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Insights from Not-for-Profit’s Accounting and Auditing Update 2011

Blackman Kallick’s Not-for-Profit professionals recently hosted a seminar to discuss tax and accounting updates that will affect not-for-profit organizations. The seminar discussed a variety of topics including ways to improve reporting on Form 990, latest tax developments, measuring fair value for certain transactions, cyber security, operating reserves, and enterprise risk management. 

Tax Update

The tax group started off the session with a different perspective of the Form 990. As Form 990 was revamped back in 2008, there have been several discussions regarding the ways to prepare the new form. However, this session analyzed the form from the perspective of the reader. Typical readers of the form include the Internal Revenue Service (IRS), donors, the board of directors, employees, members, and competitors. Since Form 990 is a public document, there are many websites dedicated as charity watchdogs that disseminate this information to the public. The speakers highlighted areas on several pages of the core form and Schedules A-R that can help the preparers present the organization in the best light for the readers. For example, page 2 part III asks the preparer to briefly describe the mission of the organization. Here, it may make sense to bring in a member of the development department to write this description to clearly articulate the mission of the organization to the appropriate readers. Another example is on page 5 part V, called “Other IRS Filings and Tax Compliance.” This section asks the preparer to provide the number of 1099s, W-2Gs, nondeductible contributions, and quid pro quo contributions. Reviewing these responses along with reviewing any changes in staffing and programs is a great exercise for the preparers to undergo to ensure accuracy and consistency of the information reported. 

The tax group ended their session by discussing the current and emerging developments from the IRS and constituents including state nexus, updates on unrelated business income tax, and two new IRS notifications issued in 2011. Notice 2011-72 states that employer-provided cell phones are an excludable fringe benefit. This notice has a retroactive effective date and is effective for taxable years after December 31, 2009. The second notice issued by the IRS in 2011 was in regard to independent contractors. The first step in determining how to treat payments that you make for services provided is to determine which category an individual falls into. The categories are statutory nonemployee, statutory employee, and independent contractor. The session described the classification and tax rules for each category. The IRS has established a voluntary disclosure program for organizations that have misclassified an individual in IRS Announcement 2011-64. A key provision of this program is that organizations will be required to (1) agree to prospectively treat the misclassified workers as employees for future tax periods, and (2) pay 10 percent of the employment tax liability that may have been due on compensation paid to the workers for the most recent tax year.

Audit Update

The audit group then started the accounting part of the session with a summary of the AICPA white paper issued in Fall 2011 regarding measurement of fair value for certain transactions for not-for-profit entities. When measuring fair value for unconditional promises to give cash or other financial assets, the organization should consider the risk and uncertainty associated with the amount and/or timing of cash flows. In addition, other measurement techniques and disclosure requirements were discussed for beneficial interests in trusts and split-interest agreements. 

Other presentations discussed various risks an organization faces. Topics included:

• Cyber security and encrypting personal data 
• Setting an appropriate operating-reserve policy and using meaningful benchmarks
• Establishing a strategic approach to managing the enterprise risks and opportunities for your organization

For more information, contact Jennifer Culotta at jculotta@BlackmanKallilck.com or 312-980-3226, or your Blackman Kallick representative.

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.