An organization seeking exemption under section 501(c)(3) of the Code is required to apply for recognition of exemption on Form 1023. However, churches, their integrated auxiliaries, and conventions or associations of churches seeking section 501(c)(3) status are exempted from this application requirement. Churches that meet the requirements of section 501(c)(3) are automatically considered tax exempt and are not required to apply for and obtain recognition of tax-exempt status from the IRS. However, it is noted that some Churches choose to obtain the tax-exempt status from the IRS to assure their members that any contributions made are indeed tax-exempt. In addition, this exemption is only for types of organizations listed above. Religious organizations, that wish to be tax-exempt and whose gross receipts exceed $5,000, must still apply to the IRS for the coveted status.
It is important to note what rules all 501(c)(3)’s (including churches ) must abide by to maintain their status:
- Their net earnings may not be given to a private individual or shareholder.
- Their substantial benefit cannot be to private interests.
- The majority of their time cannot be devoted to attempting to influence legislations.
- They cannot participate or intervene in any political campaign.
- Their purpose and activities must be legal and not violate fundamental public policy.
In conclusion, if you are unsure if you need to obtain an IRS determination letter, err on the side of caution and get one!
#nonprofit #determinationletter #taxexempt #irsfiling
As previously discussed here, the job market is opening up which means people who had been in lock-down mode now have more flexibility to look for better fitting work. The turnover rate in fundraising is particularly high, primarily due to dissatisfaction with low salary rates. The latest research from the Association of Fundraising Professionals suggests that offering a better salary may be cheaper than the average direct and indirect costs of finding a replacement. The study shows that the cost to replace a fundraiser is close to $127,000, more than two times the level of salary increase it would take to keep them.
Read more about it here.
Recording restricted contributions can be a confusing topic, so it shows up often as a management letter comment. Depending on the extent of the matter this could range from a significant deficiency to a material weakness. Below are some suggestions on how identify and record restricted contributions and avoid getting a management letter comment from your auditors.
First, what is a restricted contribution and what isn’t?
- When a pledge is received and will be paid in future year(s), it is temporarily restricted for time. If it is for a specific program it may also be purpose restricted. These would be recognized as temporarily restricted revenue in the year pledged.
- A contribution received in the current year that is intended for specific purposes is temporarily restricted. If it is for core or general operations, it is unrestricted.
- Payments received relating to future memberships or conference revenue are not temporarily restricted as they are not contributions. These would be deferred revenue.
- Payments received for contract services not yet rendered would be deferred revenue, not temporarily restricted.
- Advances on exchange transactions when the expenses have not yet been incurred, are deferred revenues.
An important concept to note is that you can’t defer a receivable and vice versa. Deferring is a way of not recognizing the revenue yet. You defer things received but not yet earned. A receivable is revenue you’ve earned and rightly recognized, but not yet received. A temporary restriction is to identify funds received and recognized as revenue, but not yet expended in accordance with donor intent. It’s easy to forget all of that in the face of a confusing revenue event. Continue reading »
The fourth annual State of the Plate research results compiled by Maximum Generosity, in collaboration with Christianity Today International and ECFA has been released. The State of the Plate is a valuable resource for churches. It documents trend, demographic information and draws conclusions from its survey of thousands of churches.
#church #ECFA #stateoftheplate #nonprofit #taxexempt
Nonprofit HR Solutions has published results of a poll of 450 nonprofits that indicate a stronger job market for nonprofit workers in 2012. Over 40% of nonprofits reported that they are looking to add staff. Lisa Brown Morton, Chief Executive of Nonprofit HR Solutions, told the Chronicle of Philanthropy that organizations need to show caution however, and be aware that an improving job market means turnovers are going to be higher as more get job offers.
Ms. Brown Morton cites lack of money and promotions, along with workload and an perhaps most importantly work meaningfulness are the key components in an employee deciding to stay or go. When the market was in a downturn, employees locked down and held on to the positions they had. People postponed retirement. Those people may have more flexibility now. Organizations need to think about what they need to do to keep their best people and attract the best new staff.
Spring is here and summer is quickly approaching. And with summer coming, adults and students are anticipating traveling as part of a school, church or other nonprofit sponsored trip to all parts of our county and the world. These trips help individuals develop a world view. They can be a great resource to those in need. They can also expose individuals to dangers not common in a person’s everyday life. Last June an Arizona jury awarded an individual nearly $6 million in a case involving a mission trip that went terribly wrong when a person working on repairing a roof fell through.
Now that spring is here and trips are still in the planning stages, use this time to meet with your leaders to think through potential risks. Develop a plan for safety. Spend time training the participants on the risks, how they will be managed and how to do task they would not normally perform. Don’t assume everyone knows how to be safe on a construction site. Also, meet with your insurance, risk management professional to discuss the plans for managing the risks. Make sure the sending organization and individuals are adequately covered. Use this time to plan for a safe and life-changing trip!
(read more on the mission trip here)
#ecotourism #riskassessment #nonprofit #taxexempt #precaution
There are four categories of potential management letter comments: material weakness, significant deficiency, control deficiency, and “other comment”. We want to go through some of the common scenarios that occur in each category and go through some suggestions for preventing them. We’ll start with the most common management letter comment we give: the lack of segregation of duties. Depending on severity, this is usually a control weakness. Incompatible tasks include: bank reconciliation and AP approval, cash receipts and authorization to adjust AR, purchasing and inventory receipts, among others. They key factors to keep separate are:
- Custody of assets (cash, inventory, fixed assets)
- Authorization over transactions affecting those assets (approval for payroll, AP, purchasing)
- Recording transactions (General Ledger and subledger entry)
Of course it’s easier for one person to do it. It’s streamlined and efficient. It’s also extremely dangerous for both the organization and the sole person all fingers will point to if something goes wrong. It doesn’t have to be that complicated or time consuming to add some solid layers of separation.
Below are some suggestions on how to avoid a lack of segregation issue. I’ve divided the suggestions up based on the size of the accounting department. Continue reading »
Escheat is defined as a state’s rights to claim the title for unclaimed property. Before you dismiss this as N/A for your organization, take a look at your outstanding check list on your bank reconciliation. How far back does it go? It’s not uncommon for organizations to keep checks as reconciling items that are more than a year old. (The record this auditor has witnessed was 1993). It’s not limited to outstanding checks but can include unclaimed benefits, customer over-payments, gift cards, and refunds due.
It isn’t as simple as reversing the entry or voiding the checks. This is money that doesn’t belong to you anymore. Just because someone else never cashed it, doesn’t make it yours again. It is worth investigating with vendors to determine if they received it, lost it, your account was properly credited, etc. There’s a chance that a check was duplicated in the system – that money is actually yours, unlike the checks that represent actual payments.
Why does this matter? Because states are paying attention to it now. With serious governmental budget slashing, alternative sources of revenue are being sought with few stones left unturned. The state of Delaware listed unclaimed property as its third largest revenue for the year. States are shortening their dormancy periods. Continue reading »
Regulators have been investigating banks that helped set the London Interbank Offered Rate (Libor) since late 2010. The LIBOR is among the most common of benchmark interest rate indexes. Authorities want to determine whether banks colluded in setting overnight rates during the financial crisis and whether traders and their clients used the information for trades.
The British Bankers’ Association, which sponsors Libor, along with many of the banks that help set it, met with officials to start a review process. The review could include everything from a revamp of how Libor rates are set to new regulatory oversight and compliance requirements for participating banks.
Now is the time to review your line of credit terms and contact your financial representative if your interest rate is based on Libor.
Give to the Max Day, put on by Razoo, was a great success and provided an interesting lesson in how the nature of fundraising has changed. The Case Foundation analyzed this new method of fundraising and published a case study.
Razoo complied some important lessons learned from the Give to the Max Day:
- Easy Asks – the event was promoted in advance, giving donors time to get in the mindset and establish brand recognition resulted in better responsiveness;
- Cross Pollination wins – people visited the site to donate to one organization but could easily find more and made additional donations;
- Competition Wins – having grant prizes awarded to the organizations that raise the most money or got the most donors encouraged people to give to that nonprofit and root for their cause;
- Participation as the Goal – people responded better to the participation concept than the older model dollar goal.
- The last three concepts tie together and can be summed up as Hitching a Ride on Bigger Coat-tails. Smaller organizations benefited from larger groups who were more seasoned in fundraising and had more public presence. Razoo did the big work and it became a community-wide effort.
None of us are as strong as all of us put together.
Use these lessons and get ready for the net Give to the Max Day.
To see the full findings from the case study visit http://www.casefoundation.org/case-studies/give-max-dc-case-study.
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