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Financial Considerations When Setting Up a Legacy Giving Program

There’s a financial case for setting up a legacy giving program for your nonprofit, as legacy giving accounts for the third-largest source of charitable contributions behind individuals and foundations, respectively, but ahead of corporations.

And of all fundraising types, legacy gifts offer the highest return on investment. Organizations can expect an average return of $56.83 on every dollar spent on fundraising bequest gifts, according to research by AskRight. By comparison, major giving has a return of $33.33 per dollar, while regular giving gets $8.41 per dollar.

Creating a legacy program requires some planning and budgeting, though, and there are several considerations involved. Here is a guide to what nonprofits need to know and what steps to follow.

What is Planned Giving?

Also known as planned giving programs, gift planning, or deferred giving, legacy giving is when donors leave their money or assets to a charity of their choice after their death.

Bequests, which account for most planned gifts, make up the third-largest source of contributions for charities behind individuals and foundations, respectively, and ahead of corporations. In 2019, bequests accounted for 10% of charitable giving, according to research by Giving USA. Overall giving reached nearly $450 billion, and more than $43.2 million came from bequests.

Develop a Legacy Giving Strategy

Coming up with a strategy is the first step to creating a legacy giving program. Remember to:

  • Leverage demographics. Mine your donor-based data to develop your legacy giving donor base. Identify which donors might be interested in legacy giving based on factors such as age and years of involvement with your organization. According to Giving USA, more than half of donors surveyed contributed to the same organization for more than 20 years, with 52.8 years old being the average age when donors made their first planned gift.
  • Educate your board. Your board’s buy-in is essential. You’ll need to convince board members a legacy giving program is necessary to your organization’s long-term financial health — and thus a worthwhile investment. According to Giving USA, 7% of planned giving donors said their annual gifts to the organization they support increased after making a planned gift.
  • Determine how you will recognize donors. You can put a donor’s name on a building, scholarship, or institution to help them carry on their legacy.

Encourage Donors to Put Their Wishes in Writing

  • Motivate donors to make a will. Nearly half of Americans 55 and older do not have wills, according to 2019 findings by Merrill Lynch and Age Wave. In that age group, only 18% have the recommended essentials of a will, a health care directive or proxy, and power of attorney. Although organizations can encourage donors to create a will and offer resources such as attorneys and estate planners, a nonprofit cannot be directly involved in creating a person’s will and could face legal challenges if accused of “exerting undue influence.”
  • Remind donors to name your organization. Creating a will is just the first step to legacy giving. The donor will have to name your organization as a beneficiary to seal the deal. Individuals who include a charity in their will accounted for only 3% of Americans in 2020, according to a Give.org survey. Again, nonprofits cannot dictate to donors what they should put in their will, but they can offer printed materials such as newsletters with general guidance on how to word a bequest appropriately.

Seek Out Professional Resources

  • Bring in outside advisors and consultants. Professionals can help your nonprofit establish policies for accepting gifts and developing a legacy society.
  • Designate a planned giving contact or division in your organization. Identify individuals who can help with marketing and relationship-building with potential donors, and assign a point person to field inquiries about legacy giving. You may also consider hiring staff with experience in legacy giving.

Design a Marketing Plan

  • Invest in a marketing budget. Marketing will be essential to reaching potential donors. Set aside a reasonable budget to allow your nonprofit to promote its legacy giving program.
  • Add a planned giving page to your website. Include resources such as a planned giving calculator, contact information, and a link to where individuals can set up a legacy gift.

Take Financials into Account

  • Start small. Setting up a simple bequest program can get the ball rolling on your legacy giving initiative. Eventually, you can add more complex planned giving instruments such as annuities and trusts.
  • Implement a robust financial management system. A comprehensive financial management system is essential to a successful legacy giving program. Build relationships with reputable financial institutions, and employ a consultant who can help you scale your program over time.
  • Develop an annual financial report. Be transparent to ensure your nonprofit builds a good reputation for how to deal with money. This will help people trust your group to do its work and understand its money needs.

If you’re setting up your first legacy giving program or need to adjust your strategy, our team of financial professionals can help you navigate the financial aspects to ensure success.

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New Accounting Standards Are Here: Are You Ready?

Despite ongoing challenges with remote work, labor shortages, and supply chain bottlenecks, many accounting regulation concessions are expiring. With those grace coming to an end, nonprofits need to adopt and implement policies that were deferred to allow time to manage operations as they emerge from the COVID-19 pandemic.

The Financial Accounting Standards Board (FASB) publishes Accounting Standards Updates (ASUs) that provide guidance and updated implementation dates when revisions occur. Here are a few ASUs nonprofits need to be aware of to ensure their organization remains in compliance.

Gifts-in-kind

Nonprofits have new presentation and disclosure standards for gifts-in-kind under ASU 2020-07. The requirements increase transparency by requiring nonprofits to present contributed nonfinancial assets as separate line items in the statement of activities. Organizations also must disclose the amounts of contributed nonfinancial assets received by type and category.

Disclosures must include a note of whether an asset was used or monetized, any donor-imposed restrictions, and the valuation technique used to determine the price assigned.

Nonprofit leaders can turn to FASB ASC 820 for fair value measurement and disclosure guidance for gifts-in-kind. Fair value is a market-based measurement, and existing marketplace conditions at the time of the asset transfer should be considered and implemented. If an identical asset or liability is not located, make an assumption and document it when determining its fair market value.

Lease Accounting

The requirement for nonprofits to implement new lease accounting standards (ASU 2016-02, Topic 842) was delayed with the issuance of ASU 2020-05 until fiscal years beginning on or after December 15, 2021. Many nonprofits have not have yet integrated the requirements into their workflow and accounting practices but should begin the process they haven’t already started.

With the deferral deadline now passed, nonprofits with leased equipment, services, vehicles, or real estate should conduct comprehensive inventories of all lease agreements and create the lease schedules the new standard requires. Nonprofits should review all contracts with embedded service agreements, as they will need to include the lease portion within the schedules.

Revenue Recognition

ASU No. 2020-05 provided the option of a one-year delay to adopt the revenue recognition standards (ASC Topic 606) for nonprofits that had not issued financial statements, including the new requirement. The new five-step model takes time to perform and create the new disclosures, so ensure you allow adequate time to complete the process when preparing your financial statements.

Stay Current to Succeed

Keeping abreast of accounting standard updates allows you to stay aware of expectations and can help you set priorities and timelines. Thanks to other entity types having earlier implementation dates, nonprofits can learn from their implementations and trouble spots (particularly with lease accounting and revenue recognition requirements) to streamline their adoptions.

Ease your burdens where you can and gather the information needed to implement these and other accounting standards, providing significant time for your team to learn what’s necessary and meet all deadlines with time to spare.

Contact us today if you need assistance implementing current guidelines to stay focused on supporting your core mission.

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The Summary of Changes under ASC 842 – Lease Accounting

After multiple delays, the Financial Accounting Standards Board’s (FASB) new lease accounting guidance is in effect for nonprofit organizations with fiscal years beginning after December 15, 2021 (Calendar year 2022 for organizations with a December 31, fiscal year end and the fiscal year beginning in 2022 for most other entities). The FASB’s stated objective when initially announcing Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842) was to improve transparency and accountability between organizations regardless of whether the assets used by an organization were purchased or leased.  To do this, the guidance calls for most leases to be recognized as lease assets and lease liabilities on the statement of net position, and to disclose key information about leasing transactions.

Accounting Standards Codification (ASC) 842 defines leases as contracts, or portions of contracts, granting control of an identifiable asset for a specific period of time in exchange for compensation. Control of an asset is demonstrated when a business entity is able to obtain substantially all of the economic benefit from the asset’s use and direct its use throughout the period of the contract.

ASC 842 applies to most leases and subleases, but exceptions do exist. Leases of intangible assets (including intangible IT arrangements), leases for natural resources or biological assets, leases of inventory and leases of assets under construction are not included within the scope of the ASU. However, both leases previously treated as operating leases and those previously treated as capital leases are included, as are sale-leaseback transactions and leveraged lease arrangements.

Similar to the previous standards, the new lease accounting standard uses a two-model approach for lessees; each lease is classified as either a finance lease or an operating lease. Finance lease is a new term and the term capital lease, previously used to define some lease agreements, is no longer in use. While similar, the criteria in which a finance lease is defined is not the same as the criteria used in the past for capital leases, so it is more than just a terminology change.

Topic 842 requires lessees to recognize both the assets and the liabilities arising from their leases. The lease liability is measured as the present value of lease payments. The lease asset is generally equal to the lease liability, but should be adjusted for certain items like prepaid rent and lease incentives.

Under the new rules, both financing and operating leases will be reflected on the statement of financial position. FASB defines the lease asset as a right-of-use asset, or (ROU asset), and represents the lessee’s right to use the underlying asset. The lease liability represents the lessee’s financial obligation over the lease term. When measuring the assets and liabilities, both the lessee and the lessor should also include “reasonably certain” lease renewals beyond the current lease term and “reasonably certain” asset purchase options, based on the criteria in the ASC.

Leases which have a term less than 12 months after accounting for all renewal options are permitted to not recognize a ROU asset and lease liability. If they choose not to recognize, they should instead recognize lease expense on a straight-line basis over the life of the lease.

Existing capital leases have been provided transitional relief and will not require adjustment or remeasurement upon transition. However, the financial statements should refer to them as finance leases.

Financial statement recognition of the leases is similar for both operating and finance leases, but there are few key differences.  Operating leases should recognize a single lease cost allocated over the lease term, generally on a straight-line basis, and should be recognized within operating activities on the statement of cash flows.  Finance leases should recognize the interest component of the lease separate from the rest of the repayments. The interest portion of the repayment should be considered an operating activity for the statement of cash flows, while the rest of the payment should be treated as a financing activity.

Lessor accounting practices remain largely unchanged from ASC 840 to 842, except that the “leveraged lease” type of lease has been eliminated.

Interested in knowing more about ASC 842?  Contact us at Barbacane Thornton & Company, LLP.  We have a team of professionals excited to be your auditors and trusted advisors.

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ASC 842 – Leases Transition: Getting Ready

  1. Identify all leases

Identification of all leases is crucial for compliance, and will not apply just for leases entered after the implementation of the new standards. All leases currently in place should be identified and assessed under the new guidance.

  1. Begin gathering your embedded leases:

Not all leases are obvious. Some may be embedded into service contracts or other agreements. Be sure to identify embedded leases. Examples of embedded leases include:

  • Equipment leases may be embedded in security contracts, such as scanners, monitors, and other equipment.
  • Contracts for logistics and transportation may identify and assign specific vehicles to be used solely for your organization.
  1. Prepare for the calculations and disclosures needed under ASC 842:

The new disclosure requirements are significantly more robust than those required under prior guidelines. Beyond calculating the initial lease liability and right-of-use asset discussed above, you may also need to calculate implicit discount rates, weighted average lease terms, and amortization schedules.

The disclosure requirements for FASB 842 are both qualitative and quantitative. A few of the specific disclosures required are:

  1. Discussions covering the lease arrangements
  2. Descriptions of significant judgments made
  3. Details about the lease costs reported on the income statement
  4. Weighted-average analysis of discounts and remaining lease terms

 

Interested in knowing more about ASC 842?  Contact us at Barbacane Thornton & Company, LLP.  We have a team of professionals excited to be your auditors and trusted advisors.

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Fraud Prevention Best Practices for Nonprofits

Nonprofits, like any organization, must protect themselves from fraud. While fraud in the nonprofit sector isn’t as prevalent as in for-profit entities — comprising just 9% of fraud cases according to the Association for Certified Fraud Examiner’s 2020 Report to the Nations – the results can be devastating because nonprofits usually have fewer resources to prevent and recover from losses.

The following fraud considerations can help you protect your nonprofit from fraud.

Educate employees, donors

Fraud schemes tend to follow trends. For example, disaster relief scams trend up after every natural disaster or other emergency. These scams seek donations to help victims via emails, phone calls, social media posts, and crowdfunding platforms. The trouble is, the donations end up with the fake charity’s creator.

These fake charities often have names that sound similar to well-known relief organizations. Not only do they funnel donations away from legitimate charities, but they can also harm a legitimate organization’s reputation. If your organization collects donations for disaster relief, consider educating regular donors on how to identify legitimate requests for help. Remind them legitimate charities don’t ask for large donations in cash, gift cards, or bank wires.

Keep digital donations secure

Online fundraising allows nonprofits to collect donations from anywhere and enables donors to give one-time and recurring donations easily. But keeping donors’ personally identifiable information (PII) is crucial.

In addition to credit card, driver’s license, and Social Security numbers, PII also includes names, addresses, and other numbers and information linked or linkable to an individual.

The first way to protect donor PIIs is not to collect them. Hackers can’t steal information you don’t have, so avoid collecting and storing unnecessary information about donors. Ensure that all communication to and from your website is encrypted with a Secure Sockets Layer (SSL) certificate purchased from a trusted certificate authority. Work with your IT professional or use a reputable online fundraising platform to ensure all online transactions take place in a secure environment.

Implement sound internal controls

Many nonprofits have small teams and may rely on volunteers to help with back-office work. In that environment, sound internal controls are more challenging but not impossible.

Internal controls are like armor protecting your organization’s assets and financial reporting. Consider implementing these basic financial controls to safeguard your data:

  • Segregate duties. Limit a single individual from having control over two or more phases of a financial transaction or operation. For example, the employee who receives cash or check donations should not also record the deposit in the accounting records. The person who sets up new vendors in the accounting software should not issue payments to vendors. Our team of professionals can provide advice on other ways to segregate duties in your organization.
  • Reconcile bank and credit card statements monthly. Regularly reviewing and reconciling bank and credit card statements can help you spot unusual activity or fraud and take steps to limit potential losses.
  • Secure your physical premises and assets. Ensure petty cash boxes, blank check stock, undeposited cash and checks, debit and credit cards, and other assets are locked up when not in use. Something as simple as locking office doors when nobody is monitoring the entrance can prevent someone from stealing computers and other assets.
  • Take tips and complaints seriously. According to the ACFE, 40% of nonprofit fraud is detected because of a tip or complaint, compared to just 17% by internal auditors and 6% by examination of documents. Educate everyone in your organization on the importance of fraud prevention and detection, and provide a way to report suspected fraud without the risk of retaliation.

Ultimately, trust is the true value of preventing fraud at your organization. Trust is the foundation of the organization’s relationship with employees, directors, board members, fundraisers, donors, and the communities it serves. Proper training, technology, and controls will help your organization build and maintain that culture of trust so you can continue creating positive change in the world.

Do you need help updating or creating your nonprofit’s security strategy? Contact our team of professionals today!

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What Do Federal Agencies Look for When Issuing Grants?

Nonprofits often pursue federal grants to provide services and fulfill their missions, yet the process of applying for government grants can feel intimidating. Generally, there is a short timeline between when a federal agency releases a grant opportunity and when applications are due. That’s why organizations need to have the basic elements in place well in advance.

What are the basic requirements of a federal grant?

Each federal grant has its application and award criteria outlined in the Notice of Funding Opportunity. Audited financial statements are a common requirement, but nonprofits have unique financial reporting needs. For example:

  • Net assets in the Statement of Financial Position generally are broken down into those with and without donor restrictions. These restrictions may be temporary or permanent and have limitations on time or purpose. The net assets section should list sources of funds broken down into three areas: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets.
  • Your organization’s Statement of Activities breaks out sources of gross receipts to show where they came from, such as fundraising, grants, donations, etc.
  • Nonprofits issue a unique financial statement: the Statement of Functional Expenses. This statement breaks out expenses into categories such as programs, fundraising, and administrative costs to show readers of the financial statement — including potential grantors — how your organization balances spending on programs and overhead.
  • The footnotes on your nonprofit’s financial statements are just as important as the individual statements because they provide deeper context into the financial statement numbers.

Working with an audit firm specializing in nonprofit financial reporting can ensure your organization appropriately tracks revenues and expenses, prepares accurate and thorough financial statements, and demonstrates to grantors that your organization is accountable for all funding sources.

Financial transparency and accountability

Federal grants come from taxpayers’ money, and each federal agency is required to see those resources are used appropriately. That’s why government agencies require transparency and accountability from recipients of awards.

Financial transparency and sound business/board practices start long before the grant application process. In addition to having audited financial statements, nonprofits should:

  • Be clear about how the funds will be used. Thoroughly document the problem you intend to address with the grant funds in the grant application. Support your request with facts and figures documenting the issue and how any funds awarded will help address it. Propose specific, measurable results you plan to achieve, including how many people will be impacted and in what way. Provide a proposed timeframe and method to measure results.
  • Demonstrate sound governance. Maintain minutes for all meetings of the board and committees that act on behalf of your board. Some of the activities to document in the minutes include:
    • Annually reviewing written conflict-of-interest policies and disclosure statements.
    • Approving your executive director/CEO’s compensation and benefits and how your board determined the compensation is appropriate
    • Reviewing annual financial statements and IRS Form 990 before they are filed
    • Approving the annual budget
  • Demonstrate sound business practices. Your organization should have a written document retention and destruction policy and travel expense reimbursement policy.
  • Document internal controls. Ensure your organization’s financial management systems include adequate internal controls, including proper segregation of duties to safeguard resources.
  • Demonstrate accountability. Publish your organization’s most recently filed federal tax return and list each member of the board of directors on your website.
  • Demonstrate responsible borrowing. Like businesses, nonprofits sometimes need to take out loans to make capital investments, even out cash flow and take advantage of opportunities. However, it’s important to document how you will use the funds and have a realistic repayment plan.

Government grant applications can be demanding to prepare, and competition is fierce. However, if your organization is new to seeking federal grants, you can often receive free training and technical assistance from the federal agency issuing the grant. Need help preparing, organizing, or reviewing any of the documents or strategies listed above? Call our team today!

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Congress Has Approved the Infrastructure Bill: What’s In It For You?

The long-awaited $1 trillion Infrastructure Investment and Jobs Act (IIJA) received the U.S. House of Representatives’ approval Friday, November 5, 2021, to provide funding for improvements to highways, bridges, and other road safety measures. The bill also offers plans to reconnect communities previously divided by highway building and expand national broadband networks.

According to White House projections, investments outlined in the infrastructure act will add approximately 2 million jobs per year over the next decade.

A portion of the original bill was held back, and there were not as many tax provisions as originally expected, which could mean additional changes may be coming in a fiscal year 2022 budget reconciliation.

What’s in the $1T Infrastructure Act?

There are several key tax provisions found in the IIJA.

  • Employee Retention Credit: The infrastructure act ends the employee retention credit (ERC) early, repealing the fourth-quarter extension. Wages paid after September 30, 2021, are ineligible for the credit unless paid by an eligible recovery startup business.
  • Crypto asset Reporting: The IIJA clearly defines the terms broker and digital assets to clarify capital gains or losses from cryptocurrency. It also provides new reporting requirements for crypt currency exchanges. The following information must be reported to the IRS and customers effective January 1, 2023:
    • Name, address, and phone number of each customer,
    • Gross proceeds from any sale of digital assets, and
    • Capital gains or losses (short-term or long-term)
  • Disaster relief: The IIJA modifies the automatic extension of specific deadlines for taxpayers impacted by federally declared disasters. It amends the definition of a disaster area as “an area in which a major disaster for which the President provides financial assistance under section 408 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5174) occurs.”
  • Other Tax Provisions
    • Extension of highway-related taxes
    • Extension and modification of superfund excise taxes
    • Allowance of private activity bonds for qualified broadband projects and carbon dioxide capture facilities

What Else is Included?

Here’s a breakdown of what’s included:

  • Roads and bridges: $110 billion to repair the nation’s highways, bridges, and roads and invest in other transportation programs.
  • Public transit: $39 billion to expand and modernize transportation systems, improve access for people with disabilities, provide dollars to state and local governments to purchase zero-emission buses, and repair buses, rail cars, and train tracks.
  • Passenger and freight rail: $66 billion to reduce Amtrak’s maintenance backlog and improve rail service routes, including the Northeast Corridor.
  • Electric vehicles: $7.5 billion for electric vehicle charging stations, $5 billion to purchase electric buses, and $2.5 billion for ferries.
  • Modernizing the electric grid: $65 billion to protect against power outages.
  • Airports: $25 billion to improve runways, gates, taxiways, terminals, and air traffic control towers.
  • Water and wastewater: $55 billion to spend on water and wastewater infrastructure, including replacing lead pipes and addressing water contamination.
  • Broadband internet: $65 billion to bolster the country’s broadband infrastructure, including ensuring every American has access to high-speed internet. Additionally, one in four households is expected to become eligible for a $30 per month subsidy to pay for internet access.
  • Great Lakes Restoration Initiative: $1 billion for the cleanup of rivers and lakes, including a special target of areas with heavy industrial pollution.
  • Road safety: $11 billion for transportation safety programs.

Where does the Build Back Better plan stand?

The BBB is set to be the largest social policy bill brought to a vote in recent years, bringing funding to address issues such as climate change, health, education, and paid family and medical leave.

House leaders hope to pass the Build Back Better plan later when they return November 15 after a weeklong recess.

The Build Back Better plan and IIJA have many intricate details. We’ll continue to provide more information as it becomes available.

Funding from this bill is anticipated to impact small governments and many nonprofit organizations. It is projected that the number of Federal audits under the Uniform Guidance will increase dramatically. If you find that your organization will be receiving this funding be sure to reach out to our team of professionals who can assist you with implementing the Federal compliance requirements regarding appropriate tracking of these funds.

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The new requirements for in-kind gifts reporting for nonprofits

Nonprofits remain one of the most important aspects in the front lines of helping communities in need. During times of crisis, such as the COVID-19 pandemic, many may find themselves with an influx in donations and in-kind gifts. Remember to use the new reporting requirements outlined by the Financial Accounting Standards Board (FASB) in accounting standards update No. 2020-07 released in September 2020.

Check out what reporting changes must be made by nonprofits and when they should go into effect.

What is considered an in-kind gift?

When nonprofits receive non-financial gifts from donors, they are more than likely considered a in-kind gifts. The FASB Master Glossary defines these as gifts of nonfinancial assets or fixed assets (e.g.. buildings, land, equipment), the use of fixed assets or utilities, materials and supplies, unconditional promises of assets, and intangible assets and services.

In-kind gifts allow nonprofits to focus more on their mission and the communities they serve while building relationships with businesses and individuals who may choose to or need to contribute in a non-financial manner.

When will the reporting requirements go into effect?

According to the accounting standards update No. 2020-07 by the FASB, nonprofits must include the new reporting requirements on annual financial reports for fiscal years beginning after June 15, 2021. If your organization follows a nontraditional fiscal year, you may already be tracking in-kind gifts in more detail. If you follow the calendar year, your organization will need to implement new procedures for recording in-kind gifts in the new year.

What are the new reporting requirements?

Nonprofits are now, or will soon be, depending on their fiscal year, required to report in-kind gifts as a separate line item on the statement of activities. This should be separate from cash or other financial assets.

When recording in-kind gifts throughout the year, keep the following reporting needs in mind. If you’re tracking these correctly along the way, creating the updated financial reports should be less daunting.

Statement of Activities reporting requirements:

  • In-kind gifts as a separate line item and further broken down by category to show the type of non-financial assets.

Disclosures for in-kind gifts:

  • Nonprofits must disclose the following for each category type:
    • If the gifts were monetized or used during the reporting period and how they or the money was used.
    • The policies in place for monetizing in-kind gifts.
    • A description of any donor-imposed restrictions, if applicable.
    • How the nonprofit arrived at the valuation for the in-kind gifts received.
    • Principal (or most advantageous) market used to calculate the fair market valuations.

 

Other reminders for reporting in-kind gifts

In addition to the new requirements, nonprofit organizations should be mindful of generally accepted accounting practices for in-kind gifts. When receiving in-kind gifts, recognize them as income in the period they were pledged or committed to your organization, using fair market value at the time of the gift. This does not apply if there are certain stipulations that dictate how the contribution should be used or if it is part of a conditional transaction.

Nonprofits can also act as an agent if the donor specifies the in-kind gift has another beneficiary. This is because the donor hasn’t given up their “variance power.” If contributed services are donated, they only need to be recorded in financial statements if the service “creates or enhances non-financial assets” or the service “requires specialized skills provided by individuals with those skills that would typically need to be purchased if they were not previously donated.” Examples of these types of services include accounting, medical care, legal services, and construction work.

For clarification on in-kind gifts or assistance establishing a method for tracking and reporting these contributions, reach out to our team of knowledgeable professionals today.

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IRS releases W-2 reporting requirements for qualified leave in 2021

The IRS recently issued Notice 2021-53, providing guidance on reporting qualified leave and sick wages to employees. Qualified sick and leave wages are those that are defined by the Families First Coronavirus Response Act (FFCRA), which was amended by the COVID-Related Tax Relief Act of 2020 and the American Rescue Plan Act of 2021

How are wages reported?

According to the notice, the wages must be reported to employees with their W-2. Employers can choose to place the wages either on Form W-2, Box 14, or by providing documentation delivered with the Form W-2. The notice provides sample language employers may use if providing a separate statement.

The IRS also noted that self-employed individuals can determine what, if any, sick and family leave wages are qualified for tax credits. This is a follow-up to Notice 2020-54 released in 2020 regarding reporting of qualified sick and family leave wages paid in 2020.

What are qualified wages?

The FFCRA defines qualified wages as those paid for sick or family leave related to COVID-19.

Qualified wages can be paid to employees who are:

  1. Subject to state, local, or federal quarantine.
  2. Advised by a healthcare provider to self-quarantine.
  3. Experiencing COVID-19 symptoms and seeking a medical diagnosis.
  4. Caring for someone who is self-quarantining in accordance to bullets 1 and 2 above.
  5. Experiencing a substantially similar condition as specified by the Secretary of Health and Human Services, in consultation with the Secretaries of Labor and Treasury.
  6. Caring for a child or dependent whose school or place of care is closed or unavailable related to COVID-19.

What are the limits on wages paid?

The FFCRA allows for full-time employees to be paid up to 80 hours (two weeks) worth of paid leave for the reasons mentioned above and for part-time employees to receive paid wages for up to two weeks equal to their normal weekly scheduled hours.

The paid leave is extended to equal up to 12 weeks of leave at their normally scheduled work period hours for those providing care because of COVID-related childcare and school closures.

Read more on the FFCRA requirements here, or contact our team of experts to discuss how to determine which leave hours are qualified and how to track them for Form W-2 reporting purposes.

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How nonprofits can help when disaster strikes

When disaster strikes a region, it often flips a switch in humanity, triggering their need to help in ways that everyday struggles don’t. We saw it with Hurricane Katrina years ago and again with Hurricane Ida this year. While nonprofits, businesses, and individuals alike wish to do something to help those affected, it’s important to be informed on how to best contribute, so they don’t fall victim to scams or tax problems down the road.

Temporarily shifting the nonprofit’s focus

If you’ve wondered whether you can temporarily shift your nonprofit’s focus to help with disaster relief, the answer is yes, but there are some limitations. When originally filing for tax-exempt status with the IRS, your organization provided the purpose or focus of your nonprofit.

Disaster relief efforts allow for some leeway in that purpose. However, you’ll want to protect your organization against accusations of violating the prohibition for private benefit in the tax code and disclose any change in focus on the annual Form 990 filing. Keep very thorough records that include:

  • Dates of assistance
  • Assistance provided
  • Purpose of the assistance
  • Name and address of recipients
  • How recipient(s) was selected for assistance
  • Who is selecting the individuals receiving assistance
  • Any personal relationships between members of your nonprofit and recipients.

If you take these precautions and consult with your trusted tax advisor beforehand, providing disaster relief instead of your core organizational focus can be achieved.

Struggling nonprofits and partners

Nonprofits and their partners are not immune to hard times and could be struggling through a natural disaster while they’re trying to provide assistance. If your nonprofit finds some of your partnership organizations have been affected, there is still a way to help.

For example, there are often preapproved grants at the local level that help charitable nonprofits provide disaster relief. As part of your disaster recovery planning, make sure to review what grant options are available in your area. Doing so will allow you to apply for assistance more quickly if disaster strikes.

Other considerations nonprofits should be aware of

When nonprofits and individuals jump into action, they can hit several roadblocks along the way. While collecting and donating food, clothing, and supplies seems like an easy way to help, it can be met with logistical problems. First, collections take time. Second, transportation of these items is often expensive and often waylaid by restrictions accessing affected areas until it’s safe to do so.

Monetary donations to nonprofit organizations with their boots already on the ground can be implemented more quickly, and they’re often more aware of exactly what the community they’re serving needs. Reach out to nonprofits in the area to discuss how your organization can help them help the community.

There may be times when those who are impacted cannot communicate with your nonprofit team due to language barriers. Having team members who speak secondary languages can help overcome those barriers to provide assistance for those community members. Another option would be contracting with a translating service that offers remote capabilities.

In addition, the IRS often announces disaster relief for individuals and businesses who may be impacted in the form of extending deadlines for tax filings. Keep an eye out for those announcements, should you need them.

How to advise individuals looking to help

There are several resources available to consumers and businesses alike to help them determine if the organization they’re donating to is legitimate. Typically, nonprofits working on disaster relief efforts are registered on the Center for Disaster Philanthropy. In addition, they can use the IRS Tax-Exempt Organization Search tool to confirm their donations are going to a registered nonprofit.

Our team of professionals is here to help you navigate how to shift to disaster relief efforts. Give us a call with any questions you have.

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