Henry & Horne, LLP Team Members Make a Difference for Mesa Resident

Posted on October 28 2014 by admin

October’s community service event took place on Saturday, October 25 with members of the firm participating in Make a Difference Day through Hands On Greater Phoenix. Make A Difference Day is a celebration of neighbors helping neighbors with millions of volunteers from around the world uniting in a common mission to improve the lives of others. Through Hands On Greater Phoenix’s partnership with the City of Mesa, they identified an elderly woman who suffers from arthritis and neuropathy in need of exterior house painting. We, along with a large group of community volunteers, came together to give her home a much needed makeover.

Thanks to all of our volunteers for taking time out of their Saturday to help another.

paint group

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Properly Classifying Property Held for Sale

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Proper classification of assets on your entity’s statement of financial position (SOFP) and disclosure in the footnotes is important for both accuracy and transparency purposes. The users of your financial statements should know all significant purposes and uses of the assets listed. When you contact a broker to sell any property, you may need to classify it on your SOPF as a property held for sale if it meets all of the following criteria (Per FASB Codification 360-10-45-9):

  1. Management commits to a plan to sell the asset.
  2. The asset is available for immediate sale in its present condition.
  3. An active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated.
  4. The sale of the asset is probable, and transfer of the asset is expected to qualify for recognition as a completed sale, within one year.
  5. The asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value.
  6. Actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan with be withdrawn.

If all of the criteria above are not met, the asset should not be classified as held for sale. Contact your entity’s CPA for correct classification as it will vary depending on the asset.

By Samantha E. Mahlen, CPA

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What Type of Lease Do You Have?

Posted on October 21 2014 by admin

To determine the type of lease you must record, you must evaluate if the lease is non-cancellable and meets any one of the following criteria:

  1. The life of the lease is 75% or greater of the assets useful life.
  2. The lease contains a purchase agreement for less than market value.
  3. The lessee gains ownership at the end of the lease period.
  4. The present value of the lease payments is greater than 90% of the asset’s market value.

If the lease is non-cancellable and meets one or more of the above criteria, you are required by GAAP to record the lease as a capital lease. If the lease does not meet any of the criteria above, you may record the lease as an operating lease.

Each option has a different treatment to record and present the lease on the financial statement. If you determine you have an operating lease, you will record the expense as it is incurred. If the operating lease term is more than 12 months, you must disclose future payments in the footnotes to the financial statements. If you determine the lease must be recognized as a capital lease, you would treat this as an asset acquisition and record an asset and liability for the present value of the payments. As with operating leases, you must disclose future payments for the capital lease in the footnotes to the financial statements. These are the current rules for recording leases. Keep in mind that the rules may be changing, but as of now an official standard has not been set.

By Michelle Housman

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Should Rent be Included on Section B?

Posted on October 15 2014 by admin

Non-Profit entities who file the Form 990 are required by the IRS to disclose the five highest paid independent contractors on Section B of page 8 of the Form 990. Many 990 filers interpret “independent contractors” as any amounts reported on the Form 1099-MISC, which is generally used to report miscellaneous income including rent, royalties, and non-employee compensation. However, the IRS instructions for the Form 990 offer some clarification. In reference to Section B, the instructions state,” Enter the amount the organization paid, whether reported on Form 1099-MISC, box 7, or paid under the parties’ agreement or applicable state law, for the calendar year ending with or within the organization’s tax year.” The IRS instructions only reference box 7 of the 1099-MISC and never refer to rent, royalties, or any of the other boxes. According to the IRS instructions for the Form 1099-MISC, all amounts paid to “independent contractors” should be recorded in box 7. Therefore, only the amount reported in box 7 of the Form 1099-MISC should be included in Section B of page 8 of the Form 990 and all other amounts should be omitted.

By David Woods

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Requirements for Communications to Attendees at Your Special Event

Posted on October 7 2014 by admin

You may be aware of the rule for sending an acknowledgement to a donor after receiving a contribution, but are you also aware of the IRS requirements when someone attends a fundraising event? Usually, special events provide some sort of benefit back to the attendee, so that only a portion of their ticket cost is actually a contribution. For example, they may receive a meal, drinks, valet parking, entertainment, etc. in exchange for the amount paid. If it is a true fundraising event, the ticket cost will be greater than the value of the benefit they receive so that there is a contribution portion built in to the cost. The nonprofit entity operating the event is required by the IRS to provide a written statement to the attendee, which must include:

  • A statement to inform the attendee that only a portion of their ticket cost is a donation and tax deductible and that this portion is limited to the amount that is in excess of the fair market value of what was provided by the charity.
  • A “good faith estimate” of the fair market value of what the attendee received at the event.

This written statement can be in a thank you letter or acknowledgement after the event takes place, or it can be included on the invitation provided to the attendee prior to the event.

If the nonprofit organization does not meet these requirements, they can be penalized by the IRS in the amount of $10 per attendee.

By Colette Kamps, CPA

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Changes for Single Audit Submission

Posted on September 30 2014 by admin

Required to have a single audit for the 2014 fiscal year?

The Federal Audit Clearinghouse will not begin accepting submissions for audits with 2014 fiscal year ends until October 20, 2014.

The Office of Management and Budget granted an automatic extension until November 30, 2014 for any forms due on or before November 30, 2014.

Mark your calendar!

Also, beginning January 2, 2015, all 2014 fiscal year (and later) audits and FORM SF-SAC submissions must:

  • Use standard audit finding reference format; Example: 2014-001 through 2014-999
  • Be an unlocked, unencrypted and in a text searchable PDF format

By Kristin Cullen

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Team Members Volunteer with ICAN

Posted on September 26 2014 by admin

teamOur September community service event was at ICAN located in Chandler. ICAN is a free service for Chandler youth; they provide various programs after school to help the youth achieve personal and academic success when dealing with substance abuse, gang involvement and delinquency. ICAN currently serves 250 families with 100 families on a waiting list for their children to attend.

During our afternoon at ICAN, our group was able to assist with outside sport and game activities, assist youth with homework, and sand and paint a large Jenga game with the teens. Additionally, we spent time visiting with the kids during snacks and dinner, where we learned about their day, the schools they attend and what they like about ICAN. When it was time to leave, we received a LOUD thank you from the kids and lots of “high fives”.

Thanks to all of our volunteers who attended. The kids and staff really appreciated our group.

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Exempt Organizations and Sales Tax

Posted on August 19 2014 by admin

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, CPA

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Determining Level of Investments for Disclosure Purposes

Posted 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, CPA

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Employees Donate School Supplies to At Risk Youth

Posted 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.

 

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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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