Online Donations OK By IRS

The IRS released an Information Letter on March 29, 2013 stating that there is no prohibition against a 501(c)(3) utilizing an internet fundraising platform to raise funds. Which is good because that’s been around for a few years.

They did include some good suggestions.

• Be sure to consider any state laws and regulations that may apply.
• Be sure to make it clear on the website the status as a 501(c)(3).
• Providing something of value to donors may violate the rules against private benefit or inurement, so be sure to disclose the value and a statement that it is de minimus (unless it isn’t).
• Be sure to disclose whether or not, and how much, of a donation is tax deductible for the donor.

Read the letter here.

Ace Your School’s Annual Audit!

All public charter schools, and many private schools and parochial institutions, undergo an annual audit. While best practice is to structure work throughout each year to ensure a clean audit, now is a good time to assess where you are and address potential deficiencies. A little preparation goes a long way in ensuring a smooth and painless audit.

 Join Craig Stevens and Rob Eby of Aronson LLC for a free webinar led by Brad Olander, CEO of GoldStar, on May 16th at 11am.  During this convenient 30-minute session, we will address common questions including:

•  What does working throughout the year with the audit in mind look like?
• How do you assess potential deficiencies now?
• Who should be involved in the audit planning process?
• What are typical key audit tasks, processes, and deliverables?

 Executive directors, controllers, CFOs, principals and other school professionals serving in an administrative or finance role should register today for this important webinar!

 If you missed April’s webinar: “Financial Reporting-Support your board so they can support you,” be sure to visit our resources page to download the webinar!

Mileage Rate Increase

Effective January 1, 2013, the IRS increased the mileage rate to $0.565 per mile for business miles driven. Read more about it here.

EFT Payment Requirement Threshold Reduced to $5,000

The District of Columbia requires business taxpayers to make tax payments over a certain threshold by electronic funds transfer (“EFT”).  The most recent guidance issued by the D.C. Office of Tax and Revenue regarding EFT payments says that business taxpayers must pay EFT for all tax payments exceeding $10,000.  However, over the last couple of months the Office of Tax and Revenue have been issuing notices to business taxpayers informing them that the EFT requirement has been decreased to payments exceeding $5,000.  Although the Office of Tax and Revenue is authorized by statute to require EFT payments at this threshold, it has yet to issue a general notification to taxpayers or practitioners informing them of this new requirement. 

According to conversations we have had with the Office of Tax and Revenue, their system will generate the 10% non-compliance penalty when a payment is submitted by check over $5,000.  Although there is a reasonable cause waiver to the penalty that we think would obviously apply in these circumstances (i.e., no notice to taxpayers), the waiver requires a written request that could take some time in getting approved. 

Taxpayers that suspect that they will have upcoming payments over $5,000 should register for making EFT payments on the Office of Tax and Revenue’s Electronic Taxpayer Service Center (eTSC) well advance of the payment due date.  It can take 7-10 business days to receive the ID and password for the website, which are sent separately to taxpayers via regular mail.  Taxpayers can call the Office of Tax and Revenue to receive their ID earlier, but the ID still may not be available for up to 7 business days after the registration is submitted. 

Therefore, we would recommend completing the eTSC registration early if there is any chance that it will have an upcoming payment over $5,000.  Please contact Aronson’s tax department if you have any questions.

The Basics of Federal Grants and Single Audit Compliance

Each year, one-sixth of the federal budget is dedicated to grants for non-federal entities, such as schools, local governments and nonprofit organizations.  This $400 billion expenditure is highly scrutinized and requires stringent compliance procedures, including a single audit for many organizations.  Failure to meet compliance requirements could result in your organization having to repay grants and/or losing access to future federal funding.

Join Aronson LLC on January 10th for an informative webinar where our nonprofit accounting experts will help participants better understand the basics of federal grant and single audit compliance.  Topics will include:   

• The Basics of Control Procedures in a Federal Grant Environment, including COSO Internal Controls and the 14 Areas of Compliance
• The Basics of Costs in a Federal Grant, including Allowable/Unallowable and Direct/Indirect Costs

This is a great opportunity to get a free lesson from our professional nonprofit auditors that just might help you protect the future of your mission, so register HERE today! 

Substantiation of Charitable Contributions

The documentation requirements taxpayers must maintain in order to take a charitable contribution deduction on their tax return have been in place for almost 20 years. They are worth repeating however, as two recent tax court cases have upheld the necessity of following these rules and denied contribution deductions to taxpayers who did not have the necessary documentation.

As a review a donor cannot claim a tax deduction for any single contribution of $250 or more unless the donor obtains a contemporaneous written acknowledgement of the contribution from the recipient organization. Although it is a donors responsibility to obtain a written acknowledgement, charities should be very mindful of these rules because certainly donor relations are at stake if something goes wrong.  IRS publication 1771 outlines these requirements.

In a 2012 case, David and Veronda Durden were denied a tax deduction for contributions made to their church because the original acknowledgement letter received from the Church did not clearly stipulate that no goods or services were provided to the donors in exchange for their donation ( TC Memo 2012-140). To correct this problem, the Church issued a second acknowledgement letter with the required statement but it was rejected by the Court because it was not considered to be contemporaneous.

To be considered contemporaneous, the documentation must be obtained on or before the earlier of:

• The date the taxpayer files the original return for the taxable year, or
• The due date ( including extensions ) for filing the original return for the year.

There are rules outlining necessary steps if a non-cash donation of over $5000 is claimed for what is required to take a deduction for non-cash property (real estate, furniture, computer equipment, clothing etc.). The donor is required to file a Form 8283 with their standard return and it must include the signature of a “qualified appraiser” as to the value assigned to the donated property.

The tax court case of Joseph and Shirley Mohamed (TC memo 2012-152) also ruled against the taxpayers (who had taken a deduction of millions of dollars for donated real estate) because they did not properly comply with the rules regarding Form 8283  and did not obtain a qualified appraisal.  This case resulted in a really draconian result for the taxpayer who had clearly donated substantially valuable property to their presumably valid charitable remainder trust, yet were denied the deduction due to improper reporting of the gift as far as completing the requirements of IRS Form 8283.

In both of these cases, the Tax Court has sent a strong message that the substantiation rules DO MATTER and failure to follow them closely will result in the loss of a contribution deduction.

Stay Ahead of the Curve on Foreign Account Tax Act (FATCA) Compliance

The Foreign Account Tax Compliance Act (“FATCA”) was enacted on March 18, 2010 as part of the Hiring Incentives to Restore Employment Act of 2010 (P.L. 111-147, H.R. 2847).  The purpose of FATCA is to help improve U.S. compliance involving foreign financial assets and offshore accounts.  FATCA affects U.S. taxpayers and foreign financial institutions.  FATCA requires U.S. taxpayers with specified foreign financial assets that exceed certain threshold amounts to report such assets to the IRS on Form 8938 beginning with the 2011 tax filing season.  FATCA also requires foreign financial institutions (“FFIs”) to report Continue reading »

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

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.

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)