Tax-exempt organizations that distribute publications to their members should be aware of a recent Tax Court decision.

A tax-exempt organization, the National Education Association of the United States published two magazines that were distributed to dues-paying members and a small number of nonmember paid subscribers.

The organization’s literature stated that a portion of the dues was paid for production of the magazines. The asso-ciation sold advertising space to defray the expenses of producing and mailing the magazines.

The organization experienced unrelated business taxable income from the advertising but offset the income with a loss from its circulation activities.

Treasury regulations require that a portion of the mem-bership dues be treated as circulation income when the right to receive an organization’s periodicals is associated with membership in the organization and members have a legal right to receive the publications.

The Tax Court found that, because the organization’s members had a legal right to receive the magazines, a portion of the membership dues was circulation income as a result of this income allocation. There was no loss from the circulation activity, and the organization owed unrelated business income tax on the advertising income. (National Education Association of the United States v. Commissioner, 137 TC No. 8, Sept. 28, 2011) ■

Whatever area of your nonprofit that needs help – whether it’s accounting, program development, evaluation, marketing or direct client assistance – a college intern can provide a desperately needed extra pair of hands.

An intern's willingness to take on lesser, novice tasks frees up your staff to concentrate on more important priorities. And, students at the master’s level may be available to do a research project for you that would normally

cost tens of thousands of dollars. At that level, students are looking for projects tied to class work or for thesis subjects.

For example, teams of MBA students from Emory University’s Goizueta Business School will prepare marketing and strategic program plans for nonprofits.

The best way to proceed is to determine exactly how many interns you need and where you need them. Then research local colleges

Putting together the financial picture for a nonprofit can feel like a 1,000-piece jigsaw puzzle.

A grant pays for one staff position but only part of another. Direct pro-gram costs are accounted for, but the office rent isn’t. And don’t forget the executive director’s salary!

But then you realize administra-tive costs aren’t allowed by any of your present funding sources. So just how much in unrestricted funds do you need to cover your budget shortfall anyway?

An annual budget with projected revenue sources won’t answer this question. Neither will an income statement. Fortunately, there is a spreadsheet tool you can use to identify exactly what is funded – or not funded – in your organization.

By showing you exactly how much is needed to cover staff positions and costs, this tool can also help you plan a funding strat-egy. Targeted fundraising and grant writing are more efficient than the scattergun approach of grabbing at all available opportunities. And, it can help with staff planning, too, by showing you how much of each position is committed. More than one organization has been in the position of over-committing a staff member.

It’s easiest to prepare your analysis on a fiscal year basis. Across the top of the spreadsheet, list the revenue sources from which you have funding committed or pending. Along the left-hand side of the spread-sheet, list your budget line items and annual amount budgeted.

To determine accurate funding coverage, calculate the actual dollars available for the fiscal year you are analyzing. Sources might use a different fiscal year.

For example, you are on a January-through-December year,

See Intern programs inside

See Budget tool inside

Intern programs a win-win for students and organization

Make financial decisions easier with budget tool

Court rules on nonprofit’s income from publication sales

Targeted fundraising and grant writing are more efficient than

the scattergun approach of grabbing at all available opportunities

I n s i d e

I n s i d e

➜New requirements impact fair value disclosures for not-for-profits

➜Court rules on nonprofit’s income from publication sales

Spring 2012

The technical information in this newsletter is necessarily brief. No final conclusion on these topics should be drawn without further review and consultation. Please be advised that, based on current IRS rules and standards, the information contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty assessed by the IRS. © 2012 CPAmerica International

More Than Money

Financial news & notes for nonprofit organizations from:

100 Second Avenue South, Suite 600, St. Petersburg, Florida 33701 | (727) 821-6161 | www.gsscpa.com

100 Second Avenue South, Suite 600, St. Petersburg, Florida 33701www.gsscpa.com | gss@gsscpa.com

(727) 821-6161

If we may answer any of your questions on the information contained in this publication, please contact us.

Not-for-profit entities will need to raise the bar when addressing fair value disclosures that need to be incorporated in financial statements.

The Financial Accounting Standards Board issued new amendments to U.S. generally accepted accounting principles (GAAP) last May in the form of an update that amends literature currently being used by not-for-

profit entities to properly address disclosure matters in their financial statements.

The new requirements that will have the greatest impact on how not-for-profit entities draft note disclosures are outlined below.

Highest and best use concept. There is a clarification related to how a core principle in the fair value guidance needs to be addressed in developing fair value measurements and financial statement note disclosures built-around those measurements. The highest and best use and valuation premise applies only in measuring fair value of nonfinancial assets. This conclusion is based, in part, upon the notion that financial assets and liabilities, by definition, do not have alternative uses.

Instruments classified within net assets. The fair value of an instrument that is classified in the net assets section of the statement of financial position should be measured from the perspective of a market participant holding that instrument as an asset. Essentially, the fair value of an instrument classified

in net assets is estimated from the perspective of a market participant holding the identical item as an asset.

Premiums and discounts. The authoritative literature now includes the stipulation that premiums or discounts may be applied in a fair value measurement to the extent that they are consistent with the unit of account and market that participants would consider them in a transaction for the asset or liability. This issue comes into play when, for example, a significant volume of investment securities might be valued based on the amount that could be received upon sale.

Incremental disclosure issues. For certain hard-to-quantify fair value measurements, disclosure is needed related to the valuation processes used, to include a narrative description of how those measurements might change significantly based on a variety of different factors.

Disclosure relief for other than public entities. The new disclosure requirements are more robust for entities that are public entities when compared to private entities, including not-for-profit entities. For example, certain reclassifications within the fair value measurement hierarchy do not need to be disclosed for nonpublic entities. Additionally, some of the more onerous disclosures related to how fair value measure-ments could change given a variety of factors do not need to be addressed by not-for-profit entities.

Effective date and transition. The new fair value measure-ment and disclosure guidance needs to be applied prospectively by both public nonpublic entities. For public entities, the new guidance is effective for interim and annual periods beginning

after Dec. 15, 2011. For nonpublic entities, which include most not-for-profit entities, the amendments are effective in annual periods beginning after Dec. 15, 2011. – Thomas A. Ratcliffe, Ph.D., CPA

and they are on a July-through-June year. Use the portion of revenue associated with your year, in this case, 50 percent of the total grant.

If the grant will renew, then you can include 50 percent of the new grant. You want to use what is called the “matching

principle” in accounting: allocating revenues and expenses to the period when they are earned and incurred. This procedure will give you a truer picture of what is happening financially than a general overall budget.

Next, assign the revenue dollars by line item in the spreadsheet column associ-

ated with the funding source, using the original grant budget as a guideline.

In the sample chart below, the annual budget is $195,000.

Grant No. 1 provides $72,000 to cover part of three staff positions, direct costs associated with the grant project and a portion of overhead costs. Grant No. 2, totaling $23,000, covers staff and direct costs but none of the overhead costs. The total funding gap is $100,000.

An organization with the situation shown in the chart can approach filling the gap in several ways. Unrestricted revenues or operating grants could be sought.

Other program grants might be obtained, but the program manager is almost fully committed. That means tasks will need to be handled by the executive director or the program assistant.

Or another program manager could be hired – but that won’t alleviate the problem of covering executive director and program assistant salaries and the rest of the overhead. In any case, this analysis has graphically displayed the current situation and will allow management to make fact-based decisions regarding allocation of work and fundraising.

Try it for your organization, and see how much easier it is to make financial management decisions. – Elizabeth Penney, M.B.A

Budget tool continued from front

Intern programs continued from frontand universities to find a fit. A career center is a good place to start, or cultivate a relationship with the appropriate department.

For example, the College of Housing and Consumer Economics at the University of Georgia requires students to do internships as part of their course work. Students spend a set number of hours working free for a business or nonprofit and write a paper detailing their learning for academic credit. Intern programs provide unparalleled opportunities for students and can result in permanent employment after graduation.

When University of Georgia student Tara Gray accepted an intern-ship for the nonprofit ACE, she wasn’t aware it would change the whole course of her career. “It

was the first real-life experience I had with financial literacy,” she said.

Now she is a graduate student studying financial literacy and plans to spend her career counseling low-income families in money management. After her internship ended, Gray was hired

by ACE part-time to help design and evaluate a new program, another career-building move. ACE has also hosted interns as junior small business loan officers, accounting assistants and social media specialists.

To find an intern, you will need to write a description of your internship opportunity. It should include academic outcomes such as learning how to use accounting software while per-forming hands-on fund accounting. If you have a particular research need or organizational challenge you want the intern to tackle, mention it.

Understand, though, that even if the work is free, running an intern program will cost you in effort and staff time. You will need to interview and select the interns and, once they are on board, supervise and sign off on their work.

But if you choose well, you will benefit beyond mere tasks completed. Students of all ages bring fresh eyes and enthusiasm to your organization.

And you may have the reward of helping a student find a meaningful career path they hadn’t considered previously. Internship programs are a true win-win for students and non-profits. – Elizabeth Penney, M.B.A.

For nonpublic entities, which includes most not-for-profit entities,

the amendments are effective in annual periods beginning after Dec. 15, 2011.

Students at the master’s level may be available to do a research project for

you that would normally cost tens of thousands of dollars.

Costs Fiscal Year Budget

Grant #1 Grant #2 Total Funded FundingGap

Executive Director

$75,000 $10,000 $5,000 $15,000 $60,000

Program Manager

$50,000 $35,000 $10,000 $45,000 $5,000

Program Assistant

$30,000 $15,000 $5,000 $20,000 $10,000

Direct Expenses

$10,000 $7,000 $3,000 $10,000 $0

Overhead $30,000 $5,000 $0 $5,000 $25,000Totals $195,000 $72,000 $23,000 $95,000 $100,000

Charitable groups raise funds by a variety of means, of course, but a recent survey shows that approaching corporations and foundations is the No. 1 way these groups go about fundraising.

A 2011 survey of more than 800 nonprofit groups by The Nonprofit Research Collaborative found that 90 percent of charities seek funds from corporations and foundations.

Other effective methods of fundraising used by nonprofit groups include asking board members and seeking major gifts (84 percent), special events (82 percent) and direct mail (81 percent).

Three in five nonprofits use Internet fundraising and email, with 45 percent using social media and planned giving.

During 2011, almost all areas of fundraising saw an increase in the 30-36 percent range, with special events doing particularly well with 46 percent of groups reporting an increase in giving. Planned gifts had only a 25 percent increase in gifts for the first six months of 2011. ■

How do most nonprofit organizations raise their funds?

Spring 2012 More Than Money2 Spring 2012 More Than Money 3

Not-for-profit entities will need to raise the bar when addressing fair value disclosures that need to be incorporated in financial statements.

The Financial Accounting Standards Board issued new amendments to U.S. generally accepted accounting principles (GAAP) last May in the form of an update that amends literature currently being used by not-for-

profit entities to properly address disclosure matters in their financial statements.

The new requirements that will have the greatest impact on how not-for-profit entities draft note disclosures are outlined below.

Highest and best use concept. There is a clarification related to how a core principle in the fair value guidance needs to be addressed in developing fair value measurements and financial statement note disclosures built-around those measurements. The highest and best use and valuation premise applies only in measuring fair value of nonfinancial assets. This conclusion is based, in part, upon the notion that financial assets and liabilities, by definition, do not have alternative uses.

Instruments classified within net assets. The fair value of an instrument that is classified in the net assets section of the statement of financial position should be measured from the perspective of a market participant holding that instrument as an asset. Essentially, the fair value of an instrument classified

in net assets is estimated from the perspective of a market participant holding the identical item as an asset.

Premiums and discounts. The authoritative literature now includes the stipulation that premiums or discounts may be applied in a fair value measurement to the extent that they are consistent with the unit of account and market that participants would consider them in a transaction for the asset or liability. This issue comes into play when, for example, a significant volume of investment securities might be valued based on the amount that could be received upon sale.

Incremental disclosure issues. For certain hard-to-quantify fair value measurements, disclosure is needed related to the valuation processes used, to include a narrative description of how those measurements might change significantly based on a variety of different factors.

Disclosure relief for other than public entities. The new disclosure requirements are more robust for entities that are public entities when compared to private entities, including not-for-profit entities. For example, certain reclassifications within the fair value measurement hierarchy do not need to be disclosed for nonpublic entities. Additionally, some of the more onerous disclosures related to how fair value measure-ments could change given a variety of factors do not need to be addressed by not-for-profit entities.

Effective date and transition. The new fair value measure-ment and disclosure guidance needs to be applied prospectively by both public nonpublic entities. For public entities, the new guidance is effective for interim and annual periods beginning

after Dec. 15, 2011. For nonpublic entities, which include most not-for-profit entities, the amendments are effective in annual periods beginning after Dec. 15, 2011. – Thomas A. Ratcliffe, Ph.D., CPA

and they are on a July-through-June year. Use the portion of revenue associated with your year, in this case, 50 percent of the total grant.

If the grant will renew, then you can include 50 percent of the new grant. You want to use what is called the “matching

principle” in accounting: allocating revenues and expenses to the period when they are earned and incurred. This procedure will give you a truer picture of what is happening financially than a general overall budget.

Next, assign the revenue dollars by line item in the spreadsheet column associ-

ated with the funding source, using the original grant budget as a guideline.

In the sample chart below, the annual budget is $195,000.

Grant No. 1 provides $72,000 to cover part of three staff positions, direct costs associated with the grant project and a portion of overhead costs. Grant No. 2, totaling $23,000, covers staff and direct costs but none of the overhead costs. The total funding gap is $100,000.

An organization with the situation shown in the chart can approach filling the gap in several ways. Unrestricted revenues or operating grants could be sought.

Other program grants might be obtained, but the program manager is almost fully committed. That means tasks will need to be handled by the executive director or the program assistant.

Or another program manager could be hired – but that won’t alleviate the problem of covering executive director and program assistant salaries and the rest of the overhead. In any case, this analysis has graphically displayed the current situation and will allow management to make fact-based decisions regarding allocation of work and fundraising.

Try it for your organization, and see how much easier it is to make financial management decisions. – Elizabeth Penney, M.B.A

Budget tool continued from front

Intern programs continued from frontand universities to find a fit. A career center is a good place to start, or cultivate a relationship with the appropriate department.

For example, the College of Housing and Consumer Economics at the University of Georgia requires students to do internships as part of their course work. Students spend a set number of hours working free for a business or nonprofit and write a paper detailing their learning for academic credit. Intern programs provide unparalleled opportunities for students and can result in permanent employment after graduation.

When University of Georgia student Tara Gray accepted an intern-ship for the nonprofit ACE, she wasn’t aware it would change the whole course of her career. “It

was the first real-life experience I had with financial literacy,” she said.

Now she is a graduate student studying financial literacy and plans to spend her career counseling low-income families in money management. After her internship ended, Gray was hired

by ACE part-time to help design and evaluate a new program, another career-building move. ACE has also hosted interns as junior small business loan officers, accounting assistants and social media specialists.

To find an intern, you will need to write a description of your internship opportunity. It should include academic outcomes such as learning how to use accounting software while per-forming hands-on fund accounting. If you have a particular research need or organizational challenge you want the intern to tackle, mention it.

Understand, though, that even if the work is free, running an intern program will cost you in effort and staff time. You will need to interview and select the interns and, once they are on board, supervise and sign off on their work.

But if you choose well, you will benefit beyond mere tasks completed. Students of all ages bring fresh eyes and enthusiasm to your organization.

And you may have the reward of helping a student find a meaningful career path they hadn’t considered previously. Internship programs are a true win-win for students and non-profits. – Elizabeth Penney, M.B.A.

For nonpublic entities, which includes most not-for-profit entities,

the amendments are effective in annual periods beginning after Dec. 15, 2011.

Students at the master’s level may be available to do a research project for

you that would normally cost tens of thousands of dollars.

Costs Fiscal Year Budget

Grant #1 Grant #2 Total Funded FundingGap

Executive Director

$75,000 $10,000 $5,000 $15,000 $60,000

Program Manager

$50,000 $35,000 $10,000 $45,000 $5,000

Program Assistant

$30,000 $15,000 $5,000 $20,000 $10,000

Direct Expenses

$10,000 $7,000 $3,000 $10,000 $0

Overhead $30,000 $5,000 $0 $5,000 $25,000Totals $195,000 $72,000 $23,000 $95,000 $100,000

Charitable groups raise funds by a variety of means, of course, but a recent survey shows that approaching corporations and foundations is the No. 1 way these groups go about fundraising.

A 2011 survey of more than 800 nonprofit groups by The Nonprofit Research Collaborative found that 90 percent of charities seek funds from corporations and foundations.

Other effective methods of fundraising used by nonprofit groups include asking board members and seeking major gifts (84 percent), special events (82 percent) and direct mail (81 percent).

Three in five nonprofits use Internet fundraising and email, with 45 percent using social media and planned giving.

During 2011, almost all areas of fundraising saw an increase in the 30-36 percent range, with special events doing particularly well with 46 percent of groups reporting an increase in giving. Planned gifts had only a 25 percent increase in gifts for the first six months of 2011. ■

How do most nonprofit organizations raise their funds?

Spring 2012 More Than Money2 Spring 2012 More Than Money 3

Tax-exempt organizations that distribute publications to their members should be aware of a recent Tax Court decision.

A tax-exempt organization, the National Education Association of the United States published two magazines that were distributed to dues-paying members and a small number of nonmember paid subscribers.

The organization’s literature stated that a portion of the dues was paid for production of the magazines. The asso-ciation sold advertising space to defray the expenses of producing and mailing the magazines.

The organization experienced unrelated business taxable income from the advertising but offset the income with a loss from its circulation activities.

Treasury regulations require that a portion of the mem-bership dues be treated as circulation income when the right to receive an organization’s periodicals is associated with membership in the organization and members have a legal right to receive the publications.

The Tax Court found that, because the organization’s members had a legal right to receive the magazines, a portion of the membership dues was circulation income as a result of this income allocation. There was no loss from the circulation activity, and the organization owed unrelated business income tax on the advertising income. (National Education Association of the United States v. Commissioner, 137 TC No. 8, Sept. 28, 2011) ■

Whatever area of your nonprofit that needs help – whether it’s accounting, program development, evaluation, marketing or direct client assistance – a college intern can provide a desperately needed extra pair of hands.

An intern's willingness to take on lesser, novice tasks frees up your staff to concentrate on more important priorities. And, students at the master’s level may be available to do a research project for you that would normally

cost tens of thousands of dollars. At that level, students are looking for projects tied to class work or for thesis subjects.

For example, teams of MBA students from Emory University’s Goizueta Business School will prepare marketing and strategic program plans for nonprofits.

The best way to proceed is to determine exactly how many interns you need and where you need them. Then research local colleges

Putting together the financial picture for a nonprofit can feel like a 1,000-piece jigsaw puzzle.

A grant pays for one staff position but only part of another. Direct pro-gram costs are accounted for, but the office rent isn’t. And don’t forget the executive director’s salary!

But then you realize administra-tive costs aren’t allowed by any of your present funding sources. So just how much in unrestricted funds do you need to cover your budget shortfall anyway?

An annual budget with projected revenue sources won’t answer this question. Neither will an income statement. Fortunately, there is a spreadsheet tool you can use to identify exactly what is funded – or not funded – in your organization.

By showing you exactly how much is needed to cover staff positions and costs, this tool can also help you plan a funding strat-egy. Targeted fundraising and grant writing are more efficient than the scattergun approach of grabbing at all available opportunities. And, it can help with staff planning, too, by showing you how much of each position is committed. More than one organization has been in the position of over-committing a staff member.

It’s easiest to prepare your analysis on a fiscal year basis. Across the top of the spreadsheet, list the revenue sources from which you have funding committed or pending. Along the left-hand side of the spread-sheet, list your budget line items and annual amount budgeted.

To determine accurate funding coverage, calculate the actual dollars available for the fiscal year you are analyzing. Sources might use a different fiscal year.

For example, you are on a January-through-December year,

See Intern programs inside

See Budget tool inside

Intern programs a win-win for students and organization

Make financial decisions easier with budget tool

Court rules on nonprofit’s income from publication sales

Targeted fundraising and grant writing are more efficient than

the scattergun approach of grabbing at all available opportunities

I n s i d e

I n s i d e

➜New requirements impact fair value disclosures for not-for-profits

➜Court rules on nonprofit’s income from publication sales

Spring 2012

The technical information in this newsletter is necessarily brief. No final conclusion on these topics should be drawn without further review and consultation. Please be advised that, based on current IRS rules and standards, the information contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty assessed by the IRS. © 2012 CPAmerica International

More Than Money

Financial news & notes for nonprofit organizations from:

100 Second Avenue South, Suite 600, St. Petersburg, Florida 33701 | (727) 821-6161 | www.gsscpa.com

100 Second Avenue South, Suite 600, St. Petersburg, Florida 33701www.gsscpa.com | gss@gsscpa.com

(727) 821-6161

If we may answer any of your questions on the information contained in this publication, please contact us.