMB Compliance Supplement Even though many of the big changes in the OMB's annual Compliance Supplement rela ng to the Uniform Administra ve Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) were included in the 2015 Compliance Supplement, more changes are expected this year. We hope that by the me you read this ar cle, the final Compliance Supplement will be available. The latest informa on we've heard is that OMB plans to have the final Compliance Supplement released by the end of June. The 2016 Compliance Supplement will retain Parts 3.1 and 3.2 for tes ng awards subject to the previous administra ve requirements and cost principles (old rules), and the administra ve requirements and cost principles in the Uniform Guidance (new rules), respec vely. However, all references to OMB Circular A 133 audit requirements have been removed. There will be a new Part 6 on internal control, but it will include higher level informa on about internal control requirements in the Uniform Guidance and the components of internal control AICPA Audit Guide The AICPA plans to release the 2016 of its Audit Guide, Government Audi ng Standards and Single Audits, in July. As in previous edi ons, Part I covers audi ng standards in the Yellow Book. In 2015, the Audit Guide had a Part II that contained guidance for single audits performed in accordance with the Single Audit Act and OMB Circular A 133 and a new Part III for guidance for compliance audits conducted under the Single Audit Act and the Uniform Guidance. In the 2016 edi on, the previous Part II will be removed and an updated version of the guidance previously in Part III will move to Part II. Recordkeeping Requirements for Noncash Contributions A charitable organiza on may have repor ng requirements to the IRS and/or the donor if it receives a noncash contribu on. Failing to file the required forms or documents can subject the organiza on to a penalty and poten ally cause adverse tax consequences to the donor. Repor ng Disposi ons General Rule A charity that sells, exchanges, consumes, or otherwise disposes of donated property within three years from the date of its contribu on generally must provide details of the disposi on to the IRS on Form 8282 (Donee Informa on Return). Form 8282 helps the IRS determine whether the donor may have claimed a charitable contribu on deduc on for more than the property's fair market value. Form 8282 requires, in part, (1) the name and address of the property's original donor; (2) the name and address of any previous donee where the charity disposing of the property was not the original donee; (3) certain informa on on the use of the property while held by the charity; (4) the dates of receipt and disposi on; and (5) the amount received upon disposi on. Excep ons to Filing Form 8282 need not be filed when any of the following circumstances applies: The property is a publicly traded security. The value of the disposed item was $500 or less when received by the donee charity. For this excep on, all shares of nonpublicly traded stock, or items that form a set, are considered one item. For example, a collec on of books wri en by the same author or six place se ngs of a pa ern of silverware are considered one item. The item is consumed or distributed by the charity, without compensa on, in fulfilling its tax exempt purposes (for example, contribu ons of medical supplies consumed or distributed by a charitable relief organiza on in aiding disaster vic ms). The property came from the donor's inventory and was acquired by the donor in the same year the dona on was made. Such property is deduc ble by the donor as part of its cost of goods sold rather than as a contribu on. Consequently, the raffle of an automobile donated by a car dealer out of current year inventory is not reportable on Form cont d page 4 3

4 Recordkeeping Requirements for Noncash Contributions Cont d Deadlines Form 8282 must be filed with the IRS within 125 days a er a property's disposi on. If the donee charity does not file Form 8282 because it had no reason to believe the requirements applied, but later becomes aware that these requirements did apply, it must file Form 8282 within 60 days a er the date it becomes aware it was liable for filing. A copy of Form 8282 must also be furnished to the donor of the property. Although there appears to be no deadline for doing so, the authors recommend providing this informa on to the donor within 125 days a er a property's disposi on. Special rules apply if the donee charity transfers donated property to another charity. Penal es The failure to mely file Form 8282 with the IRS normally results in a base penalty of $260 ($100 for tax years beginning before January 1, 2016) when the charity's annual gross receipts are normally less than $5 million. The penalty is reduced to $50 ($30 for tax years beginning before January 1, 2016) if the failure is corrected within 30 days a er the filing deadline. Penal es rela ng to tax years beginning a er 2014 are indexed for infla on. Note: Form 8282 has not been updated since April 2009 and does not reflect the current penalty increases. Both the $260 penalty and the reduced $50 penalty may be abated if the failure that triggered the penalty was due to reasonable cause and not willful neglect. The failure to provide a copy of Form 8282 to the original donor of the property results in the same penal es as the failure to file with the IRS. Vehicle Dona ons Although a few chari es ac vely solicit motor vehicle contribu ons, most simply welcome such dona ons when offered. A charity is required to file Form 1098 C (Contribu on of Motor Vehicles, Boats, and Airplanes) for each qualified vehicle received as a contribu on. A vehicle is qualified if its claimed value is more than $500. Filing Form 1098 C does not relieve a donee charity of its obliga on to report informa on about disposi ons of donated vehicles on Form 8282 as discussed previously. Note: A vehicle held by the donor primarily for sale to customers (e.g., inventory of a car dealer) is not a qualified vehicle. Copy A of Form 1098 C must be filed with the IRS by February 28 (March 31 if filed electronically) following the calendar year of receipt. Copies of B and C must be furnished to the donor no later than 30 days a er the date a vehicle is sold in an arm's length transac on to an unrelated party or is transferred to a needy individual for significantly less than fair market value as part of the donee's charitable purpose. (Copy B or C can also serve as contemporaneous wri en acknowledgment to the donor.) Certain penal es are imposed for filing a false or fraudulent Form 1098 C. If (1) the charity indicated on Form 1098 C that the vehicle would not be sold before the comple on of material improvements or significant use or would be sold to a needy individual; and (2) the vehicle is, in fact, sold to someone other than a needy individual without a significant intervening use or material improvement within six months of the date of the contribu on, the form is presumed to be false or fraudulent. The penalty is the larger of (1) $5,000 or (2) the claimed value of the vehicle mul plied by the highest individual income tax rate for the dona on year (39.6% for 2016). If the charity cer fies that the vehicle is sold to an unrelated party in an arm's length transac on, the penalty is the larger of the gross proceeds actually received from the sale or the sale price stated in box 4c of Form 1098 C mul plied by the highest individual tax rate if the sales price is overstated. cont d page 5 4

5 Recordkeeping Requirements for Noncash Contributions Cont d Page 5 General Rule A donor who contributes qualified intellectual property (QIP) to a charitable organiza on (except certain private founda ons) may be en tled to a charitable deduc on based on a specified percentage of the income received or accrued by the donee from such property. This deduc on is in addi on to the deduc on allowed in the year of contribu on. The donor must give no ce to the donee at the me of contribu on that the donor intends to treat the contribu on as QIP. Income is not treated as allocated to QIP if it is received or accrued a er the earlier of the expira on of the legal life of the QIP, or the 10 year period beginning with the date of the contribu on. Repor ng The donee charity must report net income from QIP to the donor and the IRS. It is reported on Form 8899 (No ce of Income From Donated Intellectual Property). This form is due by the last day of the first full month following the close of the donee's tax year. Filing is not required if the QIP fails to produce net income for the donee's tax year. Penal es The donee may be subject to a penalty if Form 8899 is not filed by the due date or does not include all required informa on. Appraisal Guidelines Impac ng Donees General Rule A donor who makes a charitable contribu on of property (other than money or publicly traded securi es) must obtain a qualified appraisal of the property if the contribu on deduc on claimed is more than $5,000 ($10,000 for nonpublicly traded securi es). Qualified Appraisal Several requirements must be sa sfied in order for an appraisal to be a qualified appraisal. One is that the appraisal must be prepared by a qualified appraiser. The defini on of qualified appraiser excludes certain categories of persons. Excluded persons include the donee charity, any person employed by the donee, any person related (through certain a ribu on rules) to an employee of the donee or married to a related person, and any appraiser regularly used by the donee who does not perform a majority of the appraisals made during the appraiser's tax year for other persons. Appraisal Summary A donor who is required to obtain a qualified appraisal to substan ate the value of donated property must a ach an appraisal summary Form 8283 (Noncash Charitable Contribu ons) to the tax return in which the deduc on for the contribu on is claimed. Among other things, this appraisal summary must be signed by the donee. The donee's signature acknowledges receipt of the property described in the appraisal summary on the date specified. By signing, the donee also acknowledges that it understands its repor ng requirements if it disposes of the property within three years a er receipt. The donee's signature on the appraisal summary does not signify agreement with the appraised value of the contributed property. Certain informa on required in an appraisal summary can be omi ed at the me submi ed to the donee for signature or from the copy that must ul mately be provided to the donee. For example, iden fica on of the qualified appraiser or the amount claimed by the donor as a charitable contribu on can be omi ed from the appraisal summary furnished by the donee. Authority to Sign The person who signs the appraisal summary for the donee must be an official authorized to sign the donee's tax or informa on return. The signer can also be a person specifically authorized to sign appraisal summaries by an official authorized to sign the donee's tax or informa on return. 5

6 The Results Are In Page 6 The number of tax returns filed by exempt organiza ons in fiscal year (FY) ended September 30, 2015, was 1,579,771. This was a 7.7% increase over FY Returns include all those in the 990 series, Form 4720 (Excise Tax Return of Chari es and Other Persons), Form 5227 (Split Interest Trust Informa on Return), and Form 8872 (Poli cal Organiza on Report of Contribu ons and Expenditures). Of these, 951,349 were filed electronically. The IRS examined 2,712 Form 990 and 990 EZ returns during FY 2015, as well as 119 returns on Forms 990 PF, 1041 A, 1120 POL, and 5227; and 787 Form 990 T returns. Also noteworthy is the fact that 2,056 employment tax returns of exempt organiza ons were examined. New Members of the EO Fraternity The IRS closed 101,962 applica ons for tax exempt status in FY Of these, the IRS approved 95,372. Approved applica ons included 86,915 Sec on 501(c)(3) organiza ons; 2,134 Sec on 501(c)(4) (social welfare) organiza ons; 1,908 Sec on 501(c)(6) (business leagues) organiza ons; and 1,308 Sec on 501(c)(7) (social clubs) organiza ons. At the end of FY 2015, there were 1,702,267 tax exempt organiza ons (not including churches and other religious organiza ons that are automa cally exempt), nonexempt charitable trusts, and split interest trusts. Of these, 1,184,547 were recognized under IRC Sec 501(c)(3) and 364,401 recognized under another subsec on of IRC Sec 501(c)(3). Nonexempt charitable trusts and split interest trusts totaled 30,490. TAX BRIEF FEE REDUCTION The user fee for exemp on applica ons submi ed on Form 1023 EZ [Streamlined Applica on for Recogni on of Exemp on Under Sec on 501(c)(3) of the Internal Revenue Code] has been $400. Effec ve July 1, 2016, the fee is reduced to $275.. Contact our Education and Not for Pro it Services Team if you have any questions or if we may be of service to you. Visit our website at to ind your nearest of ice. 6