By Amy Driscoll, CPA
GetInvolved Nonprofit Guide Article published in the July 2013 News Journal
After years and years of anonymity, the IRS Exempt Organizations Determinations Office is in the eye of a raging political storm. In reading the headlines, you may be thankful that you are not trying to gain exemption for a group with “Tea Party” or “Patriot” in its name, but the surge from this storm may spread farther than you think.
In 2008, the Pension Protection Act of 2006 started requiring many more organizations claiming exempt status to file reports with the IRS. All nonprofits are now required to file a form annually, even those with fewer than $25,000 in gross receipts. Small organizations are required to file a 990-N “e-Postcard,” whereas previously there was no reporting requirement at all for entities of that size.
The consequence of not filing for three consecutive years is a revocation of tax-exempt status. Starting in 2011, organizations that were unaware of these changes or did not comply for various reasons had their status revoked. Reasons for non-compliance ranged from frequent change in board members who were unaware of the requirements to previous notices to an address change whereby no IRS notices were received. The reason didn’t matter - revocation became widespread. According to the IRS website, over 1,600 entities in Delaware alone automatically lost their exempt status.
In order to be reinstated as a tax-exempt entity, organizations are basically required to start over. A 40-page Form 1023 (or 1024 depending on the type of organization) needs to be submitted, with accompanying fees ranging from $300 to $850. In what you might presume was a predictable event, a wave of re-applications has hit the IRS since the revocations began and the already-reeling Exempt Organizations Determinations Office has been trying to cope with the increased volume.
To complete the disaster, the recent scandal hit. As a quick recap, some IRS agents within the Exempt Organizations Determinations Office were found to have inappropriately targeted groups with politically sounding terms in their names, such as “Tea Party” or “Patriot.” There are continuing revelations resulting in senior officials being fired, resigning or “taking the Fifth” in congressional hearings. An ironic side note is that, as 501(c)(4) organizations, these groups had not been required to file for formal approval of their exempt status.
As someone who calls the IRS often on behalf of my clients, I can tell you that there are many helpful, professional and courteous IRS employees. There are also a few who are challenged in those areas. While some may see a high-level conspiracy here, from our experience, whether you are able to get anything accomplished often depends simply on who picks up the phone (or file) at the IRS.
The Exempt Organizations Determinations Office of the IRS is at a near standstill with reviewing applications. At the AICPA's Not-For-Profit Industry Conference on June 20, Ms. Lois Lerner was scheduled, but not available to present (she had been in charge of the Exempt Organizations Division of the IRS before infamously taking the Fifth at a congressional hearing). Her replacement at the conference, Mr. Marcus Owens, reported that the IRS Exempt Organizations Determinations Branch is in a virtual lockdown. He also noted that the Branch is now assigning for review applications received in April of 2012. That's not a typo – they are now reviewing applications that were received 15 months ago! Mr. Owens may have been channeling Ms. Lerner when he suggested that the audience of CPAs write to their representatives in Congress, implying the delay was primarily their fault.
If you have filed a Form 1023, 1024 or 8734 (used to convert private foundations into public charities) or are planning to file one in the near future, be ready to hunker down and ride out the storm – I wish we had better news. When your application is eventually reviewed and hopefully approved, the exempt status will be retroactive to the date the form was filed. It is possible to request an earlier retroactive date, but that may result in further delays in processing.
If you have questions about changes to your organization’s exempt status, please contact Pete Kennedy, Amy Driscoll or any other member of our Nonprofit Practice team, at Cover & Rossiter at (302) 656-6632.
Cover & Rossiter, P.A. is one of the most respected and experienced CPA firms serving the accounting, tax and audit needs of the nonprofit community in Delaware.
This article can also be found on our website here.
Cover & Rossiter is one of the area's oldest and most respected certified public accounting and advisory firms. Focused on being the best rather than the biggest, we assembled an outstanding team with a wide range of skills. It is our goal to provide our clients with innovative services designed to maximize profitability and minimize tax burden. Our advice is current… our client focus timeless.
Thursday, July 25, 2013
Wednesday, July 17, 2013
Lease Accounting: FASB Revised Exposure Draft
Director, Pete Kennedy
On May 16th, the FASB issued its revised exposure draft on Lease Accounting. This is the second time an exposure draft has been released on this topic. The draft details a major re-write to the rules around accounting for leases. In a nutshell:
Lease accounting as it currently stands separates leases into two basic types; Operating Leases and Capital Leases. The majority of all leases are accounted for as Operating Leases. The accounting is simple – you expense the lease payments ratably over the lease term. In most cases the expense is recorded as the lease is paid. Capital Leases presume that a substantial portion of the ownership of an asset has transferred due to the lease terms. If the term of the lease meets certain capital lease parameters, an asset is recorded on the books and an offsetting liability for the present value of the lease payments is recorded and those are both amortized away as the lease term progresses.
The proposed change would do away with the traditional operating lease vs. capital lease concept and would treat nearly all leases as capital leases are currently treated. This includes many mundane leases (think vehicles, construction equipment, medical equipment, copiers, office space etc.).
My opinion: Not a good idea. This will create an accounting fire drill. Where previously organizations would only need to expense lease payments as they are paid, they would now need to expend a significant amount of accounting resources calculating the net present value of lease payments (using an appropriate discount rate) to capitalize the “right of use asset” and an offsetting liability and expense the lease payment with an interest component for each and every lease with terms over one year. Where there are renewal options those may need to be incorporated also. This sets up book vs. tax differences, throws off financial ratios, renders many debt covenants invalid and in general makes a mess of a previously relatively simple accounting area for most organizations.
In reading through some of the letters in response to the initial exposure draft in 2010 (there were nearly 800 of them), I was struck by the dividing line between those in favor of the changes – generally from academia or from a State Accounting Society, and those opposed – generally someone who would actually need to implement and comply with the revised standard. As an editorial comment, although the FASB goes to great lengths to solicit public input, the volume of responses is weighted in most cases disproportionately in favor of those whose interest is more academic than practical.
The feedback I’ve been getting at seminars and the like over the past few years is that the train has left the station; that this is a done deal and we should all begin preparing to comply in the next few years.
But...all is not yet lost. There appears to now be some divided thinking on the FASB Board regarding this issue. Also; a letter to the FASB Chairman signed by 57 members of the US House of Representatives discusses a study on the projected economic costs of the change. The letter urges the FASB to conduct a detailed study on the costs and benefits of the change before proceeding. I think I see Delaware’s own John Carney on there along with Rep. Peter King (R-NY) and Rep. Maxine Waters (D-IL) – safe to say that’s a pretty broad spectrum. They can’t agree on gun control, government spending, same-sex marriages or much of anything else, but they do agree that pushing this change through is a bad idea. So here’s what we can do:
The FASB does read and consider the feedback it receives. The responses are cataloged and published on the FASB’s website so some of us have to limit our vocabulary to words that are professionally acceptable. My response is already on there. The closing date is September 13, 2013. If you have time - make your voice heard and help the FASB to see the bigger picture here. I believe that there is a possibility this change can be turned back and a significant amount of administrative effort and cost saved.
Go to www.FASB.org to see the Lease Accounting Exposure Draft. Comments can be submitted via e-mail to director@Fasb.org – indicate the File Reference # of 2013-270.
If you have any questions, please contact Pete Kennedy at pkennedy@coverrossiter.com.
The original article can be found on our website here.
Lease accounting as it currently stands separates leases into two basic types; Operating Leases and Capital Leases. The majority of all leases are accounted for as Operating Leases. The accounting is simple – you expense the lease payments ratably over the lease term. In most cases the expense is recorded as the lease is paid. Capital Leases presume that a substantial portion of the ownership of an asset has transferred due to the lease terms. If the term of the lease meets certain capital lease parameters, an asset is recorded on the books and an offsetting liability for the present value of the lease payments is recorded and those are both amortized away as the lease term progresses.
The proposed change would do away with the traditional operating lease vs. capital lease concept and would treat nearly all leases as capital leases are currently treated. This includes many mundane leases (think vehicles, construction equipment, medical equipment, copiers, office space etc.).
My opinion: Not a good idea. This will create an accounting fire drill. Where previously organizations would only need to expense lease payments as they are paid, they would now need to expend a significant amount of accounting resources calculating the net present value of lease payments (using an appropriate discount rate) to capitalize the “right of use asset” and an offsetting liability and expense the lease payment with an interest component for each and every lease with terms over one year. Where there are renewal options those may need to be incorporated also. This sets up book vs. tax differences, throws off financial ratios, renders many debt covenants invalid and in general makes a mess of a previously relatively simple accounting area for most organizations.
In reading through some of the letters in response to the initial exposure draft in 2010 (there were nearly 800 of them), I was struck by the dividing line between those in favor of the changes – generally from academia or from a State Accounting Society, and those opposed – generally someone who would actually need to implement and comply with the revised standard. As an editorial comment, although the FASB goes to great lengths to solicit public input, the volume of responses is weighted in most cases disproportionately in favor of those whose interest is more academic than practical.
The feedback I’ve been getting at seminars and the like over the past few years is that the train has left the station; that this is a done deal and we should all begin preparing to comply in the next few years.
But...all is not yet lost. There appears to now be some divided thinking on the FASB Board regarding this issue. Also; a letter to the FASB Chairman signed by 57 members of the US House of Representatives discusses a study on the projected economic costs of the change. The letter urges the FASB to conduct a detailed study on the costs and benefits of the change before proceeding. I think I see Delaware’s own John Carney on there along with Rep. Peter King (R-NY) and Rep. Maxine Waters (D-IL) – safe to say that’s a pretty broad spectrum. They can’t agree on gun control, government spending, same-sex marriages or much of anything else, but they do agree that pushing this change through is a bad idea. So here’s what we can do:
The FASB does read and consider the feedback it receives. The responses are cataloged and published on the FASB’s website so some of us have to limit our vocabulary to words that are professionally acceptable. My response is already on there. The closing date is September 13, 2013. If you have time - make your voice heard and help the FASB to see the bigger picture here. I believe that there is a possibility this change can be turned back and a significant amount of administrative effort and cost saved.
Go to www.FASB.org to see the Lease Accounting Exposure Draft. Comments can be submitted via e-mail to director@Fasb.org – indicate the File Reference # of 2013-270.
If you have any questions, please contact Pete Kennedy at pkennedy@coverrossiter.com.
The original article can be found on our website here.
Delaware CPAs: Looking to Better Manage Your Cash Flow, Payables & Receivables?
What if you could eliminate writing and mailing checks, bill payment errors, late payments and check fraud?
What if you could do it all online, anytime, anywhere?
Cover & Rossiter has a new tool available that can help you better manage your cash flow, accounts payables and accounts receivables.
As your accounting firm and trusted business advisor, we’d like to introduce you to an easy-to-use, new online A/P and A/R bill management tool that can help you pay bills and get paid faster than ever before.
We are already using this technology with many of our other clients and recommend that you use it, too. Here are some of the major benefits that this tool can offer:
The original article can be found on our website here.
What if you could do it all online, anytime, anywhere?
Cover & Rossiter has a new tool available that can help you better manage your cash flow, accounts payables and accounts receivables.
As your accounting firm and trusted business advisor, we’d like to introduce you to an easy-to-use, new online A/P and A/R bill management tool that can help you pay bills and get paid faster than ever before.
We are already using this technology with many of our other clients and recommend that you use it, too. Here are some of the major benefits that this tool can offer:
- This technology eliminates manual tasks such as data entry, envelope stuffing, filing and check runs.
- All of your bills can be paid online in less than one hour.
- The technology can help you get paid faster. From our experience, receivables can be collected 2-3 times faster!
- Safe and Secure: It uses secure bank-level encryption and your data is always backed up.
- Accessible: You can securely access all of your financial documents, bills, invoices and transactions from any web browser or mobile device.
- Easy to Use: Quickly pay any vendor, large or small and invoice customers online.
- Efficient: Eliminate data entry, streamline vendor management and receive customer payments directly into your bank account.
- Collaborative: Connects you to your colleagues, customers, vendors and accountants.
- Strategic: Improve cash flow and automate Accounts Payable (A/P) and Accounts Receivable (A/R).
- Complete: Syncs with Intuit QuickBooks, Intacct, Sage Peachtree, NetSuite and other accounting packages.
The original article can be found on our website here.
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