Contributions Not Reported on the Form 990

Posted on April 21 2015 by admin

There are quite a few differences between GAAP accounting and the rules for reporting on the Form 990. I was recently reviewing the rules on reporting contributions on the 990 and thought I would share a few that are often overlooked.

Contributions that are not reported on the Form 990:

  • Unreimbursed expenses of officers, employees, or volunteers
  • Donation of services
  • Advertising space
  • Broadcasting airtime (including public service announcements)
  • Discounts on services
  • Donations of use of materials, equipment, or facilities

You can however report these donations in the narrative description of the appropriate program service. Although this information is not required to be reported including it in the program description will give a better understanding to a potential or current donor of how a program is being operated and supported.

If you have any of these types of contributions, be sure to let your tax preparer know.

By Kristin Cullen, CPA

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Recognition and Measurement of Debt and Equity Securities

Posted on April 14 2015 by admin

Many not-for-profit organizations receive donations in the form of assets other than cash. Therefore, it’s important to know the proper way to report these donations on your financial statements.

Donated investment assets (such as stock) should initially be recorded at fair value. As long as the securities are an asset of the organization, the value should be adjusted each year based on the change in the market and reported at fair value on your statement of financial position at year end.

Determining the fair value of investments, however, can be tricky if those investments are not traded on an open market. Fair value is defined by the Financial Accounting Standards Board (FASB) as “the price that would be received to sell the asset in an orderly transaction between market participants at the measurement date.” (FASB ASC 958-320-20)

There are situations where it is not simple to determine the price that would be received for an asset. In some cases, it may be necessary to utilize an actuary to determine the value of your investments. In all valuation situations, there are two factors that must be considered: the market and the buyer. Accounting standards clearly define in the factors of determining the value that you must determine the price that would be received in the most advantageous market under current market conditions. In addition, you need to consider the price a market participant would pay acting in their economic best interest.

Having investments is advantageous for any organization because generally, the organization will receive a return not otherwise received when holding cash. In all cases, it’s important to understand how to value your investments to properly report them on your statements.

By Samantha E. Mahlen, CPA

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Conditional vs Unconditional Promises to Give

Posted on April 7 2015 by admin

By definition, conditional promises to give are donor promises to contribute assets to an organization, assuming a specified future or uncertain event occurs. A condition is not the same as donor-imposed restrictions, but should be considered as a barrier that must be overcome to be considered a contribution. Until the condition is met, the organization does not have an unconditional right to the promised assets. Since the donor is not bound to the promise until the future events occur, the organization should not recognize the conditional promise to give unless the condition is met or is explicitly waived by the donor. Should the condition not be met by the organization (or explicitly waived), the donor has the right of return of any transferred assets and is released from any obligation to transfer promised assets.

For example, in February, Dwayne Johnson promises to give $120,000 paid in equal installments over 12 months to a local theatre, assuming the theatre obtains 120,000 likes on Facebook within 3 months. The theatre will not recognize the conditional promise to give unless they reach 120,000 likes on Facebook within the 3 month timeframe. After 2 months, the theatre was able to meet the condition and recognized the promise to give as $120,000 in March (the month that the condition was met). Dwayne accordingly paid $10,000 every month for a year to the local theatre.

Some promises to give can be considered part conditional and part unconditional. If this occurs, the promises should be accounted for and treated separately.

For example, Henry Horne promises a high school basketball team that he will pay $10,000 on October 10th, 2015, and an additional $200 for each basketball game that the team wins during the 2015/2016 season. The high school has received an unconditional promise to give $10,000, which it would recognize at the time the promise was made by Henry, and a conditional promise to give, for which it would recognize a contribution of $200 each time the basketball team won a game during the 2015/2016 season.

The following factors may help an organization determine if the promise to give is considered conditional: (Please note these factors are not conclusive.

  1. The promise has an explicit matching requirement.
  2. The promise states that specific outcomes must be achieved.
  3. The promise requires that amounts not expended by a certain date must be returned to the donor.
  4. The promise includes words such as “if,” “subject to,” “provided that,” or “when.”
  5. Neither the timing nor the amount of the promise is clearly determinable in advance of the payment.

By Kristian Haralson

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Arizona Gives Day is Next Week!

Posted on March 31 2015 by admin

For the third year in a row, Arizona Gives Day is approaching April 7, 2015. AGD, which is a collaboration between the Alliance of Arizona Nonprofits and the Arizona Grantmakers Forum, is a 24-hour online giving campaign meant to unite and connect Arizona residents with the not-for-profit community.

Below are highlights from the inaugural Arizona Gives Day campaign (from arizonanonprofits.org):

  • 8,584 donors made 11,176 donations on March 20, 2013.
  • The campaign raised more than $1 million in March 2013.
  • 807 nonprofits signed up for the 2013 campaign; 80% of those organizations received one or more donations.
  • Nonprofits raised a median of $395; 25% of nonprofits raised $1,000 or more in one day.
  • In a follow-up survey of nonprofits conducted by Arizona Gives Day, 75% of organizations that raised money said they received donations they would not otherwise have received and 77% said they had attracted new donors.
  • 33% of organizations registered were small nonprofits (budgets under $250,000 per year).
  • Nearly 300 print and broadcast placements statewide, with the Phoenix area alone generating more than 7 million impressions.
  • Tucson donors gave almost as many dollars as Phoenix donors – more than twice per capita.

Nonprofits were required to register to participate in AGD back in February 2015, so now it’s time for individuals to get involved. You can log on to www.azgives.org on April 7th to make a donation. Prior to next Tuesday, you can log on to research and learn more about participating nonprofits.

By Jessica Puckett Moulder

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How to Report a Name Change to the IRS

Posted on March 24 2015 by admin

If your nonprofit has changed its name, the name change needs to be reported to the IRS. This can be done on your next Form 990. Here are the requirements for reporting this properly:

  • File your next Form 990 by paper (as opposed to electronically).
  • On page 1 of the Form 990, check the box at the top for “name change”.
  • Attach your amended Articles of Incorporation (amended for the name change) to the Form 990.
  • Also attach a certified copy of proof of filing the amended Articles with the State.

By Colette Kamps, CPA

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Filing Form 990-N for New Nonprofits

Posted on March 17 2015 by admin

Is your nonprofit organization in its first few years of existence?

Not sure of the Form 990-N filing thresholds?

Organizations that have gross receipts that are normally $50,000 or less are required to file a Form 990-N (e-Postcard). Now, you’re probably wondering, what does “normally” $50,000 or less mean. Per the Form 990-EZ instructions, Appendix B an organization may file a Form 990-N if it meets one of the following tests:

  1. The organization is up to a year old and has received in receipts or pledges $75,000 or less during its first tax year.
  2. The organization is between 1-3 years old and has averaged $60,000 or less in gross receipts during each of its first 2 tax years.
  3. The organization is 3 years or older and averaged $50,000 or less in gross receipts for the immediately preceding 3 tax years.

The Form 990-N is due every year by the 15th day of the 5th month after the organization’s tax year end and requires only basic information to complete.

By Kristin Cullen, CPA

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Common Errors with Net Assets

Posted on March 10 2015 by admin

When auditing an organization, what we often find is that clients are not tracking their restricted net assets. Or if they are tracking it, it is not correct. Some common errors we find include:

  • Board designated amounts are classified as restricted – Board designated amounts, including board designated endowments, should be categorized as unrestricted as they are voluntary. Some incorrectly figure that if management is “restricting” or setting aside funds, then it should be classified as restricted net assets. One thing to keep in mind is that restricted funds can only be restricted by the donor. Management setting aside or designating net assets can be changed and reversed at any time; therefore, they are not really “restricted”. Any un-designations should be noted in board minutes.
  • Temporarily restricted amounts are not being released – If an expense is incurred for which both restricted and unrestricted funds are available, restricted funds must be used first. What we sometimes see are clients not releasing funds because they are applying unrestricted funds first to a program or an expense for which there are restricted funds available. This is incorrect. Restricted funds should be used/applied before unrestricted funds.
  • Unspent endowment earnings are classified as unrestricted – Typically the earnings on endowment funds are either restricted for a specific purpose or unrestricted (to be used in general operations). Under the Uniform Prudent Management of Institutional Funds Act (UPMIFA) investment earnings on endowments are classified as temporarily restricted until it has been appropriated for expenditure. This applies even to those funds where the donor has not restricted the use of investment earnings. Naturally, most assume that since the donor has not restricted the earnings on the investments, then it should be classified as unrestricted. However, with endowments, we are also bound by UPMIFA laws. Endowment funds are tricky, so I get how errors with accounting for these funds can happen.

Tracking net assets can be confusing. If you ever have questions with tracking net assets or with classifying certain transactions, please reach out to your accounting professional. It is always easier to track these properly from the beginning than to have to reconcile these on the back end.

By Sharlynn Garza, CPA

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Henry & Horne, LLP Employees Volunteer at Literacy Fair

Posted on March 5 2015 by admin

On Saturday February 28, 14 Henry & Horne, LLP employees and their family members volunteered at a literacy fair sponsored by the Valley of the Sun United Way. The fair was open to the public and held at the Martin Luther King Early Learning Center. Attendees were encouraged to participate in numerous literacy games, dexterity exercises and other reading and cognitive related activities. Volunteers helped and encouraged the children as they participated. Some volunteers read to the children while others helped all those in attendance pick out 3 books to take home and read. While attendance was not quite what was hoped for, the smiles were still flowing from both those attending and those volunteering.

Group

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Are retail sales made by nonprofits exempt from Arizona transaction privilege tax?

Posted on March 3 2015 by admin

Arizona Transaction Privilege Tax (TPT) and Use Tax are taxes the vendor is required to pay for the privilege of doing business in Arizona; otherwise known as a ‘sales tax.’ As a nonprofit organization, should you have to pay TPT and Use Tax on purchases made? What about collect and pay TPT Use Tax on sales you make to the public?

Purchases: Most nonprofits in Arizona are not exempt from paying TPT and Use Tax on purchases. There are some exceptions. Generally, most 501(c)3 organizations that are qualifying hospitals, community health centers, rehabilitation programs for mentally and/or physically handicapped persons, and health care organizations can apply annually to receive an exemption letter for paying TPT and Use Tax on purchases. (See the Arizona Department of Revenue publication 500 for more information on qualifying organizations and applying for an exemption letter.)

Sales: However, a nonprofit charitable 501(c)3 organization that is recognized by the Internal Revenue Service as a tax exempt organization is not required to collect and pay TPT on retail sales earned as long as it is related to the mission of the organization. The rules may apply differently to each organization depending on your organization’s specific circumstances. For more information on exemptions of TPT and Use Tax for nonprofit organizations, please visit www.azdor.gov and see publication 501.

By Michelle Housman

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Private Foundations Need IRS Approval for Grants

Posted on February 24 2015 by admin

Private foundations are often set up with the purpose of giving out scholarships or grants to individuals. Before starting this program, the IRS requires a private foundation to request “approval” from them. There are certain criteria that must be met with the scholarship/grant program. So, when a private foundation submits a request for approval of their program, they must demonstrate that:

  • Grants or scholarships will be awarded on an objective and non-discriminatory basis. The criteria used in selecting grant recipients should be related to the purpose of the grant. For example, if the foundation is awarding scholarships, consideration should be given to the student’s past academic performance, teacher recommendations, etc.
  • There is a process to reasonably ensure that the amounts given to recipients will have the intended result, which is the activity the grant is intended to finance.
  • The foundation must show that it will have a monitoring and oversight process after the grant is given and after the funds are used, to ensure that funding was used for the intended purpose.

Form 8940 (Request for Miscellaneous Determination) can be filed with the IRS to request this determination. A newly formed private foundation can also complete Schedule H of Form 1023 (application for tax exempt status) to request this advance approval.

By Colette Kamps, CPA

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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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