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SKR+Co Alert: Individual tax planning in the aftermath of the Supreme Court's health care law ruling
July 11, 2012
Since the U.S. Supreme Court issued its health care law ruling on June 28, most of the attention has focused on its mandates, expansion of coverage and state insurance exchanges. But the Patient Protection and Affordable Care Act of 2010 includes some significant tax-related provisions affecting individuals that are scheduled to take effect in 2013 and 2014, unless Congress repeals them or takes other action.
Now is the time to start planning so you can minimize any negative tax consequences to the extent possible.
To read the full article explaining what steps you might want to take, Click Here.
What does it all mean for you?
We would be happy to take a look at your individual tax situation and how this ruling may affect you.
Please contact us at (719) 630-1186 or through our Secure Email if you have any questions.
SKR+Co Alert: Waldo Canyon Fire – Financial Resource Guidance
June 29, 2012
Our hearts go out to all of you suffering from the effects of the Waldo Canyon Fire. This disaster affects our entire community to one degree or another, and we are heartened to see so many reach out to provide help and support to neighbors and strangers.
We realize that one area of concern for many may be how to rebuild their financial records that may have been damaged or destroyed. Another concern may be filing the right paperwork with the right agencies at the right time. This e-blast touches on several areas of possible concern with links to some of the best resources to help you and your family, friends, or business.
As always, please contact us with any specific questions and we'll do our best to help you find the answers. Our thoughts and prayers are with you all.
Putting the financial pieces back together
This booklet is written to help you regain a sense of financial balance following a disaster by offering suggestions on steps to take immediately, what to do in the initial weeks and months, and how to begin planning again for the future.
As of yesterday, June 28th, Colorado’s request for an expedited major disaster declaration has been received, reviewed and accepted by the White House. That means that taxpayers affected by the Waldo Canyon Fire have certain relief provisions. See the specific website links below for details.
We also want to remind you that Stockman Kast Ryan + CO maintains electronic copies of our clients' tax records and would be happy to provide them to you should the need arise.
Internal Revenue Service
Disaster Assistance and Emergency Relief for Individuals and Businesses
Casualty Losses
Another issue you may be wondering about is how your losses are treated for tax purposes: whether they are deductible, how much, and what is the process. According to the IRS, "If you have a casualty loss from a federally declared disaster that occurred in an area warranting public or individual assistance (or both), you can choose to treat the loss as having occurred in the year immediately preceding the tax year in which the disaster happened, and you can deduct the loss on your return or amended return for that preceding tax year."
The IRS provides helpful information regarding casualty losses due to disaster on their website. But we realize that you may need help sifting through the information, so please contact us if you have questions or need assistance.
Internal Revenue Service
Casualty, Disaster, and Theft Losses – Including Federally Declared Disaster Areas
Again, we realize this is a very difficult time for so many in our community. If we can be of service to you in any way, please contact us at (719) 630-1186 or through our Secure Email.
SKR+Co Alert: The creation of"Little GAAP" has been approved for private companies!
June 8, 2012
After considering numerous public comments, the Financial Accounting Board (FAF) — the parent organization to the Financial Accounting Standards Board (FASB) — has approved the creation of the Private Company Council (PCC). The PCC will identify and vote on exceptions and modifications to U.S. GAAP that respond to the needs of private companies and their financial statement users. This article details PCC’s role and discusses the AICPA’s plan to develop “little GAAP.”
If you own a private company, it’s a good idea to monitor the activities of the PCC and the AICPA, which will likely have a big effect on how you prepare your financial statements. For more information on the PCC, please give us a call. We’d be happy to answer your questions.
Contact us with any questions or concerns at (719) 630-1186 or through our Secure Email.
SKR+Co Nonprofit Newsletter Spring 2012
A Window to your world: Making sure your board echoes your community's diversity
Board members are a nonprofit’s ambassadors to the constituencies it serves. But a lack of diversity — whether physical, societal or economic — can signal an underlying problem: a disconnect from the community. A nonprofit can improve its funding and program effectiveness when it reflects the population it serves, as well as the community (or communities) in which it operates. This article offers suggestions for improving diversity, while a sidebar shows there are ways to mix it up beyond just the board of directors.
“Quid pro quo” describes an arrangement in which a contributor gives money in exchange for something else. Whether it’s a supporter buying a ticket for a charity ball or an attendee at a charity auction successfully bidding on a hotel stay, such situations create an obligation for a nonprofit. This article describes the rules that determine whether a contribution is quid pro quo; how to value goods, services and auctioned items; and instances when quid pro quo reporting isn’t necessary.
The word “benchmark” may strike some as organizational lingo, but the practice of benchmarking often proves valuable for nonprofits. Nonprofits that incorporate financial benchmarks into their operations are better at anticipating negative financial trends and may even see revenues climb, expenses drop and efficiencies improve. This article explains the specific benefits of benchmarking and discusses metrics that many nonprofits can use in the process.
Independent Sector, a coalition of nonprofits, foundations and corporate giving programs, has recently decided to redirect the bulk of its efforts. The organization had focused largely on opposing proposals to limit the charitable tax deduction for high-income taxpayers.
This past winter, however, Independent Sector adopted new "Guiding Principles on Deficit Reduction and Tax Reform." The principles build on the premise that — as a matter of justice, fairness and effectiveness — steps taken to address the nation's fiscal challenges should favor policies that won't exacerbate income inequality or increase poverty. The principles will guide the organization's analysis and commentary on budget, deficit reduction and tax proposals.
We have several nonprofit resources available to you on our website. You can see prior newsletters, disclosure requirements, as well as Form 990 and its instructions. Click Here to go to the Not-for Profit Services web page.
For more information about any of the articles here or our nonprofit services, please contact us at (719) 630-1186 or through our Secure Email:
Make your mark by benchmarking
The word “benchmark” may strike some as organizational lingo, but the practice of benchmarking often proves valuable for nonprofits. Nonprofits that incorporate financial benchmarks into their operations are better at anticipating negative financial trends and may even see revenues climb, expenses drop and efficiencies improve.
What is benchmarking?
Benchmarking is an ongoing process of measuring an organization against expectations, past experience or industry norms for productivity and profitability and then making adjustments to improve performance in relation to those metrics. Ideally, your nonprofit will consider both:
Internal benchmarks — to monitor and detect trends, based on your organization’s historical results and statistics, as well as expectations, and
External benchmarks — to ascertain where it’s thriving and where it lags behind, based on data from peers.
Benchmarking provides essential information for effectively developing and implementing strategic plans. It helps an organization keep a watchful eye on its financial health and determine where costs can be cut and revenues increased. Nonprofits can use benchmarks to demonstrate their efficiency to stakeholders such as donors and grantors.
Benchmarks for nonprofits
The first step is to define what your nonprofit needs to measure. Focus on the metrics that are most critical to the success of your mission and the key indicators of the organization’s financial health and operational effectiveness. For many nonprofits, those metrics will include:
Program efficiency (program service expenses / total expenses). This ratio identifies the amount you spend on your primary mission, as opposed to administrative and fundraising costs. This ratio is of utmost importance to stakeholders.
Fundraising efficiency (unrestricted contributions / unrestricted fundraising expenses). How many dollars do you collect for every dollar you spend on fundraising? The higher this ratio, the more efficient your fundraising. What qualifies as a good ratio depends on the organization’s size, its types of fundraising activities, and so on.
Operating reliance (program service revenue / total expenses). This ratio indicates whether your nonprofit could pay all of its expenses solely from program revenues.
Organizational liquidity (expendable net assets / total expenses). How much of the year’s total expenses is considered expendable equity or reserves? The higher the ratio, the better the liquidity.
Also consider benchmarks such as average donor contributions, expenses per member and other ratios that measure trends for liquidity, operating yield, revenue, borrowing, assets and similar metrics. No matter which benchmarks you choose, though, you’ll need reliable processes for collecting and reporting the data.
For comparison’s sake
Comparing the nonprofit’s performance to benchmarks allows you to zero in on areas with the greatest potential for improvement. Armed with this information, you may be able to improve performance without making significant changes in your operations. Further, when comparing against external benchmarks, you might improve performance by simply adopting best practices used by your peers.
You can obtain information on other nonprofits’ metrics from websites such as GuideStar and Charity Navigator or from commercial software. Information also may be available from state government databases and trade associations. Take steps, though, to ensure you’re comparing apples to apples — that the two organizations you are stacking up against each other are truly comparable.
Make it a team effort
Some organizations have found it worthwhile to include staff in the benchmarking process. Their involvement in setting aggressive but attainable benchmarks — and measuring progress — can achieve buy-in and help foster teamwork as your nonprofit moves toward and surpasses its goals. Also include your financial advisor, who can help you select the most appropriate benchmarks for your organization and provide advice on how to improve your financial and operational performance.
When contributors receive something in return
Does your charity understand how to treat quid pro quo arrangements? “Quid pro quo” describes an arrangement in which a contributor gives money in exchange for something else. Whether it’s a supporter buying a ticket for your charity ball or an attendee at your charity auction successfully bidding on a hotel stay, such situations create an obligation for your nonprofit.
Understanding the requirements
According to IRS rules, you may ignore contributions of less than $75, but if your not-for-profit receives more than $75 and provides a benefit to the donor, you must advise the donor that it’s a quid pro quo contribution. With such contributions, donors can deduct only the amount they pay in excess of the value of the goods or services.
Additionally, the charity must put in writing the amount donated, the goods or services provided in return, and a good-faith estimate of their value. You must also provide written acknowledgment when the donation is solicited or when it’s received.
If you’re holding a musical performance for which tickets are sold, for example, each ticket should disclose the tax-deductible portion of the ticket price (in this case, the market value of a similar event in your area). You must make the disclosure in a readily visible format. You can find examples in IRS Publication 1771, Charitable Contributions — Substantiation and Disclosure Requirements.
Your organization could be penalized for failing to furnish the proper acknowledgment and disclosure. Fines are $10 per contribution, up to $5,000 for the fundraising event. If the contribution is $250 or more, failure to provide and describe a good-faith value of the benefit may cost the donor their contribution deduction.
Valuing the goods and services
A key task for the charity is to value the goods or services. An example: Your organization takes a group of supporters to a sporting event and pays for their tickets. The supporters then make large donations. Determining quid pro quo is fairly simple in such cases: The amount your organization paid for the tickets would be considered the fair market value, and only the amount of the contributions in excess of this valuewould be a tax-deductible contribution for the donor.
It’s not as easy when some of the items given away have been donated to your organization. Let’s say, for instance, that your charity put on a one-day chocolate lovers’ event with live chamber music. The hosting hotel charged you a reduced amount for the candy and desserts as its contribution, and the chamber quartet performed at no cost. To establish the value to be reported to the donor, you must determine what it would cost someone to attend a similar event. In this case, you might be able to find a comparable activity in a nearby community.
Placing value on auctioned items
All items auctioned at a charity auction (silent or regular) must have a value placed on them. The charity should ask the donor to put a value on the item unless it’s readily apparent, such as with a $50 gift certificate. The value should be the amount that a willing buyer would pay for the item in an “arm’s length” transaction — that is, in the marketplace.
The charity can then publish the item’s value on bid cards or in a catalog of auction items. This serves as the acknowledgment, and the buyers will be entitled to a deduction for the amount paid in excess of that value.
Understanding exceptions to the rule
There are a few instances when quid pro quo reporting isn’t necessary:
Membership exception. This exception happens when membership benefits (free admission or free parking, for example) are provided, but the annual membership fee is $75 or less.
Token exception. This exception takes place when a contribution is for $49.50 or more and the goods cost less than $9.90, or the value of the benefit to the donor doesn’t exceed 2% of the donation or $99, whichever is less.
Intangible religious exception. This exception pertains to religious benefits, such as religious services or classes that are provided by an organization operated exclusively for religious purposes (excluding travel, education and consumer goods).
In other situations, it’s safer to report quid pro quo than not.
Subjective decisions
Making decisions on the value of items you give to contributors in exchange for contributions often involves a degree of subjectivity — value is sometimes in the eye of the owner. If you have any disclosure or reporting questions concerning contributions to your nonprofit and quid pro quo arrangements, contact your CPA.
A window to your world
Making sure your board echoes your community’s diversity
Board members are your nonprofit’s ambassadors to the constituencies you serve. But when someone from the outside takes a look inside, does she or he see a reflection of your community, or are the images a mismatch?
Identifying the problem
In its infancy, a nonprofit may simply want to get the word out about its mission. So recruiting as many loved ones, friends and friends of friends as possible may be the most efficient approach. As time passes, however, the not-for-profit might find that it’s represented solely by one race, sex, religion or economic class.
Such lack of diversity can signal an underlying problem: a disconnect from the community. A nonprofit can improve its funding and program effectiveness when it reflects the population it serves, as well as the community (or communities) in which it operates.
Mixing things up
What’s considered “healthy” diversity will vary from organization to organization. But think of it like this: The more diverse your board is in attributes, the more diverse it will be in thoughts and ideas. This diversity can come in many forms — physical, societal or economic. The goal is to mirror the population you serve in your appointees to the board.
If your bylaws limit the number of board members you can have at any given time, you might consider amending them to include the nonprofit’s commitment to board diversity. Be very careful, though, that the size of your board doesn’t become unwieldy. There are other ways to commit to well-balanced leadership and community input. (See the sidebar “Other paths to diversity.”)
Assessing skills and demographics
The first step to a great mix is to ask board members to write their own profiles. In the instructions you give — or on the form you provide — include the attributes you consider important, such as skill sets and a particular demographic. From this information, you’ll be able to see what the board may lack.
Look at the group as a whole and assess where the organization lies on the diversity continuum. Imagine a scale from “1” to “5” with “5” displaying your nonprofit’s ideal diversity. Assess your members and give yourself a score. The diversity, or lack thereof, should be obvious. You may find, for example, that the board is underrepresented by females, persons of color, young adults or individuals with a financial background.
Getting the word out
Identifying that your board needs more diversity is easy. Figuring out what to do about it can be more difficult. Start with your current board members. Communicate with them the need for diversity — if they haven’t already vocalized the need themselves. Ask members to dip into their personal and professional networks to help find the right individual(s) for your nonprofit.
Also gather input from your community and the organizations that serve it. Your chamber of commerce might be a place to start, but there are many options. If your nonprofit lacks the perspective of young professionals, for example, contact a local “young professionals” group, such as Colorado Springs’ Chamber Rising Professionals, Leadership Pikes Peak, or recent college graduates. Does your organization need diversity via a financial perspective? Express your need to a local CPA firm.
Using local resources
Local nonprofit associations can prove very helpful to your organization. Both the Colorado Nonprofit Association and the Center for Nonprofit Excellence (CNE) offer many resources and opportunities to help you find the right board members and to equip them for their board service.
Opportunities, opportunities
Building an effective board of directors should be a challenge that your not-for-profit happily faces. Every time a board member resigns, an opportunity to give your organization the wings of diversity emerges.
SKR+Co Alert: E-filing is Safe, but Beware: Identity Thieves are Prowling
April 10, 2012
Can you trust the e-filing system?
Last year, nearly 100 million taxpayers opted for the safest, fastest and easiest way to submit their individual tax returns IRS efile. E-file is the norm for individual taxpayers and more and more businesses are also submitting their forms electronically.
But a question we continue to hear is, “Is it safe?” We live in a time where more and more of our interactions, including those involving our finances, are conducted over the internet. This is no secret to identity thieves. But according to the IRS, e-filing is very safe. The IRS e-file system has never had a security breach. In fact, over 400 million returns have been electronically filed since 1986 without a security incident.
Here are some of the facts about the IRS e-file System. The system:
is not done over email
has many built-in security features
employs multiple firewalls
uses state of the art virus and worm detection
meets or exceeds all government security standards
is constantly tested for weaknesses by penetration testing
has never had a security breach
All internet transmissions use SSL (Secure Sockets Layer) encrypted security measures
IRS e-file transmissions are very secure because the IRS has been extremely diligent in the design, development, analysis and testing of the current infrastructure and system. IRS e-file meets or exceeds all government security standards and includes multiple firewalls.
Most e-filed online tax returns are transmitted over phone lines from the return preparer to a third-party transmitter. From there, the returns are forwarded over secured lines to the IRS. Intercepting telephone transmissions is quite difficult and requires access to phone company major transmission lines. Also, to transmit data like tax returns over telecommunications lines means that the information gets converted into digital format which could not be easily read even if it were intercepted.
As you can see, the IRS has instituted safeguards to ensure that e-filing your tax return is a safe process.
Could your tax records be susceptible to identity theft?
Identity theft occurs when someone uses your personal information such as your name, Social Security number (SSN) or other identifying information, without your permission, to commit fraud or other crimes. You could be vulnerable if this information is not properly protected.
The IRS suggests the following to minimize the risk of becoming a victim:
Don't carry your Social Security card or any other document(s) with your SSN on it.
Don’t give a business your SSN just because they ask. Give it only when required.
Protect your financial information.
Check your credit report every 12 months.
Secure personal information in your home.
Protect your personal computers by using firewalls, anti-spam/virus software, update security patches, and change passwords for Internet accounts.
Don’t give personal information over the phone, through the mail or on the Internet unless you have initiated the contact or you are sure you know who you are dealing with.
If you have any concerns or questions or think you may be a victim of identity theft, we can assist you in resolving the issues, if you wish.
How do you know if your tax records have been affected by identity theft?
Usually, an identity thief uses a legitimate taxpayer’s identity to fraudulently file a tax return and claim a refund. Generally, the identity thief will use a stolen SSN to file a forged tax return and attempt to get a fraudulent refund early in the filing season.
You may be unaware that this has happened until you file your return later in the filing season and discover that two returns have been filed using the same SSN.
Be alert to possible identity theft if you receive an IRS notice or letter that states that:
More than one tax return for you was filed,
You have a balance due, refund offset or have had collection actions taken against you for a year you did not file a tax return, or
IRS records indicate you received wages from an employer unknown to you.
What to do if your tax records were affected
If you receive a notice from the IRS, respond immediately. If you believe someone may have used your SSN fraudulently, notify the IRS immediately by responding to the name and number printed on the notice or letter. You will need to fill out the IRS Identity Theft Affidavit, Form 14039.
Keep in mind, The IRS does not initiate contact with taxpayers by email to request personal or financial information.
If you receive a suspicious email or phone call, report it immediately!
Report suspicious online or emailed phishing scams to: phishing@irs.gov
For phishing scams by phone, fax or mail, call:
1-800-366-4484
Contact us with any questions or concerns at (719) 630-1186 or through our Secure Email.
SKR+Co Nonprofit Newsletter Winter 2012
It's all political – or is it? What nonprofits can and can't do in campaigns
With election season heating up, not-for-profits must take care not to stray into prohibited political activity that could jeopardize their tax-exempt status. The IRS has addressed the acceptability of several common activities. This article discusses the dividing lines separating partisan vs. nonpartisan activities in areas such as voter registration drives, candidate appearances and business activities. A sidebar shows how tax law distinguishes between politics involving candidates and lobbying involving legislation; certain involvement is permissible.
In the wake of a severe recession — with a drop in public grants and private donations — for-profit endeavors can have a magnetic appeal as nonprofit survivors look for new sources of revenue. But there are a number of factors that a nonprofit should consider before taking on the significant cost and responsibility of operating a for-profit company. This article lists the incentives and drawbacks, while a sidebar lists two key actions that nonprofit executives have taken in successfully creating a for-profit subsidiary.
Safety net essentials Now more than ever, you need operating reserves
One study of charities found that 57% of the organizations surveyed had insufficient operating reserves to cover three months of expenses — the minimum level many experts consider necessary to maintain financial stability. Forgoing reserves leaves nonprofits vulnerable to rapid or unexpected drops in revenue or jumps in expenses. This article explains why it’s necessary to have sufficient operating reserves, and offers questions a nonprofit should ask itself when trying to determine what is sufficient.
The Salvation Army last holiday season began shifting to digital donations at their famous red kettles. The charity was testing the use of Square, a mobile payments tool that allows anyone to accept credit card payments via mobile devices. In an effort to keep up with tech-savvy donors and changing technology, the organization deployed Square at 10 red kettle locations each in Chicago, Dallas, New York and San Francisco.
Bell ringers in the test cities carried Android™ smartphones donated by Sprint Nextel that were equipped with Square's postage-stamp-size card reader and two apps, one from Square and one from the Salvation Army. (Square also works on iPhone® and iPad® devices.) Donors swiped their credit cards and signed on the phone itself, just as they would at any credit card processing terminal, and the money was deposited directly into the Salvation Army's account.
The New York Times reported that other nonprofits and individual fundraisers also have begun to use the Square technology. A Girl Scout troop in Silicon Valley, for example, used it last year to sell about 400 boxes of cookies at the workplace of one troop member's father.
Federal Disclosure and Colorado Registration Requirements
As a resource for you, we have added a page on our website addressing the federal disclosure requirements of nonprofit organizations as well as the registration requirements of the state of Colorado. Click Here to go to the web page.
Form 990 and Instructions
Another resource available on our website is a link to 2011 Form 990 and its instructions. Click Here to go to the web page, then scroll down to the heading "Exempt Organization Forms."
For more information about any of the articles here or our nonprofit services, please contact us at (719) 630-1186 or through our Secure Email.
Safety net essentials
Now more than ever, you need operating reserves
Too few nonprofits keep healthy operating reserves. A study of charities in the Washington, D.C., area, for instance, found that 57% of the organizations had insufficient operating reserves to cover three months of expenses — the minimum level many experts consider necessary to maintain financial stability.
Forgoing reserves leaves your nonprofit vulnerable to rapid or unexpected drops in revenue or jumps in expenses. You may regard such funds as optional or a luxury, but that’s just not the case these days.
What are operating reserves?
The Nonprofit Operating Reserves Initiative Workgroup defines “operating reserves” as the portion of unrestricted net assets that nonprofits designate to sustain financial operations. The assets would be tapped in the event of significant unbudgeted increases in operating expenses or losses in operating revenues. Reserves also should be liquid, or easily converted to cash.
Note that operating reserves and cash on hand are not the same. Cash is often restricted for specific purposes, such as future projects or programs, and is therefore unavailable for other uses, unlike reserves.
Operating reserves also are distinct from endowments. Endowments are restricted, as well, and the organization can typically spend only the interest generated by the principal funds, making that money unavailable for daily operations.
Why do we need reserves?
The times are turbulent, and even when the economy gets solidly back on its feet, it won’t stay that way indefinitely. Operating reserves can help nonprofits bridge the gap when revenue streams or donations fall off because of a wobbly economy.
Robust reserves also allow organizations to seize unexpected opportunities, set aside funds for long-term goals and plans, and cover increased expenses after a natural disaster or other emergency hits.
You also can tap reserves to ramp up your staff and deliver services under federal contracts that don’t provide payment for 30 to 60 days. Reserves will come in handy, too, if grants fail to come through, or major fundraising events are delayed or canceled.
How much do we need?
There’s no universal operating reserves benchmark that applies to every organization, and the question of an appropriate operating reserves amount can raise some thorny issues among stakeholders. Some may argue, for example, that the nonprofit has an ethical obligation to devote as much of its available resources as possible to carrying out its mission. Others might worry about the appearance or difficulty of soliciting additional donations while sitting on significant reserves.
Reserves, however, aren’t about accumulating wealth. They’re about securing the financial stability necessary to function effectively for the long run.
According to the Workgroup, you need to consider several questions when setting the goal amount, including:
Are your revenue sources subject to large unexpected negative fluctuations?
Are your resources subject to sudden increases in demand?
Are your income and expenses subject to significant day-to-day fluctuations?
Have your planning and budgeting processes been historically accurate in forecasting financial results?
Are adequate backup resources likely to be available?
Is the governing body trying to expand the organization?
The Workgroup recommends a minimum reserves level of 25% or three months of your nonprofit’s annual expense budget. The adequacy of reserves beyond that amount will depend on specific circumstances.
You can’t afford not to
Organizations without sufficient operating reserves can run into trouble meeting payrolls, paying bills, providing services and retaining qualified staff. Your CPA can help you determine the amount of reserves you need to minimize such risks.
