A hypothetical not-for-profit staffer named Britney had maxed out her personal credit cards. So when her car needed repairs, she reached for her employer’s card. She reasoned that she would come up with the money to pay the bill before her boss ever saw a statement. Britney didn’t come up with the money. But lucky for her, her boss didn’t review the card statement that month. When Britney needed to buy holiday gifts, she reached for her work card again — and again. By the time her boss finally noticed the illicit charges, Britney had spent more than $5,000.
This kind of credit card misuse or fraud is more common in nonprofits than you may think. But if you write and enforce a strong card use policy at your organization, you can help prevent Britney’s and her boss’s mistakes.
Who needs one?
Your policy should start with who has the right to a card. Nonprofits commonly issue cards to their executive directors, program directors and office managers (or other employees responsible for buying supplies). Before issuing a card to other staffers, consider whether they really need it. Most can pay out of pocket and submit reimbursement requests. However, if employees travel or entertain donors regularly on your nonprofit’s behalf, it may make sense to give them cards.
Just ensure that cardholders understand the rules. Explicitly say (even if it seems obvious) that they can’t use the card for personal expenses, and list prohibited uses such as cash advances and electronic cash transfers, as well as charges over a specified amount. State that reimbursement for returns of goods or services must be credited directly to the card account. Employees should never accept cash or refunds directly.
What’s management’s role?
Manager involvement is essential to helping prevent credit card abuse. Require employees to seek preapproval prior to incurring any credit card charge. Stress that unauthorized purchases (and related late fees and interest) will become the employee’s responsibility. Employees should be required to provide documentation (such as itemized receipts) to their authorizing supervisor for review.
Supervisors need to indicate their approval of the charges by a signature and date on the receipts or on a standardized expense form. Your accounting department should reconcile monthly credit card statements, and the statements should be reviewed by an executive or board member.
How do you enforce it?
Make sure staffers understand the possible consequences of violating your credit card policy, including employment termination and criminal prosecution. To ensure there’s no misunderstanding, require employees to acknowledge that they’ve read the policy and agree to follow it in writing before they receive a card. Contact us if you have any questions.
If your company faces the need to “remediate” or clean up environmental contamination, the money you spend can be deductible on your tax return as ordinary and necessary business expenses. Of course, you want to claim the maximum immediate income tax benefits possible for the expenses you incur.
These expenses may include the actual cleanup costs, as well as expenses for environmental studies, surveys and investigations, fees for consulting and environmental engineering, legal and professional fees, environmental “audit” and monitoring costs, and other expenses.
Current deductions vs. capitalized costs
Unfortunately, every type of environmental cleanup expense cannot be currently deducted. Some cleanup costs must be capitalized. But, generally, cleanup costs are currently deductible to the extent they cover:
Maximize the tax breaks
In addition to federal tax deductions, there may be state or local tax incentives involved in cleaning up contaminated property. The tax treatment for the expenses can be complex. If you have environmental cleanup expenses, contact us so we can help plan your efforts to maximize the deductions available.
Accounting for contributions and grants has often proven complicated for not-for-profits, especially when they come with donor-imposed conditions. But 2018 guidance from the Financial Accounting Standards Board (FASB) provided some much-needed clarification of earlier instructions.
Traditionally, nonprofits have taken varying approaches to characterizing grants and similar contracts as exchange transactions (also known as reciprocal transactions) or contributions (nonreciprocal transactions). The new guidance makes the process relatively simple. To determine how to treat a grant or similar contract, assess whether the “provider” receives commensurate value for the assets it’s transferring. If so, treat the grant or contract as an exchange transaction.
If the provider doesn’t receive commensurate value, determine whether the asset transfer is a payment from a third-party payer for an existing transaction between you and an identified customer (for example, payments made under Medicare). If it is, the transaction isn’t a contribution, and other accounting guidance would apply. If it isn’t, the transaction is accounted for as a contribution.
Distinguishing between conditional and unconditional contributions has been the other main challenge for nonprofits. But the new rules stipulate that a conditional contribution includes:
Already in effect
The FASB’s Accounting Standards Update No. 2018-08 already affects most nonprofits. It takes effect for most organizations that are recipients of funds for annual reporting periods starting after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. The rules generally take effect one year later for organizations that are resource providers.
Note that, as a result of this guidance, you may find yourself accounting for more grants and similar contracts as contributions than you have in the past. If you aren’t sure what this means for your financial statements, loan covenants and other matters, contact us.
A month after the new year begins, your business may be required to comply with rules to report amounts paid to independent contractors, vendors and others. You may have to send 1099-MISC forms to those whom you pay nonemployee compensation, as well as file copies with the IRS. This task can be time consuming and there are penalties for not complying, so it’s a good idea to begin gathering information early to help ensure smooth filing.
There are many types of 1099 forms. For example, 1099-INT is sent out to report interest income and 1099-B is used to report broker transactions and barter exchanges. Employers must provide a Form 1099-MISC for nonemployee compensation by January 31, 2020, to each noncorporate service provider who was paid at least $600 for services during 2019. (1099-MISC forms generally don’t have to be provided to corporate service providers, although there are exceptions.)
A copy of each Form 1099-MISC with payments listed in box 7 must also be filed with the IRS by January 31. “Copy A” is filed with the IRS and “Copy B” is sent to each recipient.
There are no longer any extensions for filing Form 1099-MISC late and there are penalties for late filers. The returns will be considered timely filed if postmarked on or before the due date.
A few years ago, the deadlines for some of these forms were later. But the earlier January 31 deadline for 1099-MISC was put in place to give the IRS more time to spot errors on tax returns. In addition, it makes it easier for the IRS to verify the legitimacy of returns and properly issue refunds to taxpayers who are eligible to receive them.
Hopefully, you’ve collected W-9 forms from independent contractors to whom you paid $600 or more this year. The information on W-9s can be used to help compile the information you need to send 1099-MISC forms to recipients and file them with the IRS. Here’s a link to the Form W-9 if you need to request contractors and vendors to fill it out: https://bit.ly/2NQvJ5O.
Form changes coming next year
In addition to payments to independent contractors and vendors, 1099-MISC forms are used to report other types of payments. As described above, Form 1099-MISC is filed to report nonemployment compensation (NEC) in box 7. There may be separate deadlines that report compensation in other boxes on the form. In other words, you may have to file some 1099-MISC forms earlier than others. But in 2020, the IRS will be requiring “Form 1099-NEC” to end confusion and complications for taxpayers. This new form will be used to report 2020 nonemployee compensation by February 1, 2021.
Help with compliance
But for nonemployee compensation for 2019, your business will still use Form 1099-MISC. If you have questions about your reporting requirements, contact us.
It’s no secret that this is a challenging time for charitable fundraising. In its annual Giving USA 2019 report, the Giving USA Foundation noted a decrease in individual and household giving, blaming such impersonal factors as tax law changes and a wobbly stock market.
So why not fight back by making personal appeals to supporters? Requests from friends or family members have traditionally been significant donation drivers. Even in the age of social media “influencers,” prospective donors are more likely to contribute to the causes championed by people they actually know and trust.
The dedicated members of your board can be particularly effective fundraisers. But make sure they have the information and training necessary to be successful when reaching out to their networks.
When making a personal appeal to prospective donors, your board members should:
Meet in person. Letters and email can help save time, but face-to-face appeals are more effective. This is especially true if your nonprofit offers donors something in exchange for their attention. For instance, they’re more likely to be swayed at an informal coffee hour or after-work cocktail gathering hosted by a board member.
Humanize the cause. Say that your charity raises money for cancer treatment. If board members have been impacted by the disease, they might want to relate their personal experiences as a means of illustrating why they support the organization’s work.
Highlight benefits. Even when appealing to potential donors’ philanthropic instincts, it’s important to mention other possible benefits. For example, if your organization is trying to encourage local business owners to attend a charity event, board members should promote the event’s networking opportunities and public recognition (if applicable).
Consider equipping board members with a wish list of specific items or services your nonprofit needs. Some of their friends or family members may not be able to support your cause with a monetary donation but can contribute goods (such as auction items) or in-kind services (such as technology expertise).
If you’re concerned about declining donations and need help finding new revenue streams, contact us for ideas.
One of the most laborious tasks for small businesses is managing payroll. But it’s critical that you not only withhold the right amount of taxes from employees’ paychecks but also that you pay them over to the federal government on time.
If you willfully fail to do so, you could personally be hit with the Trust Fund Recovery Penalty, also known as the 100% penalty. The penalty applies to the Social Security and income taxes required to be withheld by a business from its employees’ wages. Since the taxes are considered property of the government, the employer holds them in “trust” on the government’s behalf until they’re paid over.
The reason the penalty is sometimes called the “100% penalty” is because the person liable for the taxes (called the “responsible person”) can be personally penalized 100% of the taxes due. Accordingly, the amounts the IRS seeks when the penalty is applied are usually substantial, and the IRS is aggressive in enforcing it.
The penalty can be imposed on any person “responsible” for the collection and payment of the taxes. This has been broadly defined to include a corporation’s officers, directors, and shareholders under a duty to collect and pay the tax, as well as a partnership’s partners or any employee of the business under such a duty. Even voluntary board members of tax-exempt organizations, who are generally exempt from responsibility, can be subject to this penalty under certain circumstances. Responsibility has even been extended in some cases to professional advisors.
According to the IRS, being a responsible person is a matter of status, duty and authority. Anyone with the power to see that the taxes are paid may be responsible. There is often more than one responsible person in a business, but each is at risk for the entire penalty. Although taxpayers held liable may sue other responsible persons for their contributions, this is an action they must take entirely on their own after they pay the penalty. It isn’t part of the IRS collection process.
The net can be broadly cast. You may not be directly involved with the withholding process in your business. But let’s say you learn of a failure to pay over withheld taxes and you have the power to have them paid. Instead, you make payments to creditors and others. You have now become a responsible person.
How the IRS defines “willfulness”
For actions to be willful, they don’t have to include an overt intent to evade taxes. Simply bowing to business pressures and paying bills or obtaining supplies instead of paying over withheld taxes due to the government is willful behavior for these purposes. And just because you delegate responsibilities to someone else doesn’t necessarily mean you’re off the hook.
In addition, the corporate veil won’t shield corporate owners from the 100% penalty. The liability protections that owners of corporations — and limited liability companies — typically have don’t apply to payroll tax debts.
If the IRS assesses the penalty, it can file a lien or take levy or seizure action against the personal assets of a responsible person.
Avoiding the penalty
You should never allow any failure to withhold taxes from employees, and no “borrowing” from withheld amounts should ever be allowed in your business — regardless of the circumstances. All funds withheld must be paid over on time.
If you aren’t already using a payroll service, consider hiring one. This can relieve you of the burden of withholding and paying the proper amounts, as well as handling the recordkeeping. Contact us for more information.
To properly fulfill their fiduciary duties, your not-for-profit’s board needs certain information. And it’s up to the executive director and managers to ensure they have it. This doesn’t mean you have to share every internal email, memo or phone message. Board members are busy and you don’t want to bog them down with superfluous reading material. However, there are several types of information you must share so that they can make informed decisions.
Financial data and filings
The first is financial information. To fully understand your nonprofit’s position, the board must receive copies of your Form 990. The board president or treasurer should review this document and approve it before it’s filed.
The board also must get the results of any audit you’ve conducted, salary information for key staff and monthly and quarterly financial reports showing income and expenses. If your organization provides directors and officers insurance, provide proof to board members.
Strategic information includes reports on your nonprofit’s work, such as how programs are being carried out and how they’re used, progress on event timelines, and membership statistics. If your organization collects information from the audience it serves through formal or informal means, provide at least an executive summary of your findings to your board.
Occasionally sharing with the board articles that relate to your nonprofit’s mission, locations or audiences also may be useful.
Board member info
To help foster teamwork and commitment to the cause, ask that members share brief bios and other relevant background information. Also publicly share thank-yous when board members make special efforts — whether those efforts are individual (such as securing an event sponsor) or group (performing due diligence on a new executive director).
How do you know whether a piece of information should be shared with your board? Ultimately, if it’s something that will help them serve your nonprofit, it’s something you should share. Contact us with any questions you may have.