Does Permanently Restricted Mean ForEVER-Ever? L.A. Judge Thinks So

The Los Angeles Times is reporting that a Superior Court judge has blocked the sale of property given to UCLA under a 1964 agreement that stipulated the university would maintain the garden in perpetuity. In November 2011, UCLA put the property up for bid with a starting price of $9mil for the residence and $5.7mil for the Japanese garden on the property located in Bel-Air.

The university has been dealing with steep budget cuts and determined that the resources would be better directed towards their academic programs. Judge Lisa Hart Cole agreed with the donor’s heirs when they filed to block the sale and she noted that failing to notify the heirs of the university’s intent was “duplicitous”.

UCLA is considering its legal options and considers the judge’s ruling to be a “setback”.

Source: Los Angeles Times

Risk Assessment: Updating Controls Over Confidential Information

The August edition of the Journal of Accountancy has a good article reminding CPA firms to update controls that protect the privacy of individuals as well as other confidential information that may be in the firm’s workpapers and electronic systems. Their key points actually translate well to the nonprofit community since this is an industry that regularly receives confidential information about their donors (credit card accounts, bank account information, social security numbers, etc.).  With all the effort of maintaining transparency, don’t overlook your organization’s responsibility to protect your donors’ privacy and security.

The article suggests: “Identify and classify the types of information the firm maintains.” As a nonprofit organization, can you identify categories of information that flows through your systems whether it is restricted, confidential, sensitive, or ok to be public? You are required to disclose major donors as well as anyone you paid grants or scholarships out to, but have you taken steps to keep their credit card numbers or social security numbers private and secure?

“Assess your current controls/Upgrade protection strategies.” Where would the weak link be in your chain of ownership of sensitive information? Do volunteers have open access to files with donor information? Do employees ever carry information on transportable data storage devices that could transfer information outside of the office, intentionally or not?

“Review the impact of vendors and 3rd party service providers.” Cloud computing is a powerful tool but as the article points out, “although functions can be contractually assigned to a third party, accountability for data protection cannot.” Make sure you understand how and to what extent your service providers are safeguarding the information that flows through their systems, whether it is for online registration or processing of donations.

Ref: Protecting Privacy, by Joel Lanz and Nancy Cohen, Journal of Accountancy, August 2012

Taxes are Forever

The tenth circuit U.S. Bankruptcy Appellate Panel, in re Richard J. Wogoman, ruled that federal taxes assessed before a return was filed are not dischargeable.  This has serious ramifications for any person with unfiled tax returns, and especially for those who have agreed to, or are looking to solve their problems by agreeing to a substitute for return (SFR).

In general, taxes are discharged in bankruptcy when all of the following conditions are met: Continue reading »

International Tax Series: Be Aware of the Form 8858 Filing Requirement if a U.S. Person Owns a Foreign Disregarded Entity

The Form 8858 is required to be filed if a U.S. person owns 100% of a foreign eligible entity that elects to be classified as a foreign disregarded entity for U.S. federal tax purposes.  A U.S. person that owns 100% of a foreign disregarded entity is required to file the Form 8858 as a Category 1 filer.  A U.S. person must file the Form 8858 as a Category 2 filer if the U.S. person is required to file the Form 5471 with respect to a controlled foreign corporation (CFC) and the CFC is the tax owner of a foreign disregarded entity.  A U.S. person must file the Form 8858 as a Category 3 filer if the U.S. person is Continue reading »

Services Received from an Affiliate

FASB issued Proposed Accounting Standards Update (ASU) No. EITF-12B, Not-for-Profit Entities (Topic 958): Personnel Services Received from an Affiliate for Which the Affiliate Does Not Seek Compensation (a consensus of the FASB Emerging Issues Task Force).  The FASB will be accepting comments on this proposed accounting update until September 20, 2012.  The proposed update would modify the current that guidance which indicates that only those contributed services that (1) create or enhance nonfinancial assets or (2) require specialized skills, are provided by individuals possessing those skills, and typically would need to be purchased if not provided by donation should be recognized.  In addition, under this accounting update the value of the services would be measured at the cost recognized by the affiliate for the personnel providing those services.  For more detail read the full FASB exposure draft.

Canceled Checks – Auditor and IRS Requirements

The days of receiving a stack of canceled checks back with your bank statement have passed, thanks to the Check Clearing for the 21st Century Act. You have probably been receiving scanned images of the cleared checks along with your monthly statements but in certain cases, you may not even be receiving those.

The IRS will usually accept a scanned copy of the canceled check during an audit but if there is some suspicion that there is a problem with the copy’s integrity, the IRS is going to need more information from your bank. The same is true during a financial statement audit and this is why it is important to understand your record keeping obligations and what your bank does and doesn’t do.

Because of technological advances and the Check 21 Act, your bank may not ever see the actual paper copy of the original check but if they do, depending on your customer agreement, they may be allowed to destroy the paper copy. There is no retention requirement for original documents for any specified length of time that the bank must follow.   The bank records will instead maintain an electronic substitute check that is legally the same as the original check if all information is accurately retained.

The burden of documentation is on you, the bank customer, not the bank. Make sure to download and protect the copies of checks that accompany the bank statements and make sure you understand the terms of your customer agreement with your bank.

Read more about the Check 21 Act here.

Reporting Requirements and Tax Increases Under the Affordable Care Act

Lost in the storm after the Supreme Court’s recent decision on the Affordable Care Act (ACA) is the fact that the Act includes several important provisions that either remain in effect for 2012 or go into effect in 2013 and 2014.  These provisions are outlined below:

• Ongoing disclosure and reporting requirements, including w-2 reporting of the value of individual insurance coverage for 2012
• Medical Loss Ratio (MLR) rebates – some employers who sponsor insured group health plans will begin receiving rebate checks from their carriers in the coming weeks
• Beginning in 2013, an additional 0.9% Medicare payroll tax on high income earners. High income earners are defined as individuals, filing separately, with earned income over $200,000 and joint filers with earned income over $250,000. The additional tax only applies Continue reading »

Charitable Contribution Denied

How important are a few words? Ask the taxpayer whose charitable contribution deduction was denied by the IRS.  The IRS requires organization to contemporaneously document whether any goods or services were provided in consideration for a contribution.  Now is a good time to read through your organization’s gift acknowledgement to see that required wording is included.  Aronson LLC is available to assist as needed.  For more details of the IRS court case see ECFA.

International Tax Series: Be Aware of the Form 8865 Filing Requirement if a U.S. Person Owns an Interest in a Foreign Partnership

The Form 8865 may need to be filed if a U.S. person owns an interest in a foreign eligible entity that elects to be classified as a foreign partnership for U.S. federal tax purposes.  A U.S. person who owns more than 50% of a foreign partnership is required to file the Form 8865 as a Category 1 filer.  The Form 8865 generally is required to be filed by a Category 2 filer which is a U.S. person who owned, at any time during the tax year, a 10% or greater interest in the foreign partnership while the partnership was controlled by U.S. persons each owning at least 10% interests.  The Form 8865 is required to be filed by Continue reading »

Following Donor Restrictions – A Court Case Against Johns Hopkins

In 2005, Johns Hopkins University was the recipient of a bequest of 138 acres of farmland worth $54 million. The bequest had restrictions on it allowing for development of modest, low-rise academic campus facilities, however, the family (and heirs) of the estate believes that the university’s amended plans, which include a high-rise science facility of over 4.7 million square feet, constitute a violation of the donor’s intent. The family filed suit against the university in Montgomery County Circuit Court last November. Earlier this month during a scheduled hearing, the judge announced a November 13, 2012 trial date.

It will be interesting to see how the courts interpret the donor intent and whether the actions of the university violate the contract that transferred ownership of the property. Stay tuned for updates!

(Source: The Nonprofit Times)