NON PROFIT & FOUNDATION SPRING 2019

GEORGE JOHNSON & COMPANY

SUMMER 2019


 

Dear Clients and Friends,

Welcome to the Summer edition of the GJC AdvisorNonprofit Organizations and Foundations Update.

In this issue, among many important concepts, our professionals provide insights on the latest issues for nonprofits including:

  • Lessons Learned from Implementing ASU 2016-14 – Functional Expenses
  • Guidance Released on Taxable Income from Parking and Other Fringe Benefits
  • The Uniform Guidance – Five Years and Counting
  • IRS Answers Many Questions on New 21% Executive Compensation Tax
  • Deadline  Approaches for Remedial Amendments for 403(B) Plans

Charity jar

Charity jar

In the Spotlight section below, read about our newly appointed Staff Accountants and Summer Interns.  We also share a photo from our firm’s annual volunteer service day at Forgotten Harvest, honoring Martin Luther King, Jr.
We will keep you posted on our upcoming Annual Nonprofit Seminar that we plan for later in the year. If you would be interested in attending, contact Rodelyn Frijas at rfrijas@gjc-cpa.com.
If you have any questions on this material, feel free to contact us.
Sincerely,
GJC
LESSONS LEARNED FROM IMPLEMENTING ASU 2016-14 – FUNCTIONAL EXPENSES

Nonprofit organizations with calendar year ends are working to implement the provisions of Accounting Standards Update (ASU) 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities.

The ASU is effective for annual financial statements issued for fiscal years beginning after December 15, 2017. Specifics of the requirements of the ASU have been highlighted in prior articles in the Nonprofit Standard and can be accessed in the Fall 2016, Winter 2016 and Spring 2017 issues. The ASU can be found here.

As implementation efforts have been undertaken, we have seen one area that is causing more issues than anticipated. This is the presentation of the statement of functional expenses that shows the analysis of expenses by function and natural classifications. As part of developing this information, entities are looking at their current cost allocation methodology as well as what components, both program and natural expense classifications, that they want to include.

GUIDANCE RELEASED ON TAXABLE INCOME FROM PARKING AND OTHER FRINGE BENEFITS

The bill known as the Tax Cuts and Jobs Act, enacted in December 2017, added new Section 512(a)(7) to the Internal Revenue Code (IRC). This new section requires tax-exempt organizations to increase their unrelated business taxable income (UBTI) by the amount paid or incurred for qualified transportation fringe benefits (QTFs) provided to employees.

For this purpose, QTFs include the provision of parking and mass transit benefits, and taxable income is created whether the employer pays for the benefits directly or allows employees to pay for the benefits on a pretax basis. Made effective January 1, 2018, mere days after the new law was enacted, many tax-exempt organizations were facing the daunting requirement to calculate, report and pay income tax for the first time.

THE UNIFORM GUIDANCE – FIVE YEARS AND COUNTING

It has been over six years since Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, more commonly known as the Uniform Guidance (UG) was released. The date of December 26, 2013, will forever be seen as the day compliance took on a new meaning for recipients of federal funding.

During this time, entities have worked to establish, update and critically review internal policies and procedures to ensure compliance with the Uniform Guidance. From my clients’ perspective, the amount of resources, both time and money, spent on meeting the new requirements has been staggering. Much progress has been made, but there continue to be key areas where we find that entities encounter issues. A few areas in which we continue to see issues and findings are discussed below:

Performance Reporting (UG §200.38) – Although an audit under the Uniform Guidance does not include programmatic data testing, it does focus on the performance reporting process. Entities must maintain adequate systems and controls over the programmatic reporting process.

IRS ANSWERS MANY QUESTIONS ON NEW 21% EXECUTIVE COMPENSATION TAX

On December 31, 2018, the IRS released Notice 2019-09 (the Notice), providing interim guidance regarding Section 4960 of the Internal Revenue Code (the Code) that was enacted on December 22, 2017, by the Tax Cuts and Jobs Act (the Act). The Notice provides the first guidance on new excise taxes that tax-exempt and governmental entities (and their related for-profit entities) may need to pay on the amount of remuneration in excess of $1 million in compensation and any excess parachute payments paid to a covered employee as early as May 15, 2019 (for calendar year entities). Affected organizations must report and pay the tax on recently updated IRS Form 4720.

The 2017 Tax Reform and Jobs Act established new Code Section 4960, effective January 1, 2018, which imposes an excise tax on “excess” executive compensation paid by tax-exempt and certain governmental entities. The excise tax rate is established in Section 11 of the Code and is currently 21 percent. For-profit employers related to such entities may also need to pay their pro rata share of the tax (such as for-profit entities within a tax-exempt hospital or university’s controlled group).

DEADLINE APPROACHES FOR REMEDIAL AMENDMENTS FOR 403(B) PLANS

Maintaining compliance for 403(b) retirement plans historically has been challenging given the lack of historical regulatory oversight, guidance from the Internal Revenue Service (IRS), and non-profit organizations’ limited resources. But the IRS has taken steps to address this, including publishing a list of providers offering pre-approved prototype plans and creating a remediation period ending in March 2020 for sponsors to self-correct non-compliant plan documents.

Background on 403(b) Compliance and Remediation

In 2007, IRS regulations were updated to require sponsors of retirement plans that fall under the Internal Revenue Code 403(b) to adopt and follow a plan document for their retirement plans as of January 1, 2009. Subsequently, relief was granted to extend this deadline to January 1, 2010. Before this time, many 403(b) plans did not have a plan document outlining specific operational and governing terms of the plan.Read more…

SPOTLIGHT

Join GJC in welcoming our newly appointed Staff Accountants and Interns…

Alexandra Sippala has over three years of related accounting experience.  Early this year, Alexandra was originally hired as an Intern with GJC. She graduated from Wayne State University with a Masters in Business Administration, focusing on Accounting. Keeping physically active is important to Alexandra. In her recent past, she was also a personal trainer at ProFitness Studio assisting clients with diet and exercise regimens. Additionally, she has a Bachelor of Biological Sciences majoring in Human Kinetics at the University of Guelph.
Peter Walkuski also started as an Intern with GJC. He graduated from Eastern Michigan University with a Master of Science in Accounting. His previous experience includes an internship as a Tax Accountant. In college, he was the treasurer, founding father and executive board officer for Theta Chi Fraternity. Peter has over three years of related accounting experience. In his spare time, he enjoys playing the guitar, sports and the outdoors.

 

GJC Summer Internships

Austin Reed is currently studying at Eastern Michigan University and is expected to graduate at the end of the year with a BBA in Accounting. He was honored as the recipient of the Emerald Scholarship, which is a 4-year award. He volunteers with the United Way of Washtenaw County in the income tax assistance program. In his spare time, Austin enjoys playing basketball, seeing live music, and trying out new restaurants with friends.

Xavier Robinson is the first to be hired under our HBCU (Historically Black Colleges and Universities) Legacy Internship Program.  He graduated from Florida Agricultural & Mechanical University (FAMU) with a Bachelor of Science in Business Administration, concentrating on Finance and minoring in Economics. Outside of work, Xavier enjoys exploring the city of Detroit, trying out different restaurants, listening to live music and watching movies.
FAMU is one of the largest schools contributing to the HBCU cause. It was established in 1887 and was founded by African Americans. The principal mission is the education of African Americans.

Welcome Alexandra, Peter, Austin and Xavier to 

the GJC Team!

COMMUNITY

Martin Luther King, Jr. Volunteer Service Day 2019

 

At GJC, we are dedicated to serve a positive purpose within our community. As part of our social responsibility for our commitment to community service, we participate in an annual volunteer day. Our largest volunteer event honors the life and legacy of Dr. Martin Luther King, Jr.
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Last January, our team spent the day volunteering different tasks at Forgotten Harvest. The nonprofit’s purpose is to relieve hunger in the Detroit Metropolitan community by rescuing surplus, prepared and perishable food and donating it to emergency food providers.

The GJC Team at Forgotten Harvest, Detroit

We are happy to share that our Quality Control Principal, Michael Nicholas is celebrating 32 years of service with George Johnson & Company. He joined GJC in 1986 and has been a Principal since 1994. Aside from being responsible for managing all facets of audits, reviews, other attestation engagements, and tax return preparation services for our clients, Mike also maintains our quality control standards.  We are fortunate to have him on our team!

This year also marks Gloria Zhao’s 16th year with us. Gloria started in 2002 as a staff accountant and has progressed to Principal in 2007. Among many responsibilities, including managing all facets of audits and reviews for many of our major clients, Gloria also serves as our Certified Fraud Examiner. We are proud to have Gloria on our team!
We appreciate the selfless service Mike and Gloria have provided for so many years. It is the loyalty, hard work and expertise that have helped GJC achieve its present stature.
Congratulations to Mike and Gloria!
We hope that the contents of this issue of the GJC Advisor will provide you with valuable information. As always, if you have any questions or comments, please do not hesitate to share them with our team members.
This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.
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