Mon - Thurs 8AM - 5PM , Fri 8AM - 2PMCall Us605-342-5630Our Address810 Quincy Street Rapid City, SD 57701

What?! Nonprofits pay tax on employee offered parking??


No more posts
car-money-iStock-831571150-1-1280x853.jpg

July 24, 2019

Yes, you read that correctly!  A hidden provision in the 2017 Tax Cuts and Jobs Act makes employer-provided parking nondeductible.  Because nonprofits don’t generally pay tax to begin with, parking is now considered a taxable event that requires filing of Form 990-T and payment of 21% tax.  Here are a couple examples:

  • NPO pays third-party for employee parking. The payment made to this third-party equates to $100 per month per employee.  Because this amount is below IRS limits, none of it is included as wages on the employee’s W2.  However, it is taxable to the NPO, and a Form 990-T must be filed.
  • NPO owns its parking lot and reserves a certain number of spots for employees only. An allocation must be made to determine the cost of those spots, and a Form 990-T must be filed to pay tax on that amount.

The above examples are simplistic – there are many details for allocating costs in different situations, as well as instances when employer provided parking could be taxable to the employee.  One way to avoid this situation is to never reserve parking spots for employee-only use.  If you choose to offer the benefit, contact our non-profit experts to understand the tax implications.


compliance-iStock-638256864-1280x853.jpg

June 6, 2019

After several years of extensions, the new components of the procurement compliance requirement are finally applicable.  What does this mean for governmental and non-profit entities?  Any governmental or non-profit entity expending federal dollars is required to follow the new components of this compliance requirement.

The new components are effective for entities with year-ends on or after December 31, 2018.

In a nutshell, the compliance requirement contains the following components, discussed in more detail below:

  • Entities must have a written procurement policy
  • Entities must maintain records to detail the history of the procurement
  • One of the approved procurement methods must be utilized

One of the biggest changes within this compliance requirement is the fact that the procurement policy needs to be written.  There is not a standard template to utilize, as each entity’s procedures for the purchasing process differ.  The policy should contain (1) a statement regarding the entity’s adherence to the applicable state and local laws and regulations, provided such conform to federal law, (2) standards of conduct regarding conflicts of interest surrounding selection, award, or administration of the award by employees, officers, or agents, as well as organization conflicts of interest for a parent, affiliate, or subsidiary that is not a state/local government or Indian tribe, and (3) a statement that the purchase of the product or service must not unduly restrict competition, identify the requirements which the offer must fulfill, and use current prequalified lists to ensure maximum open and free competition.

Next, an entity must maintain records detailing the purchase of items, which will vary based on the type of procurement method utilized.  For example, a rationale for the method of procurement selected, the selection or rejection of contractors, and the basis for contract prices.

Once it is determined an item or project needs paid for or funded, the requirements of the applicable procurement method must be followed.  The various methods are described below:

  • Micro-purchase – The purchase of an item less than $3,500 (adjusted periodically for inflation)[1]. When practical, distribute the purchase of such items among qualified suppliers.
  • Small purchases – The purchase of an item exceeding the micro-purchase threshold of $3,500, but less than the simplified acquisition threshold of $150,000 (adjusted periodically for inflation)1. For these items, price or rate quotes must be obtained from an “adequate number of qualified sources.”  The guidance does not clarify how many is an “adequate number” and such determination must be made by each entity.
  • Sealed bid – This method applies to purchases greater than $150,000. Sealed bids must be obtained from an adequate number of known suppliers, it must be publicly advertised, and there must be an invitation to bid and opening the bids.
  • Competitive proposal – This method also applies to purchases greater than $150,000. There must be a request for proposal (RFP), an adequate number of qualified sources, a written method for conducting technical evaluations and for selecting recipients, and contracts awarded to the responsible firm based on price and other factors.  Qualifications-based procurement may be used for architectural and engineering professional services only.
  • Noncompetitive proposal – This method results in solicitation from a sole source and only applies when an item can be purchased from a single source, there is written approval for the specific purchase, an emergency has occurred, and/or competition is deemed inadequate after soliciting proposals.

For governmental entities located within South Dakota, keep the State bidding rules in mind as well, as they contain requirements for bidding at a threshold less than the $150,000 federal requirement.  The current bid booklet can be obtained at the following link – http://legislativeaudit.sd.gov/resources/Bid%20Booklet%202018.pdf

The procurement compliance requirement can be accessed within the Electronic Code of Federal Regulations (Title 2, Part 200.317) at the following link –

https://www.ecfr.gov/cgi-bin/text-idx?SID=2c3b760522ce1f6e31689567eb2fd4f1&mc=true&node=sg2.1.200_1316.sg3&rgn=div7

Please feel free to contact any of the governmental/non-profit experts at Ketel Thorstenson with any questions.

 

[1] On June 20, 2018, the Office of Management and Budget (OMB) issued memorandum M-18-18, which clarifies and changes the micro-purchase and simplified acquisition thresholds.  However, confusion exists regarding the effective date of such guidance, which will not be clarified until the release of the 2019 Compliance Supplement, which is anticipated by the end of June 2019.

 


golf-iStock-904564690-1280x1447.jpg

June 6, 2019

After a long winter, it is finally time to enjoy the beautiful outdoors of the Black Hills!  The good weather also means a flurry of charitable golf tournaments.  Although your development team takes the lead in seeking out businesses to be hole sponsors, donate prizes, and form teams of golfers, the accounting department also plays a critical role in all phases of the tournament.

Tournament Planning

Any communication made to golfers, sponsors, or donors by the development team has both accounting and tax implications.  If the accounting department is not involved in these discussions in advance, unintended complexities and additional work could be created.  Things to consider include:

  • Who will be collecting cash and soliciting prizes?
  • How much of the fee represents golf and cart rentals vs. contributions?
  • Are all in-kind contributions of prizes being tracked?
  • Do fundraising materials contain statements restricting tournament proceeds for any specific purpose of the organization?
  • Are sponsors receiving any substantial return benefit?

Tournament Controls

As with any significant process, internal controls surrounding cash collections should be reviewed to ensure no one individual has complete control over the process.  This can be especially challenging if volunteers are utilized as part of the fundraising team.  Prizes being solicited from area businesses should be logged and safeguarded.  Involving more than one individual in this process will ensure the prizes make it to the tournament and are not kept for personal use.  Receipts should be given for cash collected in advance.  The numerical sequence of receipts should be tracked independently to ensure completeness.  More than one individual should be involved in collecting cash at the event – dual control will prevent cash receipts from being taken.  Also consider publishing a list of all donors and sponsors, along with contact information to notify the organization if the information is not accurate – this contact should be someone independent of the development and accounting staff.

Tournament Accounting

Several unique accounting considerations could apply to your golf tournament:

  • Participant fees should be split between direct donor benefits (i.e. fair value of green fees, cart rental, food, etc.) and contributions (any excess amount).
  • In-kind contributions should technically be recorded at fair market value at the time of the donation, and then removed from the general ledger when they are given out as prizes. The resulting contribution revenue and special event expense should be recorded.
  • If proceeds are restricted for a specific purpose, they need to be tracked in order to ensure funds are spent as intended.

Tournament Tax Implications

  • Splitting tournament fee revenue between direct donor benefits and contributions is also required for reporting your golf tournament properly on Form 990, as these are two separate line items.
  • If gross receipts from your tournament exceed $5,000, you may be required to report the event in more detail on Schedule G. This detail includes itemizing event expenses (e.g. food, facility rentals, and prizes).
  • Identifying the benefit tournament sponsors receive in exchange for their sponsorship is necessary to determine if sponsorship revenue results in unrelated business income tax. If a sponsor receives “substantial return benefit” (e.g. advertising beyond just identifying the sponsor), you may be subject to additional tax.

Tournament Wrap-Up

Your work is not done after the tournament is over.  In addition to finalizing the accounting, you also need to consider two other important items:

  • Prizes paid to individuals that exceed $600 require 1099 reporting
  • Tournament donors (including golfers who paid more than fair value to participate) should receive acknowledgement letters thanking them for their donation and advising them of their charitable deduction. A good faith estimate of what the donor received in return for the contribution (i.e. green fees, meal, etc.), must be included in the acknowledgement. If the donor provided a non-cash prize, the acknowledgement should include a description of the item, but not a value.

You are now ready to hit the golf course!  Contact the professionals at Ketel Thorstenson, LLP if you need any assistance or clarification as you plan your tournament.

 


iStock-697849244-1280x862.jpg

June 5, 2019

As a non-profit organization dependent upon the support of the community, and especially upon the funding from donors, you may be wondering, what motivates donors to give?  Once you know what some of the key drivers are, your organization can procure and grow its relationship with all types of potential donors.

Your Mission
Of course, one of the top reasons a donor gives to your organization is because they feel moved by your mission.  Whether your mission affects them or someone they know personally, or they realize how vital your mission is to the community, your mission is the key selling point to any and all types of donors.

How the Money is Spent
Speaking of the importance of your organization and mission, donors also want to see that their money is being used resourcefully and funding what they think it should be going towards to make a difference.  As such, specific programs or services you provide can also influence donors.  If you have programs unique in the community, you have a new service your organization will provide, or maybe you ask for a donation for a specific upcoming event, donors are more likely to contribute to your causes.  If your organization has run a capital campaign in the past, you know that this can prove a big success.  Many organizations running capital campaigns state they will focus the funds into a certain area or program, such as construction of a new building for operations.

Sometimes It Pays to Feel Good
Sharing a success story from your organization helps to put a face to the organization and pulls on the heartstrings of donors, making them want to give to continue your success.  You may also perform an event each year that influences the emotions of donors.  These events could be anything from a bake sale where the people uplifted by your organization help out, or having one of your clients speak at a banquet to potential donors about how your organization has benefitted them.

Other Times It Feels Good to Pay
Finally, we all know some donors give to receive some of the tax benefits.  Although the standard deduction rose in 2018 with the Tax Cuts and Jobs Act, this could prove to be good news for non-profits, as donors may want to give more to receive the tax benefits in the upcoming years.

As your organization may receive many different types of funding from individual donations to grants, always feel free to reach out to any of the KTLLP Nonprofit Team members if you have questions on the proper accounting treatment, and we would be more than happy to work with you!


Kyle-Kopren-CJR_7668full-1-1280x853.jpg

April 24, 2019

I am Kyle Kopren a manager at KT and a member of KT’s Non-Profit Term. My specializations include: retail/manufacturing, nonprofits, financial institutions and construction. Throughout the year I get to experience a wide variety of different industries.

I enjoy working on larger more complicated jobs as it is fun to understand the organization’s operations. I like my job because I get to see multiple client’s operations throughout the year.

I grew up on a ranch in northwest South Dakota near Bison, where I still enjoy going back to and helping family out. I graduated from a large class of eight students from Bison High School. For post-secondary education I received a double major in business administration and accounting at the University of Mary in Bismarck, North Dakota. After four years in North Dakota, I wanted to come home to South Dakota so Ketel Thorstenson was a perfect fit. Outside of KT, I am a member of my church’s finance committee and a member of the professional development committee for the South Dakota CPA Society. When I am not working you can find me at the golf course losing golf balls, fishing or in my garage doing woodworking projects. I find all three hobbies frustrating and rewarding at times. Most off all, I enjoy the outdoors which makes living in the Black Hills the right match.


X
X