In Arizona, entities are required to pay a “transaction privilege tax” on sales of goods, most commonly referred to as a “sales tax.” However, under certain circumstances, entities are exempt from collecting and remitting this tax.
If your entity is recognized by the IRS as a non-profit charitable organization under IRC Code section 501(c)(3), retail sales made by your entity for the exempt purpose of the organization are not required to collect or remit “sales” tax on those transactions. For example, if your organization operates a thrift store, you are exempt from Arizona State transaction privilege (sales) tax on the retail transactions.
This exemption is only specifically for state tax and is not always true for city or county sales tax. If your organization is operating a thrift store or you have similar retail sales, you should research your city and county sales tax code to ensure compliance with their assessed taxes for you location. It is vital for every organization to be aware of and compliant with all tax codes governing their entity.
By Samantha E. Mahlen, CPAPosted on August 5 2014 by admin
It is important as a nonprofit to understand the disclosures you must make for investments your entity holds. Level 1 investments have the fewest disclosures required by the Financial Accounting Standards Board (FASB.) These are valued at prices easily found on the market by the readers of your statements. On the other hand, Level 2 and Level 3 investments have a few additional required disclosures as they are not valued so straightforwardly. Therefore, you must be sure to make the distinction by type of investment to properly disclose the necessary information in the notes to your financial statements.
Many nonprofit organizations invest in mutual funds which are Level 1 investments, as they are valued using quoted prices for an identical investment using observable inputs on the stock market through a trustee. Current stock market prices are easily obtainable for any user of the financial statements to find on websites such as Yahoo!Finance. However, if your organization invests in an investment company that, in turn, invests in mutual funds, your investment may no longer be Level 1 with fewer disclosures; it now may be a Level 2 investment, which is valued in a different way, such as by using quoted market prices for similar assets.
This is sometimes confusing because your investment company may give you similar statements as mutual funds trustees with a stock price value (Net Asset Value (NAV)) and a number of units your entity holds calculating to your total investment value. The fair market value seems easily determinable like a Level 1 investment. However, FASB has issued explanations (EXP ¶ 820-10-35EX56B) on the investment level disclosure requirements that require any investment at a NAV price to be categorized as a Level 2 investment. This is because NAV prices are determined by valuing the investment company’s assets, subtracting the liabilities, and dividing that by the number of units held by all investors. This generally requires audited financial statements and an annual report of the investment company’s activities.
To determine if your investments are Level 1 or Level 2 for disclosure purposes, you need to determine how they are valued on your statement. If they are valued at a NAV price, they will need additional disclosures as a Level 2 investment type.
This is just one area to pay attention to when preparing your financial statements and/or preparing for an audit.
By Samantha E. Mahlen, CPAPosted on July 31 2014 by admin
Henry & Horne, LLP team members collected over 800 items for a back-to-school drive to benefit Youth and Families First. From backpacks, notebooks and calculators to binders, tissues and plastic bags, our team members overwhelmingly showed their generosity by donating so many supplies.
Youth and Families First is a non-profit direct services provider. The organization provides intensive direct support services to youth and families who are at risk and may have multisystemic involvement. They serve youth with a variety of different needs, and in the locations that best fit the youth and their family. Some of these include, but are not limited to, youth with mental and behavioral health issues, those who are part of the Juvenile Justice system, youth who are in and out of home placement or are returning to their home or community from out of home placement, and youth who struggle with behavioral issues at home, school, or in their community. For more information on this great organization, visit www.yffaz.org.
Posted on July 22 2014 by admin
On Saturday, July 19, Eighteen Henry & Horne, LLP team members and their families volunteered their time to get creative and decorate the lobby and door of the Ryan House. The team colored beach balls, hung fish netting, signs and ceiling hangings and took tours of the facility. The goal was to decorate the glass door festively as well as cover it so outsiders cannot see in to the facility to protect the privacy of the children and their families. Having a group come in to decorate frees up the staff at Ryan House to tend to the children and give them the best care possible.
At the end of the morning, the lobby looked cheerful and fun with a luau theme décor, candy for the children, and extra beach balls so they, too, could be part of the festivities. The team had a great experience and several are planning to continue to support the house by sharing their musical talents and time with the children and their families.
Ryan House is a facility that provides respite and palliative care to children with life-threatening conditions and, as needed, end of life care. They also support the families in every step of the process. It is fully publicly supported and families can receive their services at no cost to them. To learn more, visit ryanhouse.org.
By Samantha E. Mahlen, CPAPosted on July 18 2014 by admin
On Saturday, June 28th, 17 Henry & Horne, LLP team members volunteered their time to cook dinner at the Ronald McDonald Houses. We prepared meals for 55 people at the Roanoke House and 40 at the Cambridge House. Any left-overs were packaged for the families for later. We were told that no food is wasted. If the families are not available at dinnertime, they will have plenty of left-overs for later.
Dinner is served buffet style. We prepared a taco bar with all of the fixings and then for desert an ice cream sundae bar. We found out that we had some wonderful cooks! The volunteers planned the menu, purchased the food, cooked and served the meal and cleaned up afterwards.
Ronald McDonald Houses give a place for families to stay while a child is being treated at the Phoenix Children’s Hospital. The meal we prepared is the only healthy “home-cooked” meal for the day. Otherwise the families live on hospital food and vending machine food. This is one of the few activities at the House that offers volunteers the opportunity to interact with families staying there. To learn more about Ronald McDonald House, go to www.rmhcphoenix.com.
This was a great experience for all of us and I thank all of the volunteers for their hard work on a hot Saturday evening.
By Andrea Hejnal-Hilger, CPAPosted on June 3 2014 by admin
Donors advising on the use of their donation sounds relatively the same as donors restricting the use of their donation, doesn’t it? These are actually very different concepts. Donor advised funds are separately identified accounts that are maintained by a public charity. After the donor makes an unrestricted donation to the donor advised fund/account, the charity has legal control over it. However, an arrangement or agreement has been made between the charity and the donor, where the donor retains advisory privileges on how those funds should be used throughout the existence of that separate account. A donor advised fund tends to be more of a long lived account that receives donations and from which disbursements are periodically made. Even though the donor can advise on the use of the funds, the charity still has the ultimate authority on the use, with the responsibility of ensuring that the use meets the tax exempt mission of the charity. Donor advised funds are carefully watched by the IRS due to past abuse with these funds where the donor essentially has control over the use of the funds, and then uses those funds in a way that results in an economic personal benefit to the donor, while the donor still receives a tax deduction. A charity can actually lose its tax exempt status if an individual uses the charity in some way in order to attain a personal benefit.
A restricted donation relates to a specific donation, rather than relating to a separate account set up specifically relating to one individual donor’s donations. A donor places either a time or purpose restriction on one specific donation, which is received by the charity and usually pooled into the general operating or investment accounts of the organization. The charity has the responsibility to use the donation in accordance with the donor’s wishes, but after the donor makes the donation, the donor generally does not have any further involvement and does not have any ongoing advisory privileges.
There is sometimes a misconception that a restricted donation can be made to a tax exempt entity, with the donor-restricted purpose naming an individual to benefit from the donation. Under IRS rules, no tax deduction is allowed if there is a direct personal benefit to the donor or any other person. Also, as mentioned above, a tax exempt entity is at risk of losing its tax exempt status if a personal benefit transaction occurs. For example, if a charity has a scholarship program, there should be an unbiased selection process as well as a conflict of interest policy to prevent personal benefit transactions from occurring.
By Colette Kamps, CPAPosted on May 27 2014 by admin
What makes a not-for-profit a great place to work? According to a recent survey done by the NonProfit Times, it depends on the size of the organization. However, communication appears to be the key factor regardless of the number of people the entity employs.
Large Organizations (250+ employees)
When you’re a large operation, staying connected is key for employees. After all, it’s not like you can get everyone in the same room at the same time (a luxury smaller organizations can enjoy). Because all not-for-profit organizations rely on their employees to achieve mission-driven results, keeping staff engaged is an important focus.
Medium Organizations (50-250 employees)
Employees of moderately-sized organizations appreciate that decisions can be made directly where they are to be implemented. Getting employees to feel “responsible” for the entire organization tends to lead to the highest levels of employee satisfaction.
Small Organizations (<50 employees)
Flexibility is the biggest benefit smaller organizations have to offer. Flex time and telecommuting options were cited in the study. Also, because top management works right alongside staff level employees, development and training can be targeted in a way that larger organizations cannot. Employees of this size of not-for-profit enjoy breaking away from the “one size fits all approach” that larger organizations are forced to take.
To read more about the 2014 study, you can access it here.
By Jessica Puckett, CPAPosted on May 20 2014 by admin
For an organization to be recognized as a 501(c)(3) tax exempt organization, it is generally required to submit Form 1023 to the IRS. Form 1023 is a 28 page, time intensive form that may be difficult to complete for many smaller nonprofits. As a result the IRS is currently in the process of creating Form 1023-EZ. This will be a simplified, shorter version of Form 1023 and will be significantly easier to complete. The IRS has estimated that Form 1023-EZ will take approximately 14 hours to complete, as opposed to the 101 hours estimated for the full Form 1023.
Organizations will qualify to use Form 1023-EZ by meeting the following requirements:
- Projected annual gross receipts of no more than $200,000 in any of the next three years.
- Annual gross receipts of no more than $200,000 in any of the past two years.
- Total assets of no more than $500,000.
Additionally, the organization must qualify as a private foundation or a publicly supported public charity. Although the form is not available for use yet, the IRS has posted a draft of the 3 page form on their website at: http://www.irs.gov/pub/irs-dft/f1023ez–dft.pdf.
By Paul BiggsPosted on May 15 2014 by admin
This past Saturday, ten Henry & Horne, LLP team members volunteered at Maricopa County Animal Care & Control where we walked dogs that are available for adoption. By getting these dogs out of the kennels and giving them some exercise and personal contact it maintains their socialization and helps maintain their adoptability. Some dogs were happy just being held and petted while others were more than anxious to walk. This was a great event and we send a very big thanks to all the volunteers for participating!
Posted on April 29 2014 by admin
On Saturday April 26, seventeen Henry & Horne, LLP team members and their friends and family braved the rain and hail to hike up Usery Mountain in Mesa to help support United Food Bank in its mission to end hunger in Arizona. The five mile Hike for Hunger took team members and others in the community to the Wind Cave to overlook scenic Arizona, and got everyone involved to help spread the word about those who go hungry every day in our state.
United Food Bank of Arizona provides food to hungry children, seniors and families through various community programs and partnerships. Last year they distributed enough food to provide more than 51,100 meals each day to those in need.
By Becky Barnett, EAOlder Entries »
Our Not-For-Profit niche is a strong team of experienced professionals who focus their work in the not-for-profit industry. Henry & Horne has been a stable local firm in Arizona for 55 years, and the Not-For-Profit niche has a long history of working with charitable organizations and other tax exempt organizations of all kinds. Our focus is exceptional client service and building relationships with our clients to promote communication throughout the year, not just at the time of the annual audit. We highly value and are very proud to be helping those who help others.
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- Exempt Organizations and Sales Tax
- Determining Level of Investments for Disclosure Purposes
- Employees Donate School Supplies to At Risk Youth
- Henry & Horne, LLP Team Members Get Creative and Volunteer at Ryan House
- Henry & Horne, LLP Team Members Volunteer at Ronald McDonald House
- What is the Difference Between Donor-Advised Funds and Restricted Donations?
- Best Nonprofits to Work For: 2014 Study
- IRS Creates1023-EZ Streamlined Application for Tax Exempt Status
- H&H Employees Let the Dogs Out
- H&H Team Members Hike for Hunger