Moving On

Just a quick note to say that I am moving on from the California Association of Nonprofits (CAN). My last day in the office will be this Friday, December 12. After the first of the year, I will continue my work as a consultant and trainer in the area of nonprofit accounting and finance and continue blogging and providing resources as well.

It has been my pleasure to work with CAN for nine years to help the nonprofit sector, to develop and lead the Nonprofit Accounting Boot Camps and other financial trainings (1,300 trainees across the state and nation!) and to speak with thousands of you on our helpline and at our events around the state. I look forward to continuing my relationship with you in the years to come and I want to say thanks to all of you for helping me learn about and grow with this sector over the last nine years. It has been an interesting journey, and I could not have done it without you.

It is hard to believe that this blog has been up and running for over a year and a half, and that we get almost 2,000 readers a month. Thank you for that as well. I'm not sure what the status of this blog will be in the weeks and months ahead but I will continue my interest in the area of nonprofit finance and accounting in another forum for those of you who are interested in reading yet another not-for-profit accounting blog.

I wish you a happy and relaxing holiday season.

Alan J. Strand
Interim Executive Director, California Association of Nonprofits (until 12/31/08)
Principal, Strand Financial Services (starting 1/1/09)
www.notforprofitaccounting.net

Stop Spam Today!

Join TechSoup's Campaign to Protect Your Organization. Click here for the details on TechSoup's free Mailshell anti-spam software give away on December 10th only. From TechSoup:

Spam is more than annoying — it can be dangerous. Junk emails are often used as a tool to spread viruses and solicit personal information (phishing). Protect your organization by participating in TechSoup's "Stop Spam Today" campaign.

News from the IRS

For those of you who don't subscribe to the IRS's Exempt Organization Update here are some highlights:

1. Nothing revolutionary but they seem to have reorganized some of their existing resources into a new spot. Seems to be a bit better laid out, all in one place.
2. Commissioner Miller's latest remarks about nonprofit governance can be found here, a PDF of his remarks at the Western Conference on Tax Exempt Organizations in November 2008.
3. The IRS's 2009 Exempt Organization Work Plan. Read this PDF to find out what the Internal Revenue Service will be up to in 2009 with regards to nonprofits.

2009 Mileage Rates

Heads up! The IRS has released its 2009 mileage rates. Here is an excerpt from the news release:

The Internal Revenue Service today issued the 2009 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. Beginning on Jan. 1, 2009, the standard mileage rates for the use of a car (also vans, pickups, or panel trucks) will be:

• 55 cents per mile for business miles driven
• 24 cents per mile driven for medical or moving purposes
• 14 cents per mile driven in service of charitable organizations

For the full press release click here. To learn more about efforts to raise the reimbursement rate for miles driven in service of charitable organizations please click here.

More Resources

Two more resources and links that I remembered I said I would share with all of our workshop participants.

The first is the the organization called BoardSource, a nonprofit dedicated to helping and improving nonprofit governance. They have a nice series of short books on governance, called the New Governance Series that touches on topics such as board organization, structure and financial management.

The other resource asked for was a sample gift acceptance policy which the new form 990 asks us for. It seems like those are pretty unique to the nonprofit but here is a list of ones that can be found on line from the Foundation Center. These could be used to help us get started crafting our own. If anyone has other sample policies they would like to share let me know and I will put them up here too.

Nonprofit Accounting Questions

Here are some more questions and answers from recent nonprofit accounting trainings trainings I have done.

Q: What is the difference between a 501c3 and a trade group?
A: Check out these publications from the CA Attorney General's office and this listing of resources from the IRS.

Q: What is admin? Just what are administrative costs:
A: Please read this from the National Center of Charitable Statistics.

Because of the diverse characteristics and accounting practices of non-profit
organizations, it is not possible to specify the types of cost which may be classified as indirect cost in all situations. However, typical examples of indirect cost for many non-profit organizations may include depreciation or use allowances on buildings and equipment, the costs of operating and maintaining facilities, and general administration and general expenses, such as the salaries and expenses of executive officers, personnel administration, and accounting.

Q: What is the minimum reporting threshold for filing a w2-g?
A: Please read this from the IRS (opens in a PDF).

Q: What is deferred revenue?
A: Check out these search results for the answer.

Q: Where to find compliance questions and answers from the IRS? How do we stay exempt?
A: The IRS has some good information here.

Q: Where can I find more information on the rules governing commercial fundraisers?
A: From the CA Attorney General's office here and here.

Q: Where are some discussions regarding excessive fundraising costs?
A: In the above commercial fundraiser links and here and here.

Again, if you have any other questions please let me know.

New 990 Resources and Links

Thanks to all the people who have come to our recent, "New 990" workshops. Below are a list of questions from them and resources I said I would post. If I miss any or you have other questions please feel free to put them in the comments below.

• Form 8734 - the end of advance ruling form is no longer required for groups who's advance ruling periods expire on or after June 8th 2008. Click here for the details.
• The IRS's recent 990 webinar is still available on line for folks who want to know more.
• Here is a link to SOP 98 2 issues regarding joint costs (costs that have BOTH a fundraising component and a program component. be careful with these, they can get you into trouble if you do not know the rules and the IRS is looking closer at this stuff.
• Here is the complete list of new 990 forms, instructions and schedules including J which list all the types of reportable compensation
• Other websites I referred to:
  www.stayexempt.org - helpful IRS resource
  www.guidestar.org - where our 990's reside
  hrcalifornia - labor and employment issues
• There was a question on schedule G part II. the text reads, "Events. (Complete this part if the organization reported more than $15,000 on Form 990, Part VIII, line 8a or
  Form 990-EZ, line 6a. List events with gross receipts greater than $5,000.)" The questioner asked why the 990 amount was $15,000.00 and the 990-EZ amount is $5,000.00. I had no idea until I looked at it now and realized there is a period that separates the two sentences. The $15,000.00 amount is for both the 990 and 990-EZ.
• Another question was asked about question 6 of part I of the core form, why does the IRS need to know the number of volunteers a nonprofit utilizes? I'm not really sure, maybe someone out there knows? Here is the text from the form 990 instructions:
  

  Line 6. Number of volunteers. Provide the number of volunteers, full-time and part-time, who provided volunteer services to the organization during the reporting year. Organizations that do not keep track of this information in their books and records or report this information elsewhere (such as in annual reports or grant proposals) may provide a reasonable estimate, and may use any reasonable basis for determining this estimate. Organizations may, but are not required to, provide an explanation in Schedule O of how this number was determined, and the types of services or benefits provided by the organization’s volunteers.

If I missed any question please let me know.

Accounting Boot Camp Questions

Below are some questions and answers from recent nonprofit accounting trainings I've led.

• Is there a minimum dollar threshold for registering our nonprofit's raffle with the state of California?
  No but click here for more.
  
• Does the charity report the raffle winners to the state?
  No it does not.
  
• Can a nonprofit accept a donation of the use of a donor's timeshare?
  Yes, but the donor will not get a tax deduction for the donation of the use of the time share. See Publication 526, all about contributions to nonprofits.
  
• Where can I find more information on the new 990?
  At the IRS website stayexempt.org the have a series of mini-courses on various topics including several on the new 990, walking you through the whole form. They are 20 to 30 minutes each and free.

Contact me if you asked a question and I didn't get to it.

CAN Confernece Session Update

For those of you who attended CAN's 17th Annual Conference and my session on Accounting for Non-Accountants, thanks for coming! Here are some additional resources and links:

• The IRS Guide to Good Governance can be found here, sorry I forgot to add it to the handouts.
• Those of you interested in sample Auditor's reports please click here.
• The details on California's Nonprofit Integrity Act as it relates to Commercial Fundraisers (opens a PDF).
• Has the 990 PF Changed? Not yet.
• For those interested in the potential shift from GAAP to IFRS click here.
  
• When do we file the new 990? Read below or click here for a PDF of a general overview of the instructions.
  

  Calendar year - Use the 2008 Form 990 to report on the 2008 calendar year accounting period. A calendar year accounting period begins on January 1 and ends on December 31.
  
  Fiscal year - If the organization has established a fiscal year accounting period, use the 2008 Form 990 to report on the organization’s fiscal year that began in 2008 and ended 12 months later. A fiscal year accounting period should normally coincide with the natural operating cycle of the organization. Be certain to indicate in the heading of Form 990 the date the organization’s fiscal year began in 2008 and the date the fiscal year ended in 2009.

Let me know if you have any other questions.

More 990 Resources

The last post listed an IRS webinar for the new 990 and I put up a to-do list a while back. You think I would be done touting new 990 resources but you would be wrong! In the spirit of making sure there are enough resources noted out there to satisfy as many people as possible I give you one more. A big hat tip to Nancy at Non-profit accounting help for pointing out this resource from avenue2possibilities. It includes samples of many of the policies the new form 990 will be asking about and a workbook and checklist to go through to help make sure you are ready. So now all you have to do is put the policies in place!

And if they ever create a New 990 Comic Book you will hear about it here first thing, promise.

IRS's Tax Talk Focuses on the New 990

Another presentation on the new 990 but from the horses mouth this time:

The Internal Revenue Service’s next Tax Talk Today Web cast on Tuesday, Nov. 4, at 2 p.m. focuses on “Preparing for the New Form 990.”

The IRS has redesigned Form 990 to reflect significant changes that have taken place in the tax law and the tax-exempt sector. Organizations and their preparers will want to tune in to learn about the new form and instructions so that they fully understand how the changes affect the filing process.

The new form will be filed in 2009 for the 2008 tax year. Organizations may also want to reassess if their internal systems need to be updated to reflect the new reporting requirements. The IRS has a special Web page on the Form 990 redesign and background documents .

Moderated by Les Witmer, panelists for November’s program are: Eve Rose Borenstein, Exempt Organizations Tax Attorney, Borenstein and McVeigh Law Offices (BAM!); Stephen Clarke, Tax Law Specialist, Rulings and Agreements, Exempt Organizations, Internal Revenue Service; Julie L. Floch, CPA, Eisner Director of Not-For-Profit Services; and Ronald J. Schultz, Senior Technical Advisor to the Commissioner, Tax Exempt and Government Entities Division, Internal Revenue Service.

Tax Talk Today is a Web cast aimed at educating tax and payroll professionals on the most current and complex tax issues. Tax professionals are encouraged to watch and submit questions. To access the Web cast at no charge, viewers can register online .

Tax professionals in need of continuing education credits are eligible to receive one CPE credit by viewing the Nov. 4 Web cast and purchasing the CE credit. Archived shows are available on the site also at www.taxtalktoday.com.

Looks to be a good presentation.

Retirement Account Changes

Does your nonprofit have a 403(b) retirement plan for its employees? If it does have you heard about all the changes taking effect for 403(b) plans? Do you know what you need to do to get ready for them?

As if getting ready for a new form 990 wasn't enough we also have to make sure our 403(b) plans are in order. The National Council of Nonprofit Associations is holding two webinars about the changes that will be presented by Bob Architect, Senior Tax Law Specialist at the IRS.

The first, a general presentation regarding the changes and how they will affect your organization, is Tuesday, October 28 at 3:00 - 4:15 pm Eastern. The second one, a comprehensive presentation regarding the changes for individuals who handle employee benefits, is Wednesday, November 12 at 3:30 - 4:45 pm Eastern. CAN Members get $10.00 off the $35.00 registration fee.

IRS Update

From the IRS comes this announcement:

IRS Sends Compliance Questionnaires to 400 Colleges and Universities
Approximately four hundred U.S. colleges and universities will begin receiving compliance questionnaires from the Internal Revenue Service in the next few days as part of the agency’s focused effort to study key areas in the tax-exempt community. The college and university questionnaire will focus on unrelated business income, endowments and executive compensation practices. The questionnaires are being sent to a cross-section of small, mid-sized and large private and public four-year colleges and institutions.

Private nonprofit universities are generally exempt from tax under Internal Revenue Code section 501(c)(3) and like state universities are to unrelated business income tax.

Click here to read the rest.

This is part of a new compliance project for colleges and universities by the IRS. Will this effort by the IRS broaden out to other 501(c)3 organizations? Probably. I think they are looking at the biggest fish first but I'll bet it is just a matter of time until more of these types of letters will be sent.
Are there any lessons to be learned here? I think two at least:

• I'd say make sure that if you are doing any activities that might generate unrelated business income you should learn the rules (link opens a PDF) that apply.
• Make sure your salaries are justified.

Probably making sure your ready in general for the new 990 reporting will help as well.

Where did all the money go?

As the Finance Guy I've been asked questions similar to this through the years. Often it comes from a board member or someone who is not too familiar with how nonprofits operate, or maybe just how organizations operate in general, and thinks that I, as my role of Finance Guy, have some ability to make money appear instead of just controlling the spending of it. I'm the first to admit that my strong suit is not fundrasing. I can put together a cash flow report and tell you how fast you will be spending your income but as far as generating contributions? Not so much.

Our sector has other professionals for that and resources out there to them get those donations. One I've read and like is The Raiser's Razor. Written by a CFRE in Dallas, Texas and covers both national and local issues. From the United Way of Dallas to how to ensure a second gift, click through and learn about what goes on in that part of the nonprofit world.

This entry is part of the Nonprofit Blog Exchange's Virtual Event #9. Check it out to see bloggers writing about other blogs.

New 990 To Do List

Even if your nonprofit is lucky enough to have a November 30 year end there is still plenty of stuff you need to be doing right now to get ready for this new reporting form. Thanks to Brian for this great list, it has been something I have been meaning to do for CAN as well as share with everybody. This is a work in progress, some things will be added as we go through this stuff but here is where it is so far:

THE NEW 990:
WHAT DO WE NEED TO DO RIGHT NOW?

Required Policies

• Conflict of interest policy
• Whistle blower policy
• Document retention and destruction policy
• Joint venture policy
• Expense reimbursement policy
• Non-standard gift acceptance policy
• Written debt collection policy (hospitals)

Practices & Procedures

• Need to prepare a written document which sets forth the procedures by which the Board of Directors will review the Form 990 before it is filed
• Document compensation reasonableness processes
• Professional fundraisers agreement
• Documentation regarding eligibility to receive grants

To Do List

• Estimate the total number of volunteers utilized during the year
• Identify any new program service activities conducted during the year
• Identify revenue and expenses for three largest program service activities
• Ensure that filing all 1099s when required to do (non-employee services in excess of $600)
• Prepare documentation to support classification of independent contractors
• Ensure that organization is preparing Form W-2G when required
• Make sure register with California Attorney General if conducting raffles and make sure undertake backup withholding if necessary
• Identify non-cash contributions in excess of $5,000 for which public charity disposed of within 3 years after receiving
• Document meetings of Board of Directors committees with authority to act
• Write-up re how satisfy public disclosure requirements
• Identify all key employees under the expanded definition
• Break out the revenue and expenses from gaming activities from the general fundraising activities
• Update Chart of Accounts (and audited financial statements) to include the expense categories listed on Part IX of the redesigned Form 990

Even if the phrase, "new 990" wants to make you stick your finger in your ears and say, "lalalalalalalalalalala" you can still go through this list and make sure your organization is more prepped than it is right now for the big event.

And please let me know if you think anything is missing from the list!

Nonprofit Leaders

For those of you who have not read Heather Carpenter's blog I do encourage you to. She writes about nonprofit leadership issues and has some great ideas.

Last week she posted a particularly interesting piece, "My NP Times Top 50: The Next Generation of Nonprofit Leaders You Should Know." It is based on the Nonprofit Times' Power and Influence top 50 nonprofit executives but it is made up of those she feels are the up-and-coming folks in the sector.

I'm honored to be on the list but mostly I'm grateful that she created it. This is a fantastic list of people who are doing interesting things to help strengthen the sector and it is great to have this opportunity to get to know them. Thanks Heather and keep up the good work.

Updated Form 990 Instructions

This IRS has announced the release of the updated and presumably final instructions for the redesigned form 990. The link takes you to a page to download the instructions to the various sections in PDF. The IRS has not yet compiled them all into the usual three column format, I think that they are easier to read at the moment. From the press release:

“We were gratified by the amount of help the IRS received from the tax-exempt community through public comments to redesign the Form 990 and revise its instructions,” said Steven T. Miller, Commissioner of the Tax Exempt and Government Entities Division. “This input helped us achieve our goal of improving compliance while minimizing burden. We will now begin working with the tax-exempt sector to help organizations complete the form and prepare for the 2009 filing season."

The IRS expects to release instructions to the 2008 Form 990-EZ, Short Form Return of Organization Exempt from Income Tax, in the next few weeks.

Happy reading! I'm going to start through these this week.

Updates From the Nonprofit Risk Management Center

Need a Refresher on Maintaining Tax-Exempt Status and Other IRS Obligations?

The IRS recently updated Publication 557 (a PDF). The updated publication provides helpful guidance on what information needs to be provided to donors to acknowledge donations, the rules regarding public disclosure of annual returns to the IRS, including the 990-T form, as well as examples of what constitutes the all-important public support needed to maintain tax-exempt status.

Frequently Asked Questions Now Available On the Center’s Web Site

Every day the Center responds to questions about risk, liability and insurance. The Center is pleased to announce that the “Advice” tab of the Center’s Web site now provides an easy link to the Center’s responses to these Frequently Asked Questions.

Why Your Financial Systems Matter

Thanks to the Independent Sector for the heads-up: From the Los Angeles Times comes a story about a local chapter of the Service Employees International Union. This story has everything -- everything that can give the public a reason to think nonprofits are poorly run or are run solely as a scam to make money for the founders: undisclosed payments made to businesses owned by family members, poor financial record keeping, lavish spending and possible misstatements of fundraising expenses.

Even if all the issues mentioned in the story are found to be justified, it is still almost a perfect example of everything you should not do. And just because something is legal doesn't mean it is ethical. Taking the time to think, "How will this look?" to the media, regulators, other nonprofits and especially the community you serve can only help your decision making, financial or otherwise. Having a strong financial system in place and people knowledgeable about those systems, as well as other nonprofit accountability measures, are key for all organizations regardless of mission or size.

990-EZ Update

Thanks to GuideStar for this bit of news. Yesterday I mentioned the 990-EZ and said that is was unchanged. Not so, at least officially. It does not look like the form itself will change but the IRS proposes to allow filers of the 990-EZ to file six of the new schedules developed for the updated 990:

1. Schedule A, Public Charity Status and Public Support
2. Schedule C, Political Campaign and Lobbying Activities
3. Schedule E, Schools
4. Schedule G, Supplemental Information Regarding Fundraising or Gaming Activities
5. Schedule L, Transactions with Interested Persons
6. Schedule N, Liquidation, Termination, Dissolution, or Significant Disposition of Assets

Details on these schedules can be found here.

Got comments about these changes? Here are the details:

Send written comments on or before September 8, 2008, to:

R. Joseph Durbala
Internal Revenue Service, Room 6129
1111 Constitution Avenue, NW
Washington, DC 20224

All comments will become part of the public record and will be
summarized or included in the IRS request for OMB approval of the
changes to the 990-EZ.

IRS Round Up

News from the Internal Revenue Service's Exempt Organizations Division:

1. 2008 Form 990 Instructions
   Public commenting on the new form's draft instructions closed in June and the IRS is getting ready to release the final version by August 15. You can click here to get a preview of what changes have been made the instructions.


2. Political Activity
   A friendly reminder from the IRS about what is allowed and not allowed during this exciting political season. The top two links are probably the most useful, including the link to the handy StayExempt.org website.
   
   
3. Form 990 Filing Phase-In
   Another reminder about the phase-in of filing the new form 990. The IRS came up with this as a way to mitigate the filing burden on smaller nonprofits. Click here to see what the schedule is. It is conceivable that organizations that filed a form 990 for 2007 may only have to file the (unchanged) form 990-EZ for 2008.
   

And now your reward for reading about the IRS updates. Kitties!

Public Disclosure Requirements for Charities

Just a reminder that we are supposed to make certain documents open to public inspection if asked. Here is a list from the IRS that mentions the 990, form 1023 and the 990-T.

Posting on the web is good as long as one can save and print copies of the forms. Here is a good FAQ about the disclosure requirements.

More Boot Camp Questions & Answers

Q: Where do I find out about raffles and raffle registration in California?

A: The California Attorney General's Office is where you get the forms and the CAN website has a nice FAQ section on raffles.

Q: Our organization collects funds and items from donors to give to another organization. How do we handle these transactions in our accounting system?
A: It sounds like these might be considered pass-through transactions and subject to SFAS 136 rules. For a clear description of these rules and how to handle them check out this link for more information and here to buy the book.

Q: How do we prove that the board has reviewed our 990 before we submit it?
A: [The new form 990 has a yes or no question as to weather or not the the governing body of the nonprofit has reviewed the form 990 prior to submission. Can you guess what answer they want to see here?]
From the Independent Sector's guide to the new 990:

The organization must explain (in Schedule O) the process, if any, it follows to have officers, board members, committees, or management review the prepared Form 990, when that review happened, and the extent of the review. The instructions clearly say “If no review was conducted, state ‘No review was conducted.’ ” The IRS does not require or recommend any particular procedure for reviewing the Form, but most organizations will want to ensure that their senior staff managers and/or the board committee responsible for overseeing financial policies and procedures have a chance to review the Form before filing.

The New 990 - Financial Accountability Resources

I'm going to start off an occasional series about the new form 990. As we move closer to the end of 2008 and closer to the time when we have to start using this form it is important to look at our organizational and financial systems and make sure they are able to give us the information we need so we can fill out this report or get the right information in a timely fashion to those who will fill it out for us.

An important aspect of what the updated form 990 is looking for is financial accountability. There are several questions in the governance section (pdf) of the form that ask us about our governance practices. Do we have the minutes of Board of Director meetings? Do we have a document retention and destruction schedule? Is there whistle blower policy at our nonprofit? Not sure what some of the term s mean exactly, or wonder if the IRS has a different meaning for a word? Check out their handy Appendix and Glossary (both pdf's). Both excellent resources.

Much of this is similar to what for-profits have to have because of the Sarbanes Oxley-act of 2002. A great resource for implementing policies like those asked for can be found here on the National Council of Nonprofit Associations website. I encourage you all to read about what information the new 990 will ask to keep track of and have on hand before we or our auditors have to fill this out. Preparation will save us time and money

Outcomes Measurement

Kate Barr at Balancing the Mission Checkbook has a nice piece on the recent report of an annual survey of public confidence in nonprofit groups by Professor Paul Light from NYU’s Wagner School of Public Service.

What intrigued me in her post is her mention of how Professor Light asks the questions about how nonprofits spend our money versus how I think the majority of nonprofits and foundations view our spending. The survey asks the public if they think nonprofits are spending their money wisely. Not program vs. management or any of the other typical benchmarks we use but if the public thinks we are doing a good job with our funds.

How could we show this for our own organizations? Is it possible that if a nonprofit spends 35% of its funds on administrative functions that the public would still view it as spending its funds wisely? Could foundations and corporate funders be persuaded to evaluate organizations in such a manner? Click the link above to find an example of an organization that may have figured out the right way to do it. Outcomes measurement is something we will all need to figure out a way to do for our nonprofits.

Questions and Answers

Thanks to everybody who came to any one of the six workshops I presented at in the last month. Nonprofits from Orange County to Maine all seem to be interested in nonprofit accounting, governance issues, risk management and the new form 990.

I get asked a lot of questions at these events and the ones I can't answer I look up and respond to here. Unless I loose the paper with the questions on it.* To that end let me begin with the first one:

1. What is the difference between a Commercial Fundraiser and Fundraising Council? What are the rules that tell us how to work with them?
   In a nut shell a Commercial Fundraiser hold the funds they solicit on your behalf and then gives them to your organization less any fee. Fundraising Council does not hold the funds for you. Contracts between CA nonprofits and commercial fundraisers need to be approved by the California Attorney General's office. For all the details please see the overview of 2004's Nonprofit Integrity Act (pdf).
2. How do we change our nonprofits name?
   Need to file updated Articles of Incorporation with the state and let the IRS know and anywhere you have registered to solicit funds. This guy has the goods.
3. This came up during a discussion of the new Schedule M (pdf) of the updated form 990 which talks about listing and valuing donated non-cash items (if you get more then $25,000.00 of them). The question was:
   If we have a special event to raise funds and receive proceeds from a silent auction, where do we report the income?
   In part VIII of the core form with the revenue and in any of the appropriate schedules. Schedule M is sole concerned with the valuation of the donated items. The IRS wants to make sure donors are not inflating the value of items donated to the nonprofit. For more on valuing donated items and how to book these please click here.
4. Boards of Directors
   No specific questions here but clear from the tone of the comments and question at these events that many of us have an occasional issue with our boards. For an interesting study on this I would direct you here to the Urban Institute. For resources to help Boards out I would direct you to start with these folks.
   

*Sorry if I missed your question. Please email me or post a comment here if you want me to look up an answer for you.

IRS Increases Mileage Rates through 12-31-08

From the IRS press release:

WASHINGTON — The Internal Revenue Service today announced an increase in the optional standard mileage rates for the final six months of 2008. Taxpayers may use the optional standard rates to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

The rate will increase to 58.5 cents a mile for all business miles driven from July 1, 2008, through Dec. 31, 2008. This is an increase of eight (8) cents from the 50.5 cent rate in effect for the first six months of 2008, as set forth in Rev. Proc. 2007-70. [opens up a PDF]

In recognition of recent gasoline price increases, the IRS made this special adjustment for the final months of 2008. The IRS normally updates the mileage rates once a year in the fall for the next calendar year.

"Rising gas prices are having a major impact on individual Americans. Given the increase in prices, the IRS is adjusting the standard mileage rates to better reflect the real cost of operating an automobile," said IRS Commissioner Doug Shulman. "We want the reimbursement rate to be fair to taxpayers."

While gasoline is a significant factor in the mileage figure, other items enter into the calculation of mileage rates, such as depreciation and insurance and other fixed and variable costs.

The optional business standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of tracking actual costs. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage.

The new six-month rate for computing deductible medical or moving expenses will also increase by eight (8) cents to 27 cents a mile, up from 19 cents for the first six months of 2008. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile.

The new rates are contained in Announcement 2008-63 [opens up a PDF] on the optional standard mileage rates.

Other changes include moving the Medical/Moving rate to 27 cents per mile. The Charitable rate remains unchanged at 14 cents per mile.

To The Participants

Thanks to all of you who have attended our recent events including the Accounting Boot Camp in Watsonville and the New 990 presentation in Santa Ana. I will be posting the answers to the questions we received over the next few days as I finish tracking down the answers.

For those of you interested in attending other events of ours or scheduling them please go to CAN's website or contact me via my profile here.

Thanks!

Pre-Tax Benefits

Two Things:
One - I have changed the name of our blog. Slightly. Over the last fourteen months of this blog (fourteen months!) it has changed from just being a resource for the Nonprofit Accounting Boot Camps we are doing to a broader look at the nonprofit finance and administrative world. I think the name should reflect that, but the change should not be too big to confuse people.

As the link above points out we are still doing the boot camps and I am still doing nonprofit accounting presentations around the state and in other states. Check the CAN home page for the latests educational events or click here to sign up for our enewsletter to have all the latest news delivered to your in-box.

Two - A tip of the hat to Kim at California Payroll. Pre-tax transportation benefits! Here in CA we are pushing $4.50 a gallon so anyway to help counts. These benefits won't lower prices but could help out tax-wise and any benefits that we can offer our employees that don't cost the employer much are win-win. From Kim's email:

In a nutshell, your employees can set aside $115 per month in pre-tax income to use towards riding in a commuter highway vehicle (qualified vanpool arrangement) between home and work and for purchasing transit passes. Also, your employees can set aside $220 per month for qualified parking.

Find out more from IRS Publication 15-B, The Employers Guide for Fringe Benefits. Click here to download a PDF of the publication. Thanks Kim!

Nonprofit Deregulation?

On the Independent Sector's website is a really good article by Clara Miller, a leader in the sector who I think makes a lot of sense and has written extensively about nonprofit financial issues.

In this piece she once again lays out the complex world of nonprofit capital management. Things that we as nonprofit finance professionals take for granted that would send our for-profit counterparts into confused apoplexy. She posits that in our efforts to do good we may have let a patchwork of rules and regulations from many different sources cover us so that our capacity to meet our missions may seriously limited if not in jeopardy.

Read the article, or others by her, and tell us what you think about what she has to say and the issues she brings up in the comments section below.

Comments On The 990 Instuctions

Independent Sector released their comments to the redesigned form 990 instructions. The instructions were released on April 7th and the comment period closed June 2nd. Click here for a PDF of what the IS had to say.

Threats to Nonprofit Tax Exemptions

From the New York Times on May 26th.

In case folks out there have not heard of the recent challenges to nonprofit tax exemption and the Minnesota case I thought I would pass this along. Some concerns may be justified; how big should a university endowment be? Does that nonprofit hospital do enough to be considered a charity? Or maybe not. But those big dollars will get people talking and those nonprofits need to have a story to tell or one will be told to them.

A quote from the article really hits the mark for me:

The nonprofit sector is being pressed to be more business-like and to find new ways to fill the gaps between what [funders] will pay and what services cost, but then assessors want to treat us like businesses, which pay taxes.

I think this will be a big issue in the coming years as both charities and governments struggle to find more sources of revenue, especially in a troubled economy.

Volunteers

This is framed more as an HR topic than accounting one, but I'm going to guess many of the nonprofit financial staff out there where multiple hats. I like to say that I do all of the "non-fun" stuff in a nonprofit; accounting, HR and IT.

Many of us use volunteers, but are we doing it the right way? Volunteers work with us because they care about the cause and want to help so by nature may be disinclined to take action against us should something go wrong. But that is not something we should count on and you will be exposing your organization to unnecessary risk if you do so. This article presents something for us to think about and these resources from the Nonprofit Risk Management Center can help set up an run an effective volunteer program.

New 990-N Filing Deadline Approaching

May 15, 2008, is the first deadline to file the brand new form 990-N, the form for small tax-exempt organizations whose gross receipts are normally $25,000 or less for tax years ending on December 31, 2007. Check out the latest information by clicking here.

The Commensurate Test

From the Independent Sector's Memo To Members come these interesting bits of news:

1. IRS Plans to Make Greater Use of "Commensurate Test" in Oversight of Charities

   The commensurate test generally measures if a charity is undertaking, through contributions and grants, a charitable purpose commensurate in scope with its financial resources. Miller said that the Service will "re-energize" what he called a "little-used line of legal precedent."

   Thanks to some news about nonprofit college and hospital spending and levels of endowments the IRS wants to make sure we are using our funds for our charitable purposes and not hording our funds.
   

2. Senate Bill Proposes FTC Jurisdiction over
   Charities
   

   The business practices of 501(c)(3) nonprofits would be subject to Federal Trade Commission regulation and enforcement under a bill introduced last month by Senator Byron Dorgan (D-ND). The FTC Reauthorization Act of 2008 (S.2831) would expressly extend FTC jurisdiction by changing the current definition of “corporation” in the FTC Act to cover 501(c)(3) organizations. FTC commissioners stated in written testimony that their lack of jurisdiction “has prevented the commission from taking action against potentially anticompetitive conduct of nonprofits engaged in business.”

   Just to look at the dark side of this there have been a number of for-profit entities that have sued nonprofits because the for-profit businesses thought that the nonprofits had an unfair advantage over them because they didn't have to pay taxes. Is that what this is related to? Maybe they haven't heard of Unrelated Business Income?
   
   
3. IS Announces New Estimate for Value of Volunteer Time

More Talk About Efficient Charities

I'm not the only one to write about the IRS Commissioner's speech. The Chronicle of Philanthropy mentions others who are talking about the issue. You should read the article and follow the links in it to see what others are saying.

Efficient Charities

Two stories from the Chronicle of Philanthropy last Thursday caught my eye.

The first is about congressional rumblings to have nonprofits post fundraising ratios and costs on a Postal Service web site.

Seriously.

No information was given on where the charities would pull this information from, when it would be updated and weather it would be checked out or not for accuracy. Not to mention who would maintain this database, how it would be funded or what kind of education and outreach about the information on said site and how to use it.

The second article is more in depth. It starts out with the IRS Commissioner Steven T. Miller stating that, even though the IRS may not have the jurisdiction to, it will be more aggressive in monitoring the "efficiency and effectiveness of charitable organizations." He was also disappointed that the IRS gave up the idea of placing "efficiency indicators." on the front of the 990 because he wants to help make "apples-to-apples" comparisons possible.

I was against having the "efficiency indicators" there precisely because I don't think that it helps much for comparison. Standard benchmarks like the ones listed in the article may be informative but I do not believe they tell you how efficient a charity is, especially in comparison to other charities. For profit businesses are formed to make profit. A dollar of profit is the same at one business as it is at another, so ratios work and are comparable. But nonprofits are formed to do many different things, too many to be able to come up with easy ratios and benchmarks that cross the sectors of the charitable universe.

Would you compare a big nonprofit hospital to a small after school sports program? You could but I don't think you would get much that is useful. Now hospital to hospital, sports program to sports program? You could make some comparisons with benchmarks and ratios that could yield some interesting information.

The myopic thinking that all nonprofits are the same just because they are nonprofits still baffles me. Especially in people who task themselves to regulate us.

Is A Donation To An Individual Tax Deductible?

The short answer, according to the IRS and Publication 526, is no. I have been asked this question several times over the years and there is one thing people always get stuck on: They want to donate money to a specific person that charity XYZ works with. They will write the check to the charity but specify who the money should be spent on. That is a charitable donation, right? Wrong. To quote from the IRS:

You cannot deduct contributions to specific individuals, including the following.

• Contributions to individuals who are needy or worthy. This includes contributions to a qualified organization if you indicate that your contribution is for a specific person. But you can deduct a contribution that you give to a qualified organization that in turn helps needy or worthy individuals if you do not indicate that your contribution is for a specific person.

  Example. You can deduct contributions for flood relief, hurricane relief, or other disaster relief to a qualified organization. However, you cannot deduct contributions earmarked for relief of a particular individual or family.

• Payments to a member of the clergy that can be spent as he or she wishes, such as for personal expenses.

• Expenses you paid for another person who provided services to a qualified organization.

  Example. Your son does missionary work. You pay his expenses. You cannot claim a deduction for your son's unreimbursed expenses related to his contribution of services.

• Payments to a hospital that are for a specific patient's care or for services for a specific patient. You cannot deduct these payments even if the hospital is operated by a city, state, or other qualified organization.
  

This is not to say that those donors cannot donate to those individuals at all, just that those donations will not be tax deductible.

Pledge Contracts

This article from the Chicago tribune reminded me of a few emails I have received recently. Several organizations have asked for samples of any "pledge contracts" I might have. I was mystified by this concept having never heard of such a thing. These callers wanted to make sure board members or other big donors would follow through with any pledges made and wanted legal recourse if they failed to do so.

I can see the rational of course, especially if it a large amount of money and the organization has budgeted for it. But it strikes me as a harsh way to do it, as the article mentions, like a sort of prenuptial agreement. But maybe that is the way to go, keeps everything on a nice professional level.

The article quotes an attorney on what he recommends for such an agreement:

Conduct a credit check on donors; include a "bad boy" clause in gifts
that come with naming rights so the non-profit can remove the name if
it deems necessary; wait to begin construction of a new, donor-paid
building until at least 30 percent of the pledge has been paid; and
make sure the donor's spouse signs any gift agreement.

Has anyone else encountered agreements like these?

For the QuickBooks Users Out There

I received this email from QB today about a potential conflict between the 2008 version of QuickBooks and Windows:

Dear QuickBooks 2008 customer,
We have discovered that a recent Microsoft Windows update may be
triggering problems for some users of QuickBooks 2008 software. When
the problem occurs, QuickBooks does not open.

Common symptoms include the following:
1.The QuickBooks splash screen flashes, and then disappears.

OR

2.On launch of QuickBooks, an error message reports that the Web

Connector has failed to initialize and QuickBooks does not open.
It turns out that the Microsoft update introduced a problem in the
.NET 2.0 Framework.
To resolve this issue, please do not uninstall and re-install
QuickBooks. We do not recommend this, as it will not address
the problem.

The best thing to do is to go to the source of the problem, so you
will need to remove and reinstall the .NET 2.0 Framework. To help
walk you through it, we have provided detailed instructions in our
QuickBooks Knowledge Base that provides some easy to follow steps and
also includes additional links to the Microsoft site:
support.quickbooks.intuit.com/support/pages/

We are continuing to work on this issue and if we find out anything
new, we will be sure to let you know right away.
Thanks for your patience,
The QuickBooks Team

Has anyone noticed any problems out there?

Updated 990 Draft Instructions Released

It is finally here! On April 7, 2008, the IRS released for public comment draft instructions for the 2008 Form 990. Here is a link to the announcement and the link to find draft versions of the instructions. Public comments on the draft forms will be open until June 1, 2008. You can submit your comments directly to them or in the comments section of this post and CAN will aggregate them and send them in.

Many of the draft forms have a highlights section in the beginning where the IRS describes what is new, different and where the IRS really wants our comments. Lats years comments on the draft 990 had many comments and critiques on the current instructions including:

• No glossary of key terms, too few definitions, and unclear definitions that are scattered throughout the form and that are difficult to find
• Too much extraneous material specific to particular types of filers is placed in the front end before the specific line-by-line instructions that apply to most filing organizations
• Ambiguous reporting standards for executive compensation, particularly with respect to the types of compensation that must be reported, and when and where they must be reported on the form
• Lack of examples in particularly difficult areas

The IRS is promoting new tools in these updated instructions to address these and other concerns so be sure and check them out and give us your feed back.

Public Inspection of Form 990-T

And other things from the IRS.

This week guidelines were released on how to request a copy of the form 990-T which is now a publicly available document. The 990-T is used to report a nonprofit organization unrelated business income (which is taxable income).

Below is an excerpt from this PDF:

The Tax Technical Corrections Act of 2007, Pub. L. 110-172, H.R. 4839, provides that
the Internal Revenue Service is required to make Forms 990-T that are filed by a section 501(c)(3) organization publicly available for inspection and copying pursuant to section 6104(b). This provision is effective for returns filed after August 17, 2006, the date of enactment of the Pension Protection Act of 2006, Pub. L. 109-280 (PPA).

Form 4506-A, Request for Public Inspection or Copy of Exempt or Political Organization IRS Form, is used to request from the Internal Revenue Service a copy of an exempt or political organization’s return, report, or notice pursuant to section 6104(b). The Form 4506-A does not currently contain a check box for a Form 990-T, although the Internal Revenue Service is in the process of revising the Form 4506-A to include this provision. If you want to inspect or copy a Form 990-T that was filed after August 17, 2006, please mail or fax a copy of the Form 4506-A to the Internal Revenue Service following theinstructions for that form. In line 7 of the Form 4506-A, however, please write in “Form990-T”.

A Copy of the Form 4506-A can be found here.

The IRS also updated it's Form 990-N FAQ's, click here to check them out.

An Updated QuickBooks Resource

Christine Manor, CPA, the main author of the UCOA (third edition), has just published her updated QuickBooks for Not-for-Profit Organizations for 2008. From the publishers website:

QuickBooks for Not-For-Profit Organizations 2008 provides detailed step-by-step instructions on how to use QuickBooks in a not-for-profit environment. Also included with the book are downloadable practice files with complete examples for using QuickBooks in a Not-For-Profit organization. QuickBooks for Not-for-Profit Organizations includes clearly illustrated screen shots and sample data practice files that will allow you to practice each step as you read about it.

I have and use the previous version of her book and I do recommend anyone using any version of QuickBooks for nonprofit accounting give it a once over.

Do You Have Employees?

The you need the Exempt Employer's Toolkit from the IRS. All the info on payroll taxes (**spoiler alert** Nonprofits have to pay payroll taxes!) what documents you need to get from your employees. And if you have any consultants you work with there is guidance there to on how to report their earnings.

For the state regulations and rules I recommend the CA Chamber of Commerce's website, they have lots of nice worksheets and details on twhat the difference is between a consultant and an employee, exempt vs, nonexempt employees, etc.

All About Admin

This week is primarily dedicated to doing all the stuff I have neglected to do over the last few months and get caught up:

1. Organizing and filing the last of the 2007 financials so I'm (almost) ready for our audit.
2. Figuring out what can be destroyed based on our retention policies.
3. Finding our retention policies!
   
4. Entering our 2008 budget into QuickBooks because NOW I have to start generating variance reports for '08.
5. Bi-monthly cost allocations so we can release those monies from restrictions.

If I was not also doing program stuff (which I do enjoy) I think would be more on top of this, but maybe not. Some of this is grunt work that needs to get done but is rather boring.

What administrative tasks tend to get put on the back burner at your organization?
Have you found any good tips / tricks / tools to help?

IRS Round Up

Here is a list of recent stories and information from the Internal Revenue Service that affect our sector:

1. Not exactly recent but a timely reminder nonetheless about the restrictions placed on advocacy by 501(c)3's. We can and should lobby but we need to make sure we do it the right way.
   
2. Gotta beef with a nonprofit? Want to file a complaint? Here is where to do it and what the process is like.
   
3. Audit? Compliance Check? Examination? Whats the difference and why is it happening to my organization? Find out here.
4. Despite the fact that we file a "tax" return to them, one of the main goals of the 990 and the IRS's Exempt Organizations Division is governance and making sure we are serving a charitable purpose. They have made some changes to their good governance guides and resources, see the update here.

Nonprofit Audit Committee Toolkit

Does your organization have and audit committee? Is it supposed to have one? Even if the answer is "no" I do recommend you have one in addition to your Finance Committee. The nice folks at the AICPA have put together a tool kit just for your audit committee to help them get there job done. From the website:

Audit committees have a big job to do in an organization—tough when the members have other responsibilities and the audit committee role is a part-time job with huge accountability. The AICPA Audit Committee Toolkit: Not-for-Profit Organizations is the needed help for audit committees to do the job they need to do as effectively and efficiently as possibly.

You can find the kit here with details on all of its elements. For those of you who don't want to download all this info you can buy it as well.

More New 990 Webinars

From NCNA and the Nonprofit Congress come this series of webinars. Are you a CAN member? You get a discount on each webinar or the whole series. Post an comment below with an email and I will send you the coupon codes.

See you on the calls!

Deloitte Announces Pro Bono Program

Thanks to a CAN Board member we got this piece of news today. On February 13th Deloitte LLP announced that it is launching a three year plan to help strengthen the nonprofit sector.

"The strategic new program establishes a formal budget, as well as the policies and procedures to support up to $50 million in outcomes-focused pro bono engagements, to provide in-kind professional services to eligible nonprofit organizations, over the next three years. Deloitte will be particularly focused on helping nonprofits deal with the business and operational issues that challenge their capacity to address social problems."

For more information about Deloitte’s pro bono program, visit www.deloitte.com/us/probono. There is little more written at this time about the program, who is eligible, how to submit for the program, etc. I have contacted them and hope to have more information available shortly.

How To File The 990-N e-Postcard

The IRS has released the instructions and published all the information you will need to file the 990-N. Click here for all the info you will need to file including the place to file it on-line.

Alan

Where Does the Money Come From?

It is time for another edition of the Nonprofit Blog Exchange, where a blogger writes about another blogger's site.

If you are The Finance Person in your nonprofit do you know how the income is generated for your nonprofit? Someone has to bring in the money so we can manage it. The finance staff plays a key roll in assisting those who bring in the funds your group needs to function.

From budgets to reporting, finance and fundraising need to work together to make sure all the bases are covered. Are we asking for enough funding? Does the proposal's budget narrative match the budget numbers? Are the numbers in our financials accurate? Do they accurately tell the story (in numbers) of our organization? Are the funds received restricted? If yes, in what way?

But where can we go to get information about fundraising? A good place to start is Seeking Grant Money Today. There you will find some really good basics from the real world of grant writing. For example "How Do We Tighten Up Our Grant Proposal?" And "How to Coordinate the Executive Director, the Board, the Volunteers and the Staff to Successfully Raise Grants." And "Top 10 Grant Money Myths."

I asked CAN's Deputy Director to look at this blog and she responded, "Most books and classes just tell you how to research, write and submit a grant. They don't tell you how to figure out if you're ready for the world of grants yet or not, how to manage the submission and building process, how to get the whole staff involved in the process or how to take a serious red pen to your first draft. This is really good, real-world stuff."

So there you have it, good stuff to be found there.

Another QuickBooks Resource

Along with the other resources for QuickBooks we have listed for consultants and the Unified Chart of Accounts (UCOA) I have added a backed up company file. It ties in with Christine Manor's book on setting up QuickBooks Pro (which I recommend over the Premium versions) for use in a nonprofit.

This zipped file (for information on zipped files click here) contains a backed up company file, and backed up chart of accounts (the UCOA) and some instructions on importing either of the files into QuickBooks 2008. The chart is for importing into a company file already in use for which you want to upgrade your chart of accounts to the UCOA.

The company file is for a group staring fresh. It has the UCOA in it with all the accounts inactivated, you "turn on" only the accounts you need, the Classes set up with sample programs for you to modify as you like and Customers and Jobs for you to modify to your liking as well. You will of course have to redo the Company info for your organization, but it gets you stared with a fresh functional accounting system.

To download the file click here, it is almost 4.5 megabytes so it might take a few minutes.

Those files, along with these books should get you st up right. And if you need hands on help you can get that too.

Alan