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3 Ways Nonprofits Can Harness Blockchain Technology

By Jeffrey Kowalczyk, CPA CFE CGAP

3 Ways Nonprofits Can Harness Blockchain Technology

Nonprofits do not tend to shy away from technology; in fact, more and more nonprofits are embracing it. For example, TED shares ideas with the world through digital technology, Code For America helps connect cities with coders to help with urban renewal and civic management, and Ushahidi developed software to empower the citizens of Kenya following the devastating 2008 election. These nonprofits are using conventional technology in unique ways to advance their cause.  For the vast majority of nonprofits, however, the question is how to leverage technology to improve transparency and accountability. When it comes to how nonprofits and technology intersect, blockchain technology offers a practical solution for all nonprofits to strengthen their infrastructure and mission.

A distributed ledger technology, blockchain systems are a database that everyone can access. Essentially, this crypto-technology enables secure-funds transactions and ensures that data cannot be hacked. Blockchains can improve a nonprofit’s organizational excellence in the following practical ways. 

  • Data is more secure in blockchains. As transactions take place, they are stored in the local ledger and shared across every record of blockchain, allowing every user an undisputed copy of the history of the asset. The beauty of an un-editable record is its natural defense against hackers and fraud. Also, because blockchain data is distributed rather than centralized, organizations can rely on a genuinely digital transaction environment.
  • Blockchain solutions can automate administrative processes and improve cost efficiencies. For example, data audits can reach further, review more processes, and certify results with better efficiency than ever before. Requiring fewer people to perform the same job, blockchain frees up time for professionals to utilize their skills for strategy and development. 
  • Blockchains protects donor information.
    • Blockchain data is secure and These facts assure donors that their financial information is protected and private and allows nonprofits to raise funds across geographic and political borders.
    • As nonprofits focus more of their efforts on major donors, they will find that blockchain technology allows them to offer high-net-worth donors increased control and transparency.
    • Donor trust is a serious concern for nonprofits. Blockchain’s secure, anonymous, and transparent ledger allows donors to track their donation to the source and recipient, allowing nonprofits to build trust with less effort.

Blockchain technology has a lot of potential, especially when it comes to supporting donor trust. We are closely monitoring how nonprofits can harness blockchain technology and will keep you appraised of new findings and solutions for your organization.

About Barbacane, Thornton &

Company LLP

Barbacane, Thornton & Company LLP is a highly regarded, regional
certified public accounting and consulting firm specializing in auditing and
tax services for government agencies and nonprofits. For more information about
Barbacane, Thornton & Company LLP, please call (302) 478-8940 or visit
btcpa.com

 

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Nonprofits Turn Focus to Major Donors

By Steven Kutsuflakis CPA

Nonprofits Turn Focus to Major Donors

The nonprofit sector is facing a severe departure from the boom of the last decade. Predictions place numerous risks at the feet of fundraisers. From the increased privatization of problem-solving to the politicization of giving, the potential for charitable sector scandals, and eroding donor trust to the emergence of dark philanthropic money, nonprofits have some interesting years ahead. While these predictions are just a sample of potential threats, the most significant game-changer perhaps is the critical importance of the major donor.  

Since 2010, philanthropy has been increasing in power and numbers. Programs like the Giving Pledge and the rise in overall wealth as evidenced among the Forbes 400, is a good sign that philanthropy will continue to grow among the nation’s largest donors. However, due to systematic financial uncertainty, increasing secularization, and changes in federal tax law, the number of individual donors that give less than $5,000 per year is declining. In response to the changing landscape, nonprofits are shifting their focus toward their greatest givers.  

Recently, the Center for Effective Philanthropy (CEP) surveyed more than 600 nonprofit leaders to learn how nonprofits can effectively manage support they receive from major donors and what major donors can do to support nonprofits better. In this article, we list the top strategies for connecting with major donors and retaining their support.

Invest in Relationships

The findings of the CEP’s survey showed that meaningful relationships pave the way for a better understanding of the nonprofit’s mission and challenges and help the donor feel like they are a part of the organization. When relationships are personal instead of digital, it allows nonprofits to build trust and strengthen bonds. Nonprofit organizations can ask major donors how important a relationship is to them and what they view their role to be in building or maintaining the relationship.

 

Bridge the Gap

A nonprofit’s work is complex. Operational challenges, both internal and external, are often under-communicated to donors, subconsciously paving the way for donor pressure. Nonprofit leaders are encouraged to screen potential givers to make sure they are aligned with the organizations’ mission and work and then leverage the relationships they build with donors to communicate how their values and beliefs translate to goals and priorities. Bridging the understanding gap will help nonprofits avoid power imbalances with their donors and make it easier to reinforce support.   

Reinforce Support

For a nonprofit to do their best work, they need ongoing support. The best way to secure their plans for the future is through multiyear commitments, unrestricted gifts, and support beyond money.

  • Multiyear Commitments. While 92% of nonprofits say it is very or extremely vital for major donors to provide repeated support, only 59% of their organizations’ major donors offer it. The nonprofits cited in the survey say transparency about whether or not they will give in the future is also a concern.
  • Unrestricted Gifts. Unrestricted gifts allow nonprofits control over how a donation should be allocated, but according to those surveyed, only 54% of their major donors provide them.
  • Support beyond money. More than 90% of nonprofit leaders say they receive support such as volunteer time, pro bono services, assistance with fundraising outside cash contributions. While that number is high, nonprofits cite that more support would help them achieve greater goals.

There is a distinct correlation between the likelihood of ongoing support and the quality of the relationship between an organization and a donor. Of course, when the connection is strong, and the trust is high, nonprofits can ask major donors questions about gaining additional support.

If you have questions or would like to continue this conversation,  please contact the nonprofit accounting professionals in our office today.

About Barbacane, Thornton &

Company LLP

Barbacane, Thornton & Company LLP is a highly regarded, regional
certified public accounting and consulting firm specializing in auditing and
tax services for government agencies and nonprofits. For more information about
Barbacane, Thornton & Company LLP, please call (302) 478-8940 or visit
btcpa.com

 

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Census 2020-Let’s Get Everyone Counted!

Pamela W. Baker CPA Managing Partner

By Pamela W. Baker, CPA, CGFM

Census 2020-Let’s Get Everyone Counted!

Federal Presidential elections happen once every four years and can have impact on policy and funding for communities across the Country. Even more significant, but not as often, is the United States Census, required by the United States Constitution to be conducted every ten years. This is no easy job given the increasing mobility of people in (and out of) our Country. This year the census will move away from paper as the primary way to collect data, for the first time since in began in 1790 – testament to how we have become an automated Nation. It is estimated that the cost for the 2020 Census will approach $16 billion and employ up to half a million people. So – is it worth it and if so, why? Why does the census matter?

Census data is used in ways you may not realize. It is critical to communities. The census results are used to determine the number of seats each state has in Congress, draw boundaries for voting districts, and determine how more than $675 billion in federal funding is spent in communities each year.  Census data is used to determine local needs for roads, schools, rural development, veteran’s services, employment, child-care, senior centers, housing, environment, incarceration, healthcare and more. The numbers and demographics calculated in the census determine federal dollars allocated to states from all national programs for ten years (until the next census is done). There is strength in having accurate numbers. The more people counted means more money and power for our local communities. Missing people in the census count is compounded by the historical statistics that the census has missed disproportionate numbers of racial minorities, immigrants, young children and those living in poverty – “hard-to-count populations” – leading to inequality in political power, government funding and private-sector investment for these communities. There is even more. Census determines equal political representation; informs fair allocation of public, private, and nonprofit resources; informs policy debates and decision-making; guides foundation strategies, investments, and evaluations; measures socio-economic conditions. The business community uses census data to consider moving to an area, expanding locations and whether to hire more people. Social Security uses census data to determine what they will need in money to support the aging population and at what age will they consider eligibility. The nonprofit sector uses census data to determine needs, provide services, and measure success. The financial stability of many programs that provide services we all use rely on the resources that are determined by census. Imagine, as an example, that an entire community is overlooked because they are not English speaking and do not understand the census process. As the next ten years pass, those people will have children who enter our public schools who, without accurate data will not be prepared for the increase in population. This is but one example of the price we pay for not completing an accurate census.

One of the biggest fears for disenfranchised people is the fear of being singled out and/or persecuted. By Federal law Protected Personal Information from census cannot be shared with immigration, law enforcement agencies, or used  to determine eligibility for programs. Census data is sealed by Federal law for 75 years.

The nonprofit community has a tremendous opportunity for future funding by promoting and encouraging participation in the census. Many nonprofits are in regular contact with those individuals and communities most at risk for not being counted. Each State has resources to engage the community in increasing participation in census 2020. Think of working to increase census numbers as another grant writing opportunity – let’s maximize funding so that we can maximize impact and make a difference for all.

For more information and to become a Census Partner go to https://2020Census.gov

About Barbacane, Thornton &

Company LLP

Barbacane, Thornton & Company LLP is a highly regarded, regional
certified public accounting and consulting firm specializing in auditing and
tax services for government agencies and nonprofits. For more information about
Barbacane, Thornton & Company LLP, please call (302) 478-8940 or visit
btcpa.com

 

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The Role of an Audit Committee

Edmund Fosu-Laryea, CPA

By Edmund Fosu-Laryea, CPA and Joe McGrory, CPA

The Role of an Audit Committee

One of the primary roles of a Board of Commissioners is to provide oversight of the financial management for an organization. They may accomplish this through the establishment of an audit committee. Many board members believe that the external auditor is responsible for financial oversight and the implementation of internal controls over financial reporting. However, these responsibilities lie within the governing board of an organization. This is especially crucial amongst housing authorities, where the segregation of duties of individuals may be limited due to the small size of the entity. The formation of an audit committee may allow board members with the necessary skills and knowledge to focus on the financial oversight and to implement effective controls over financial reporting and evaluating mission effectiveness?

Composition of a Committee

The number of individuals included in an audit committee may vary depending on the organization, but three to five members is considered a standard range.  Audit committees may benefit from having individuals of diverse and complimentary backgrounds. Committee members must possess the business acumen and the awareness of public interest to provide effective oversight. At least one member of the committee should have familiarity with accounting principles and financial reporting practices applicable to housing authorities. The most important attribute of the members is to be committed to the task and to have adequate time to devote their efforts to the Authority.

Internal Control Structure

The audit committee may assist management with designing and implementing effective internal control procedures to prevent fraud and mitigate errors in financial reporting. It must however distinguish its oversight responsibility from the day-to-day management of the Authority. In authorities with limited numbers of individuals involved in the financial reporting process, the committee may be directly involved in the internal control structure. Examples of these control procedures may include the reviewing of monthly bank reconciliations, review of monthly financial results, and budget vs. actual variance analysis, and the requirement of a committee member’s signature on all checks over a certain threshold.

The audit committee should be aware of areas of high risk and uncertainty. Communication with management and external auditors will allow the audit committee to determine if management’s procedures are adequate and whether changes in accounting principles and financial reporting practices will have an effect on the Authority.

About Barbacane, Thornton & Company LLP

Barbacane, Thornton & Company LLP is a highly regarded, regional certified public accounting and consulting firm specializing in auditing and tax services for government agencies and nonprofits. For more information about Barbacane, Thornton & Company LLP, please call (302) 478-8940 or visit btcpa.com

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Managing Partner’s Message – January 2020

Pamela W. Baker CPA Managing Partner

What could be better than a fresh new year – how about a fresh new decade! At Barbacane, Thornton & Company we are looking forward to what the next decade will bring. We anticipate that technology will continue to play an integral role in determining how we provide services to our clients and we have already embarked on some exciting new audit tools and techniques to employ in our business. We are committed to being cutting edge in order to continue to provide quality services but also to attract and retain talent. 

We have also started the new decade with our newest Partner! We are excited to announce that effective January 1, 2020 Edmund Fosu-Laryea CPA has become a Partner-In-Training. In this new role, Edmund will function in all manner and with the key responsibilities of a Partner in the firm. During this year he will have the opportunity to become more familiar with the financial aspects of our Company with the goal of becoming a full equity Partner on January 1, 2021. Edmund graduated from Goldey-Beacom College with a BS in Accounting in 2008. He joined our firm on February 2, 2009. Graduating with an accounting degree was only the beginning of Edmund’s professional journey. He continued his studies at Goldey-Beacom and obtained a master’s degree in business administration all while working full time and pursuing the CPA designation. In August 2011 Edmund became a CPA licensed in the State of Delaware and in December of that same year he completed his master’s program. 

When Edmund began working with the firm, he demonstrated from the very beginning his quest for excellence in both his educational and professional pursuits. Edmund quickly became an important team member on several audit engagements, but it was his aptitude to understand the complexities of public housing authorities that soon differentiated him. Over the past eleven years Edmund has also been instrumental in our staff training and mentoring programs. His leadership style is very welcoming to others and he demonstrates on a regular basis that he can balance the needs of clients, the firm, and the quality of our work. Dependability, integrity, honesty, and commitment are a few of the words our team uses to describe Edmund. 

Edmund and his wife Eileen live in Middletown, Delaware with their two children Ivana and Jordan. In addition to his involvement with his family Edmund also serves on the board of Ingleside Homes, a nonprofit whose mission is “to ensure that every senior, regardless of their level of income, has an opportunity to live the fullest possible life at his or her highest level of independence.”

We are excited that Edmund continues his professional journey with our firm. For those who may know Edmund I’m sure you will agree with our assessment of his talents. If you have not had the pleasure, I would encourage any opportunity you may have to interact with Edmund. Any of our partner group would be happy to facilitate an introduction!

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Are You Evaluating Mission Effectiveness?

Jeffrey Kowalczyk, CPA CFE CGAP, Partner

Are You Evaluating Mission Effectiveness?

According to a recent Oracle NetSuite, only 20% of nonprofit executives believe they are very effective at demonstrating outcomes. This statistic and plenty of others comes from NetSuite’s study, Connecting Dollars to Outcomes. The software provider asked over 350 nonprofit executives

  • if and how they evaluate mission impact
  • whether they were using outcomes measurement to determine program effectiveness
  • about their use of Charity Navigator (nonprofit watchdog agency) metrics
  • what works and doesn’t when evaluating impact.

The results of the study reveal an ongoing tension in the nonprofit world. In this article we will show that outcomes and impacts must be sufficiently defined to be measurable, and leaders must have the right people and tools to tie results to expenditures.

Moving Beyond the Overhead Metric

In recent years, experts have cautiously backed away from relying too heavily on overhead costs as a means for measuring fundraising effectiveness. According to researchers Ann Goggins Gregory and Don Howard, when nonprofits underreport administrative costs to secure funding and then run into deficits, the result is a starvation cycle.   

Current food for thought is the notion that a robust infrastructure is linked to a nonprofit’s overall success. This concept runs counter to the opinions held for the last several decades, which claims that overhead is inherently wrong. This thinking appears to foreshadow an emerging need, which is evident by the NetSuite survey; nonprofits need people to manage measurement, competent systems in place to measure outcomes, and cross-functional teams to bring the message to market.

29% of Nonprofit Executives Render Outcome Measurement Unimportant

Many small and midsize organizations may wonder if they payoff of outcome measurement justifies the expense. Some may struggle with how to evaluate program delivery to demonstrative outcomes. Effective outcome management, no matter what your size, can help you communicate your impact, create trust, and find a better footing when requesting support, both operationally and with funding. If you are the outcomes measurement champion in your nonprofit, there are a couple things you can do to prepare for a new year of funding.

  1. Embrace program logic models. This method allows a nonprofit to determine the effectiveness of its program(s) tracking inputs, activities, outputs, outcomes, and impact. Illustrating the “logic” within a program helps managers to educate their organization on program evaluation principals.
  2. Revise your accounting system. Appropriately correlating activities to revenue and expenses requires a data structure that allows visibility into program sustainability and transparency reports. The professionals in our office can help you determine the appropriate dimensions and key performance indicators (KPIs).

Evaluating the effectiveness of fundraising programs should be part of every nonprofit’s routine. So, when was the last time you assessed your fundraising effectiveness? How do you measure success? Looking at one metric or one isolated fundraising event will not tell a complete story, and unfortunately, a magic equation to calculate the effectiveness of a nonprofit does not exist. This is not a signal to throw the baby out with the bathwater. Instead, it is a challenge to evaluate how and why you measure impact and determine if there are better ways of doing it.

There are many tools available to nonprofits that will help measure their fundraising effectiveness. The key is the right consultant to help guide your decision-making.  

The professionals in our office can help you better identify your programmatic and financial outcomes, call us today.

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Here’s What Your Nonprofit Needs to Know About New Revenue Recognition

Steven Kutsuflakis, CPA, Partner

Here’s What Your Nonprofit Needs to Know About New Revenue Recognition

FASB’s Revenue Recognition Standards significantly affected revenue recognition practices for most organizations. The changes, while apparent for many, were not so for many nonprofits. In response to the standard’s ambiguity, FASB issued ASU 2018-08, which clarified the gray areas around revenue accounting for nonprofit grants and contributions. Many are still scratching their heads, wondering how the new standards will affect their accounting practices. The answer is – dramatically. We have put together the following highlights to help address some of the uncertainty around the new revenue recognition.

  • If your nonprofit engages in both contribution and exchange transactions, you need to be aware of the implementation dates for both standards. While their timelines are pretty similar, there are a few deviations.
Nonprofit that has issued, or is a conduit debt obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market All Other Nonprofits
Implementation Dates for ASU 2018-08Resource Recipient TransactionsResource Recipient Transactions
ASU 2018-08 (Topic 958-605) adoption dates applicable to transactions in which a nonprofit acts as a resource provider are delayed one year beyond adoption dates application to transactions in which a nonprofit acts as a resource recipient.    Annual periods beginning after June 15, 2018, including interim periods within those annual periods. Annual periods beginning after December 15, 2018 and interim periods within annual periods after December 15, 2019.
Resource Recipient ProvidersResource Recipient Providers
Annual periods beginning after December 15, 2018, including interim periods within those annual periods. Annual periods beginning after December 15, 2019, and interim periods within annual periods beginning after December 31, 2020.
Implementation Dates for ASU 2014-09 (Topic 606)Annual periods beginning after December 15, 2017, including interim periods within those annual periods.Annual periods beginning after December 15, 2018 and interim periods within annual periods beginning after December 15, 2019

*Early adoption is permitted; see ASUs

  • Revenue streams that come from an exchange will follow the guidance under ASU 2014-09, while nonexchange revenue streams will follow the guidance under ASU 2018-08.
  • In the case of grants and similar contracts with government agencies, unless the resource provider receives matching value from the resource recipient, the transaction is probably best classified as a contribution. The ASU outlined several examples of indirect benefits that do not constitute commensurate value:
    • Indirect benefit(s) received by the public.
    • Indirect benefit(s) received by a resource provider, i.e., societal benefit is not direct commensurate value.
    • Furthering a resource provider’s mission or positive sentiment from acting as a donor.
  • The new exchange transaction standard requires nonprofits to follow five steps before recording contract revenue.
  1. Identify contracts with the customer
    • It is important to note that not all revenue sources will fall under this model. Before you approach the first step, determine if the transaction is genuinely an “exchange transaction.” In order for the model to apply, the revenue must result from a contract where there is an exchange of goods and services. Examine your contributions, grants, and sponsorships carefully. If your transaction has elements of both contribution and exchange, the revenue will need to be separated and follow the appropriate guidance for each. The professionals in our office can help you review ASC 606 for nonprofits. FASB released an ASU update to clarify the scope of eligibility.
  2. Identify separate performance obligations within the contract
    • When a nonprofit makes separate and distinct promises within their contract, they must be recorded as such.
  3. Determine the transaction price
    • Ensure the value of your contract aligns with the transaction price. Any amount above this threshold must be accounted for outside of ASC 606.
  4. Allocate the transaction price to the performance obligations
    • If your contract includes a single performance obligation, this can be a simple step. Under this step, you must allocate the transaction price among the performance obligations. If the value is not clear, and you need to make a judgment on the standalone price of a performance obligation, be sure to record your reasoning in the notes to the financials.
  5. Recognize revenue when, or as, the performance obligation is satisfied
    • Record revenue in real-time, as your contract indicates. Some contracts fulfill promises at one point in time, while others fulfill over a period of time.
  • The new exchange transactions standard also requires specific disclosures on financial statements. For instance, FASB now requires qualitative transition disclosures to account for the nature and reason for the change in accounting method. Nonprofits will also need to disclose quantitative changes, like when contracts become nonrefundable. The scope of disclosure changes can be discussed further with your accounting professional.

These complexities will force many nonprofits to examine their processes with a renewed goal of structure and simplification. Nonprofits already face many challenges in recognizing their revenue. This issuance of two new revenue recognition standards adds another layer of complexity. It is no secret that accurate financial statements are critical to the success and future of your organization. As the compliance deadline quickly approaches, we encourage you to review your revenue streams with a professional that can assess your conditions with a trained and critical eye.

Give one of our members a call today!

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FASB Extends Deadlines in Response to Overwhelmed Preparers

Lease Accounting Changes

Edmund Fosu-Laryea, CPA

Following concern over the new lease accounting changes, the Financial Accounting Standards Board (FASB) has made the decision to delay the effective dates for three major standards. The new Accounting Standards Update (ASU) will give private companies and certain other entities an adoption extension on the new standards for leases, credit losses (CECL), and hedging.

This delay will allow preparers more time to understand and implement the changes and give these groups the opportunity to watch and learn how well-resourced public companies respond to the changes. Here is what you need to know.

New Effective Dates

  Fiscal years beginning after December 15, 2018 Fiscal years beginning after December 15, 2019 Fiscal years beginning after December 15, 2020 Fiscal years beginning after December 15, 2022
SEC filers + *Smaller reporting companies Hedge Accounting + Lease Accounting Credit Loss   *Credit Loss
All other public business entities + **Employee benefit plans and certain nonprofits Hedge Accounting Lease Accounting**     Credit Loss
Private companies and all others     Hedge Accounting + Lease Accounting Credit Loss

**Employee benefit plans that file or furnish financial statements + nonprofits entities that have issued or are conduit bond obligors for securities that are traded, listed, or quoted on an exchange or over-the-counter market.

The new lease accounting standard will take effect for the majority of nonprofit organizations

for fiscal years beginning after December 15, 2019, and in interim periods within fiscal

years beginning after December 15, 2020. Early adoption is permitted for all organizations.

If you have a question about how the lease accounting changes and delays will affect your nonprofit, please give one of the professionals in our office a call today.   

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2019 winner of CPAsNET’s - A Great Place to Work Award.

2019 winner of CPAsNET’s – A Great Place to Work Award.

Barbacane, Thornton & Company is  the 2019 winner of CPAsNET’s A Great Place to Work Award. Recognized for their standard of excellence as an employer of choice, Barbacane, Thornton & Company LLP joins a select number of firms nationwide to earn this reputable and highly competitive award. CPAsNET’s A Great Place to Work Award is employee driven. Data is compiled and assessed from a combination of employee feedback and firm data including workplace benefits, policies, practices, philosophies, systems and demographics. Participating firms must meet a minimum standard of workplace excellence to be considered for the award.

Participation in this survey allows member firms to benchmark their workplace policies and practices to the marketplace. “Through our participation in this survey, we have been able to gain valuable insights into employee engagement and how our benefits compare nationally,” said Pamela Baker, Managing Partner.

In addition to Barbacane, Thornton & Company LLP, six other accounting firms were also recognized as a 2019 winner of CPAsNET’s A Great Place to Work Award. “Being voted as a great place to work today is an honor. Employees have high standards today,” said Sarah Dobek, The President of CPAsNET, regarding the integrity of this award. “On behalf of CPAsNET, we congratulate our member firms that are dedicated to stepping up to the plate and making their firm a great place to work” said Dobek.

CPAsNET is a leading consortium of independent accounting firms that represent more than 100 partners, 300 professional associates and 500 employees. Based on its strategic partnership with audittrust international CPAsNET’s global reach represents more than 120 firms in 108 countries all over the world. Member firms have pooled their resources to provide their clients with the local, national and international prospective needed to prosper in challenging markets and times.

Barbacane, Thornton & Company LLP was formed in 1978 and has been serving the public sector with audit and advisory services to enable them to better serve their communities. The partners are members of the AICPA,  and the  Delaware and Pennsylvania  Society’s of Certified Public Accountants, .

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How the Taxpayer First Act Will Impact Nonprofits

How the Taxpayer First Act Will Impact Nonprofits

By: Jeffrey A. Kowalczyk CPA CFE CGAP, Partner

Barbacane, Thornton & Company

The Taxpayer First Act (the Act) of 2019 was signed into law on July 1, 2019. The bill, having gone through a few changes on its way to the president’s desk, passed with bipartisan support – a rare thing in Washington these days. The law aims to reform the Internal Revenue Service (IRS) by making it more taxpayer-friendly and has been praised by the American Institute of Certified Public Accountants (AICPA). The summary of the bill, its titles and subtitles signal a much-needed pivot to the way the IRS fits into the 21st-century economic narrative. Among the areas of impact, the main themes include customer service, enforcement procedures, cybersecurity and identity protection, management of information technology, and use of electronic systems.

While this law offers many provisions for individual taxpayers, it also affects nonprofits. The law modernizes filing requirements that if ignored, will result in significant consequences. Any nonprofit organization that fails to uphold these new requirements for three consecutive years will automatically lose its tax-exempt status.

Starting in 2021, almost all tax-exempt organizations will file Forms 990, 990-PF, 990-EZ, and 990-T electronically, regardless of their asset status or their number of returns. The Act also requires the IRS to make Form 990 available to the public as soon as practicable in a machine-readable format. The implication here is that this information will be readily available to agencies, so nonprofits should take care to position the form for public consumption.

Nonprofits need to take a few additional details into account.

First, the Act requires the IRS to notify organizations that have not filed a return for two consecutive years. Chances are, your filing procedures are up to snuff. If they aren’t, don’t allow a lapse in communication stymie an opportunity for a second chance. Ensure the IRS has accurate contact information.

Second, the Act mandates that new e-file procedures go into effect for filers at different rates. For instance, nonprofit filers whose fiscal year begins on July 1, 2019, will receive a transitional reprieve.  The new e-file procedures are effective for years beginning AFTER July 1, 2019. See table below:

 

  Beginning MUST E-File ON
CalendAr year filers January 1, 2020 May 15, 2021
Fiscal year filers July 2, 2019 November 15, 2020+
fiscal year filers July 1, 2019 November 2021

Nonprofits whose gross receipts amount to less than $200k and total assets less than $500k, and organizations that file a 990-T can expect transitional relief. The new law will allow the IRS to delay the mandatory filing for up to two years.

For most, the Taxpayer First Act is a welcome change. The Act helps protect business owners from IRS seizures and allows them to avoid the expenses and time-consuming process of having to go through the courts to reclaim their assets. One of the most critical components of the new law is the attention to cybersecurity and customer service. For nonprofits, the changes are aimed at increasing accountability and transparency.

If you have any questions about the law in its entirety or want to know how your organization should prepare for the changes, give the professionals in our office a call today.

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