Tag Archives: nonprofit organization

Charitable Solicitation License Refresher

Pam WilliamsAugust 4, 20170 Comment

By Rebecca Lunn

In the nonprofit arena, charitable solicitation licenses are a necessity for certain fundraising efforts. If you are an organization or individual that asks the public for contributions or donations to support a charitable purpose, a charitable solicitation license (“CSL”) is needed, unless specifically exempt by law. As many states have laws regulating the solicitation of funds for charitable purposes, it is important to check the requirements for each state your organization operates in to ensure compliance.

For organizations based in North Carolina whom are currently registered with the NC Secretary of State (SoS) Charities Bureau, keep in mind the following renewal requirements:

· The NC SoS notifies by mail all organizations who already hold licenses 65 days prior to their annual renewal date of the renewal requirements. Typically, each organization files its own CSL renewal directly with the NC SoS.

· The NC SoS has published on its website that all organizations who have a current CSL should disclose its licensure status, such as including a statement with the following wording on all solicitations: “Financial information about this organization and a copy of its license are available from the State Solicitation Licensing Branch at 919-807-2214 or 888-830-4989 for NC Residents.”

· Licenses are generally due 4 ½ months following the fiscal year-end date of the organization; however, all organizations in “current” standing with the NC SoS receive a 60-day extension without having to request it. For example, a calendar year organization in current standing has a CSL renewal due date of July 15^th in reliance on the automatic 60-day extension. Absent current standing status, an organization will be subject to late filing penalties upon its eventual updating of its record with the NC SoS.

· If more time is needed to file the CSL renewal, an additional 30-day extension is available to the organization by filing a copy of the Federal Form 8868 (extension for IRS Form 990) prior to the expiration of the automatic 60-day extension. As a result, a calendar-year organization may, by timely-filed request, extend the period of time for CSL renewal to August 15^th.

· When the CSL renewal is actually prepared, organizations must comply with the annual financial disclosure requirements via submission of one of the following: (1) a copy of the duly executed Form 990, (2) copy of the Audited Financial Statements, or (3) completing a NC SoS “Annual Financial Report” signed by 3 members of the organization’s board of directors, finance committee or audit committee.

If you are an organization who needs assistance or has additional questions on the Charitable Solicitation License requirements or renewal process, our accounting professionals at Langdon & Company would be glad to assist. Please contact us at 919-662-1001 for further information.

Also, for further information specific to the North Carolina filing requirements, please visit https://www.sosnc.gov/csl/ThePage.aspx.

Rebecca [email protected] is an Audit Senior who works primarily with non-profit organizations.

NC Senate Bill 424 “Fostering Success,” an analysis of the current proposal and how it will affect the Foster Care Benefits Program in North Carolina

Pam WilliamsJanuary 26, 20160 Comment

by Josh Bryant

Under current State law, foster children stop receiving benefits on their 18^th birthday, unless they are a full-time student, up until the age of 21. However, North Carolina legislators have been working to extend the age limit for foster care benefits from 18 to 21 under a wider swath of requirements that will undoubtedly benefit thousands who are currently cared for in the Foster Care Program.

In order to receive foster care benefits until the age of 21, under the current law a child must be a full-time student. With the passage of NC Senate Bill 424, effective August 1, 2016, under Section 1 a foster child may fulfill one of following five requirements and remain eligible to receive benefits until 21:

completing high school or a GED,
being enrolled in a college or a vocational program,
participating in an employment program,
being employed for at least 80 hours per month,
or, incapable of completing one of these requirements due to a medical condition or disability.

Additionally, “Fostering Success” also expands the ability of foster parents and children to succeed in life by allowing more “wiggle room” for decisions to be made on part of the child. For example, under the proposed law, a foster child who is a full-time student over age 18 may now be approved to live outside a foster care facility in a college dormitory or a partially-supervised residential agreement. Furthermore, the Bill will make it easier for foster children who are eligible for guardianship but are unlikely to find a permanent residence in the formation of the Guardianship Assistance Program or GAP.

In summary, “Fostering Success” lends a hand to individuals who are otherwise deemed an adult the necessary assistance they need to supplement their life without having to endure additional hardship in order to receive such help.

Funding for the bill has been set aside for implementation in the coming year and will be fully implemented August 1, 2016.

Josh ([email protected]) is a staff Auditor with Langdon & Company, LLP. He works on a variety of clients in the non-profit sector. Please contact our office if we can help your organization better understand the latest legislation and how it affects your constituents.

Thanking Donors – What’s required by the IRS?

Pam WilliamsJanuary 13, 20160 Comment

by Meagan Bulloch

As year-end fundraising drives have now ended, the development departments of many non-profits are busy preparing contribution acknowledgements or “thank you” letters. So, how can these non-profits ensure they give the donors what they expect and what the IRS requires?

If a monetary contribution was made for which the organization did not provide any good or service in return, the donor is required to have a bank record or written acknowledgement of the gift before they can claim a charitable contribution deduction on their federal tax return. It is acceptable if the acknowledgement is provided electronically to the donor but many organizations still find value in mailing personalized thank you letters.

If the donation received is greater than $250, a basic thank you note not will not suffice as adequate support for the IRS. To aid your donors the organization should provide the following information in the acknowledgement/thank you letter:

Name of your organization
Statement that the non-profit is a recognized tax-exempt entity under IRS under Section 501(c)(3)
Amount of cash contribution or description of non-cash donation (but NOT the value)
Date the donation was received
A statement that no goods or services were provided by the organization in return for the contribution

Separate acknowledgements can be provided for each contribution exceeding $250, or an annual acknowledgement can be provided if more practical. Best practice is that acknowledgement(s) should be provided to donors no later than January 31 of the year following the donation.

If your organization received a quid pro quo contribution, when a donor makes a payment exceeding $75 that is comprised of both a contribution and a good or service provided by the organization, the organization is required to provide a written disclosure.

Example – The organization holds a dinner valued at $40 and charges a ticket price of $100, the donor’s tax deduction is limited to $60. However, because the total amount paid was greater than $75, the organization must provide a disclosure statement to the donor even though the value of the contribution is less than $75. The disclosure statement provided to donors should include:

A statement informing the donor of the amount of the contribution that is tax deductible – limited to the excess of the contribution less than fair market value of the goods or services received
A good faith estimate of the fair market value of the goods and services

A penalty is imposed on charities that do not meet the written disclosure requirement. The penalty is $10 per contribution, not to exceed $5,000 per fundraising event or mailing. An organization may avoid the penalty if it can show that failure to meet the requirements was due to reasonable cause.

But what if…

Gifts in-kind with a market value in excess of $5,000 may require an appraisal (that the donor can be required to pay for)

The above guidelines are detailed in the IRS Publication 1771, these rules do not apply to a donated motor vehicle, boat or airplane if the claimed value exceeds $500. (See IRS Publication 4302, A Charity’s Guide to Vehicle Donations and IRS Publication 4303, A Donor’s Guide to Vehicle Donations).

Meagan ([email protected]) is an Audit Manager at Langdon & Company LLP. She works primarily with non-profits in various industries.

Building an Effective Board of Directors

Pam WilliamsAugust 31, 20150 Comment

by Rebecca Lunn hands raised

For many organizations, the board of directors is one of their most important tools. A good board of directors can steer the organization in the right direction by adopting comprehensive governance and financial management policies, and ensuring the prudent use of all assets. However, in order to provide sound financial oversight, board members must have a certain level of financial literacy to properly understand the organization’s financial statements.

L&C audit partner, Pam Williams, notes that a board member orientation including information on the financial statements and accounting and audit processes, as well as mission and operational matters, is a good way to educate new board members. An effective board should also have at least one member with a financial background. The organization could even consider having the board member with financial expertise, or the organization’s CFO or Controller, conduct an annual training session for the full board.

Audit partner Karen Stanley states, “You will often rely on the financial experts on the board and outside consultants, such as the organization’s CPA, to interpret the statements for you. But it’s important to remember that everyone has a duty of care to the board.” Perhaps most importantly, board members should be encouraged to ask questions when trends or budget versus actual comparisons appear unreasonable. A simple task, such as reviewing the board financial packets prior to the meeting, can help a board member increase their financial knowledge and be more prepared to ask questions during the board meetings. By taking steps such as these, board members can increase their level of financial expertise in order to fulfill their role and responsibility to the organization.

Additional information can be found online here and here. Please also feel free to contact our office with any questions you have!

Rebecca is an audit senior with Langdon & Company LLP. She has experience working with various non-profits, across many industries.

The Why, Who, What and How of an effective audit committee for nonprofit organizations

Pam WilliamsFebruary 20, 20150 Comment

by Meagan Bulloch hands

The establishing and maintaining an audit committee is considered a best practice for nonprofit organizations. An audit committee can greatly help the governing board perform their fiduciary and oversight roles over financial reporting, reducing risk and maintaining donor confidence. Some organizations may utilize their finance committee as an audit committee. What is important is not the form of the committee but the substance.

Q: Why should a nonprofit consider forming an audit committee?

A: In addition to Sarbanes Oxley and state requirements imposed for organization’s soliciting funds within certain states, the Form 990 asks if an organization has an audit committee. Although, such a committee is not a requirement, the establishment of one is considered a best practice by the IRS. As the Form 990 is a public document, answering “no” to this question may lead to funders questioning why the organization is not following a suggested best practice. The American Institute of Certified Public Accountants’ (AICPA) Audit Committee Toolkit: Not-for-Profit Organizations, 2^nd Edition (available at AICPA Store) lists numerous reasons as to why a nonprofit organization should consider forming an audit committee, including providing better: financial results, decision-making in terms of accuracy and quality of financial reporting; ability to build stronger relationships with stakeholders; as well as facilitating transitions in leadership.

Q: Who makes the best audit committee members?

A: Audit committee’s typically consist of 3-6 members with diverse backgrounds and experience all of which are considered “financially literate.” To be financially literate, members should be able to read and understand fundamental financial statements and recognize when the numbers along with associated disclosures to not make business sense. Additionally, the best audit committee members are fully involved and engaged with the organization and ensure that two-way constructive dialogue occurs at all times between all parties involved. Members should also be independent in both fact and appearance. To be truly effective, the committee must be able to resist any attempt by management to compromise financial reporting. The following relationships are considered to impair independence:

An audit committee member who is or has been an officer or employee of the organization during the past 3 years
A member who is an immediate family member of an officer or someone in management
A member who has a direct business relationship with the organization in the past three years; such as a consultant

Q: Who can serve as a financial expert on the audit committee?

A: The inclusion of at least one financial expert is a highly recommended best practice. The following attributed are deemed essential components of a financial expert:

An understanding of generally accepted accounting principles (GAAP) and nonprofit financial statements
The ability to assess the general application of such principles in connection with the accounting for estimates, accruals and reserves
Experience preparing, auditing, analyzing or evaluating financial statements that are comparable to those of the organization
An understanding of internal controls and procedures for financial reporting
An understanding of the audit committee function
A general understanding of nonprofit financial issues and specific knowledge of the nonprofit industry in which the organization operates

It is worth noting that an audit committee financial expert has no greater obligations or liability than any other members of the audit committee and board of directors who are not designated as financial experts.

Q: What should be the mission of an effective audit committee?

A: Simply put, the mission should be oversight. Specifically, the following areas should be their main focus:

Financial reporting
Risk Management

Audit function – oversight of and communication with independent auditors, both internal and external

Langdon & Company LLP will be happy to assist with your audit needs. Please contact our office!

Meagan Bulloch ([email protected]) is an audit manager at Langdon & Company LLP focused primarily on non-profit clients.

Tax Exempt Status Does Not Imply Freedom from All Taxes and Related Filing Requirements

Pam WilliamsOctober 10, 20140 Comment

by Tony Pandiscia,

As a CPA firm, we often encounter new or existing organizations inquiring about becoming tax exempt under a misconception that “tax exempt status” provides a broad immunity from all taxes and tax return filings. As a refresher, Tax Exempt Organizations (or “TEOs”) attain a legal existence under the province of state law (such as North Carolina’s “Nonprofit Incorporation Statutes”) before applying for “tax exempt status” with our Federal Government. Once the Internal Revenue Service grants a TEO Federal exempt status, a key benefit is the exclusion from income tax on all program service related revenue (i.e. revenues generated from activities directly related to a TEO’s exempt purpose). However the following represent other tax-related filings and liabilities that nevertheless apply to TEO:

INCOME TAX FILINGS AND UNRELATED INCOME. Although enjoying an exemption from income tax liability on “program service revenue”, to preserve its tax exempt status a TEO must annually file Form 990, Return of Organization Exempt from Income Tax and disclose all relevant financial information and exempt function policies and procedures. In addition, whenever income is generated via activities that are not related to an organization’s stated exempt purpose, “Unrelated Business Income Tax” (or “UBIT”) is earned. A UBIT tax return must be filed with both the Internal Revenue Service and North Carolina Department of Revenue and corresponding UBIT tax payments remitted.

SALES TAXES. Apart from the income tax reporting requirements, TEOs are put on a nearly level playing field with all businesses and consumers with respect to North Carolina Sales & Use Tax. North Carolina’s “Sales & Use Tax” is an ad valorem tax typically levied at the point of purchase, although a TEO may later recoup (via filing of a refund claim form) any taxes paid for purchases used directly in furtherance of its exempt purpose.

Beginning in 2015, TEOs who charge admission to attend a live function will be subject to Sales & Use Tax on the admission charge levied on attendees. Only TEOs that rely entirely on volunteer workforce and do not compensate any of the performers in the entertainment event will qualify for exemption. In addition, TEOs should properly designate those amounts that do not strictly represent a charge for admission (including membership fees, specific charitable donations, and payment for amenities such as parking or merchandise discounts) as they may excluded from the sales tax base.

SOLICTATION LICENSES. All TEOs that solicit contributions in North Carolina must register with the Secretary of State and obtain a “Charitable Solicitation License” [“CSL”]. Once obtained, the organization must annually renew the CSL with the filing of a renewal form, payment of a fee, and submission of financial data. A very narrow exemption from the licensing requirements applies for TEOs that solicit less than $25,000 of contributions per year and which are run entirely by volunteer labor. Upon request, the Secretary of State does permit affiliate organizations to request a “consolidated” license that covers all organizations in the group.

In summary, as a sound tax policy designed to incentivize organizations to engage in charitable activities, tax exempt status grants to a TEO a valuable freedom from income tax on program service revenue. However organizations must remember that the exemption from income tax is not a blanket exemption from all manner of taxes and filing requirements. Tax Exempt Organizations must plan accordingly to meet the filing and tax payment obligations, and avoid subjecting themselves to excessive penalties and exemption jeopardy.

Tony lead’s our tax department as an attorney and Certified Public Accountant with over twenty years of experience. Tony consults regularly with exempt organizations on matters related to recognition and preservation of tax status, unrelated business income tax, executive compensation, and internal policy matters. His expertise includes additional industries such as healthcare, real estate, research & development, manufacturing, and professional services. Tony is a frequent seminar instructor for the North Carolina Association of CPAs, for local trade groups and is regularly called upon by litigation counsel to provide expert witness testimony.

Please feel free to contact our office for more information. Tony and our highly qualified tax department are available to answer your tax questions and provide any assistance you may need.

Adult Care Update

Pam WilliamsOctober 9, 20140 Comment

With the recent announcement about the required Adult Care Home Cost Reports, we have been patiently waiting for more information. NC DHHS has published the software for these reports along with instructions. They have chosen to use the same software interface as in prior years – Microsoft Access. For providers with 21 beds or more, a cost report audit IS required, but details are pending. For those with a bed capacity from 7-20, this is NOT an audit year for this size home. For any home with 6 beds or less, there is NO cost report required this year.

Langdon & Company LLP has incredible breadth of experience with health care providers and the associated State requirements. Please contact our office if you have any questions or if we can help your Organization in any way.

The Fine Line: Debt vs. Equity

Pam WilliamsSeptember 22, 20140 Comment

by Bennett Strickland

Distinguishing between debt and equity has long been debated in the accounting world and is one of the most complex issues in practice today. Take an instrument like mandatorily redeemable preferred stock for example. Is it classified as a liability or as equity? This clearly affects reported amounts of liabilities and equity, and also things such as the debt-to-equity ratio and the asset-to-equity ratio.

debt equity The line between liabilities and equity is also critical in measuring income. So companies began to take advantage of manipulating their debt and equity and therefore manipulating their net income. Neither changes in the values of a company’s outstanding equity instruments or transactions between a company and its owners, affect reported income. Whereas, interest payments and at least some changes in the values of liabilities actually do affect reported income.

A lot of companies will try and classify their equity as debt and some may get away with it. However, the consequences can be substantial if the IRS deems that the company needs to reclassify. In Laidlow Transportation Inc. v. commissioner (TC Memo 1998-332), the taxpayer’s tax liability was increased by more than $55 million after the IRS made the company reclassify their debt as equity. So when companies are walking the fine line of debt versus equity they must ask themselves, is it worth it?

The staff at Langdon & Company LLP are all too familiar with such an issue and would be happy to help your company decide which classification is proper. Please contact our office for more information.

Bennett ([email protected]) is an auditor at Langdon & Company LLP. He primarily focuses on healthcare and nonprofit organizations.

Nonprofit Organizations – Sales and Use tax refund Q&A

Pam WilliamsSeptember 3, 20140 Comment

by Meagan Bulloch sales tax

Q: Do nonprofit organizations have to pay sales or use tax on items they purchase?

A: Yes. NC does not exempt nonprofit organizations from paying sales or use tax on items they purchase for use.

Q: Are all nonprofit organizations eligible for refunds of the sales and use taxes paid?

A: No. The following entities may file for semiannual refunds of the sales and use taxes paid on purchases of tangible personal property for use in carrying on their nonprofit work:

Hospitals not operated for profit
Educational institutions not operated for profit
Churches, Orphanages, and Other charitable or religious institutions and organizations not operated for profit

Q: What information does the Department of Revenue need to determine whether an organization qualifies for sales and use tax refunds?

A: A nonprofit organization must furnish the Department of Revenue with a copy of the documents used to create the organization (Articles of Incorporation, Articles of Amendment and Bylaws).

Q: An organization has a Section 501(c)(3) Federal exempt status. Does the organization automatically qualify to receive sales and use tax refunds?

A: No. The Department must review the documents used to create the nonprofit organization to determine whether it qualifies for refunds of sales and use taxes paid.

Q: How does an organization file a claim for refund?

A: The organization should complete Form E-585, Nonprofit and Governmental Entity Claim for Refund State and County Sales and Use Taxes.

Q: How often do I file the Form E-585?

A: Claims for refund are filed semiannually. The claim for refund of sales and use taxes paid during the period January 1 through June 30 is due to be filed by October 15^th of the same year. The claim for refund for the period July 1 through December 31 is due to be filed by April 15^th of the following year.

Q: What is the organization’s claim for refund is filed late?

A: Claims can be filed up to three years after the due date. Any filed later than three years will be denied.

Q: Should the receipts or invoices be mailed with the organization’s claim for refund?

A: No. Receipts and invoices should be kept by the organization for a period of three years beyond the date the refund claim id due to be filed or three years beyond the date the claim is filed, whichever is later.

This article is an excerpt from a bulletin from the Department of Revenue for North Carolina called “State Taxation and Nonprofit Organizations” For more information, please visit, here, or call our office for additional details.

Meagan Bulloch ([email protected]) is an audit manager at Langdon & Company LLP. She is focused primarily on non-profit clients.

Small Actions with Big Impacts: Internal Controls for Nonprofits

Pam WilliamsAugust 27, 20140 Comment

by Rebecca Lunn

Given the small size or small budget of many nonprofits, some organizations may find it tempting to skimp on the internal controls of the entity. However, there are many controls that are inexpensive or easy to implement that can create a big impact in your organization. balance pai

For example, although your organization may lack employees, you can involve individuals outside the accounting function, such as the receptionist, in tasks such as opening the mail or logging invoices, to increase segregation of duties. Limiting the number of people with access to checks, limiting check signers, and simply marking invoices “paid” can also strengthen controls around cash disbursements. Developing written policies, such as a code of conduct or capitalization policy, can provide a guideline for employees to follow, creating consistency across the organization. Also, even though it may seem like an unnecessary expense, often using a payroll service to process regular payroll and prepare tax filings is often the most efficient and cost-effective manner for ensuring all laws and regulations are met. Lastly, if your nonprofit has a board of directors, it is important to report the financial position to the board on a periodic basis. This will allow the board to take any necessary actions when things are not operating as planned. Also, keeping detailed board minutes will ensure that formal approval is documented for important decisions affecting the organization. These steps are just a few of the numerous ways implementing simple controls can strengthen your organization.

If your nonprofit needs assistance in developing stronger internal controls, or improving upon existing controls, please contact our firm for more information on how we can help.

Rebecca Lunn ([email protected]) is an Senior Accountant at Langdon & Company LLP. She specializes in financial and compliance auditing for governments and nonprofit organizations.