Speed-readingForm990ForLawyersHowardDonkin,CPAJacobsonJarvisCPA’s

November 2, 2017Seattle, Washington

20years’experiencehelpingnot-for-profitsclientswithfederaltax-relatedissues,includingrevokedexemption,UBIT,complianceandpenaltyabatement

Servedonnot-for-profitcommitteesfortheWSCPA,AICPA,WASecofState,CharityAdvisoryCommitteeandTaxAnalystReviewBoard

VolunteerleadershipwiththeRotaryGrantsCommittee,BellevueBotanicalGardenFoundation&BellevueArtsCommission

HowardDonkin,CPA,JacobsonJarvis

4reasonsyoushouldcareaboutwhatyourForm990saysaboutyourorganization

IRSAudit

ü Timeconsuming

ü Penalties

ü Revokeexemptstatus

Governance

ü Exemptpurpose(Mission)

ü Boardindependence

ü Policiesandprocedures

MarketingtoDonors

ü Accomplishments(60familiesserved)

ü Volunteers(295people&900hours)

ü Areasserved(King&Piercecounties)

Monitoring

üProcessislikeafinancialaudit(andmore)

üSuggestsbestpractices(rebuttablerules)

üAreyoumaintainingyourexemptstatus?

Yourdeterminationletterisagoodplacetostarttofindoutifyourorganizationneedstofilea990

Thissectionisthemostimportantsourceofinformationonthedeterminationletter.

Dependingonyourgrossreceiptsandassets,thereareseveraldifferentForm990savailable

• Iforganizationhasgrossreceiptsof$50,000orless,itfilesForm990-NElectronicNotice(e-postcard)

• Also,larger“small”organizationscanfilethesimplerForm990-EZifgrossreceiptsarebetween$50,000and$200,000andifassetsarelessthan$500,000.

• LargerorganizationsfilethefullForm990

Yourreturnisdue4½monthsafteryouryear-end.Extensionpossibleto10½months.

Ifyouhaverevenuesunrelatedtoyourorganization’sexemptpurpose,youmayalsoneedtofilea990-T

• Organizationswith$1,000ormoreofgrossunrelatedbusinessincomemustfileaForm990-T

• OrganizationsfrequentlyoverlookUBTIsourcessuchas:• Advertising• Parkingfees• Subleasedspace

• UBTIisreportedonpage1andpage5ofnew990• IRSislookingforcontinuinglossesthatareunreasonableina

businesssetting,orduetotheover-allocationofexpenses• Appliesto990,990-EZand990-Nfilers

Youcanimproveyourabilitytospeed-readaForm990bystartingwithfourkeypages

SnapShot– Page1

Basicinformation,summaryofactivities,governance,revenue,expenses,assets,liabilitiesandnetsassets.

Accomplishments– Page2

Mission,newprograms,threelargestprograms,numberofpatientsserved,expenses,grants&revenuebyprogram.

ChecklistofRequiredSchedules– Page3 Governance,Mgmt&Disclosure– Page6

Didyoufileacompleteandaccuratereturn?Mostcharitieshavecontributors,fundraising,grants,non-cashgiftsandotherdisclosures.

Boardindependence

Writtenpolicies

Governancedocumentsmadeavailable

Next,reviewyourcompliancerequirements…

ü Jeopardizingexemption(politicalactivity/personalbenefit)

ü Substantiationofcontributions($75/$250)

ü Publicdisclosure(1023,990,990-T)

ü Filing&extensionduedates($20/$10,000)($100/$50K)

ü Recordkeeping(what&howlong?)

ü Compliancetests(publicsupport%)

Page5ofthe990hasfilingandtaxcomplianceinformation

…andwhetheryoupasstheIRStestsformaintainingtaxexemptstatus

ProperOrganization Nondiscrimination

DoyourArticlesstateyourexemptpurposeandoperation/terminationrequirements?Haveyouupdatedchanges?

Doyouhavearaciallynondiscriminationpolicytowardsstudentsinyourgoverningdocuments,brochures,etc?(ScheduleE)

Commerciality CommunityBenefit

Doyouoperatemorelikeacommercialbusinessthanacharity,withdirectcounterparts,retailpricing,advertising,businesshours,novolunteersandnocontributions?

Whatisyourprogramexpense%?

Doyouservethepublicandnotprivateinterests?

Areyourprogramsrealandsubstantial?

RecognizingredflagsaheadoftimecanlimityourexposuretoapotentialIRSaudit

IncompleteReturn Accomplishments

Basicinformationmissing,returnnotsigned,noboardrosterand/ornofundraisingexpenseslisted.

Missingthreelargestprograms,programexpenses,grants&revenuebyprogram.

ChecklistofRequiredSchedules Governance,Mgmt&Disclosure

Forexample:• Noindependentboardmembers• Nowrittenpolicies• EDsalaryis51%ofallexpenses

Completedchecklistbutdidnotcompleterequiredschedulesforcontributors,fundraising,grants,non-cashgiftsandotherdisclosure.

Therearethreemaincriteriafordeterminingaboardmember’sindependentstatus

üNotanemployeeoftheorganization,orofarelatedorganization

ü Notanindependentcontractorreceivingover$10,000

ü NotinvolvedinatransactionreportableonScheduleL(i.e.,aninterestedparty)

RelyingonachecklistisanothergoodwaytoavoidanIRSaudit

q Acompleteandaccuratetaxreturn

q Yourprogramsareconsistentwithyourmission

q Youfollowtherulesforgiftsubstantiation(75/250)

q Nopoliticalactivity,andonlyinsubstantiallobbying

q Youhavewrittenpoliciesandfollowthem

qMonitorboardindependence(questionnaire)

qMonitorcompliancetests

Finally,youmayincludeareviewofstateandlocaltaxfilingsSalesTax&SportsOrganizations

ü Recent Excise Tax Advisory on fees charges for amusement and recreation servicessays youth orgs will remain exempt but adult program should pay B&O tax and collectsales tax on participation fees. Example, volleyball or soccer leagues.

EmploymentTaxes

ü IRS Voluntary Worker Classification Settlement Program could be a big savings. Ifan IRS or ES audit determines that your independent contractors are employees, thenyou might be subject to back taxes, penalties and interest. Voluntarily comply nowand it will cost you only about a 10% tax.

PropertyTaxes

ü Not-for-profits must pay property tax unless they file and receive an exemptionfrom the Washington State Department of Revenue and they do not violaterestrictions on property use for exempt purpose.

• Educat

Insummary,remembertostayeducated,informedandproactivewhenspeed-readingfinancialstatements

• Educateyourselfonreportingandcompliancerequirements

• Lookforredflags

• Useareviewchecklist

• Makereasonableinquiriesandexerciseindependentjudgment

• Makerecommendationsforprocessimprovements,asneeded

HowardDonkin,CPAhoward@jjco.com206-812-5484