Here are some questions and answers from nonprofit accounting trainings I have done. Many of the answers are California specific, but if you need help finding an answer for another state let me know and I’ll try and point you in the right direction.
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Te see questions and answers from recent blog posts click to the Q and A category.
Questions:
Answers:
What is the difference between a 501c3 and a trade group?
Check out these publications from the CA Attorney General’s office and this listing of resources from the IRS.
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What is admin? Just what are administrative costs?
Please read this from the National Center of Charitable Statistics. Also from the IRS:
…report the organization’s expenses for overall function and management, rather than for its direct conduct of fundraising activities or program services. Overall management usually includes the salaries and expenses of the chief officer of the organization and that officer’s staff. If part of their time is spent directly supervising program services and fundraising activities, their salaries and expenses should be allocated among those functions.
Other expenses to report include those for meetings of the board of directors or similar group; committee and staff meetings (unless held in connection with specific program services or fundraising activities); general legal services; accounting (including patient accounting and billing); general liability insurance; office management; auditing, personnel, and other centralized services; preparation, publication, and distribution of an annual report; and investment expenses.
Check out these search results for the answer.
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Where are some discussions regarding excessive fundraising costs?
In the above commercial fundraiser links and here and here.
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Why is the Chart of Accounts numbered?
To make it easier to index and catalogue your chart items and when you had to do accounting on ledger sheets by hand it was easier to write 2010 that “accounts receivable – grants receivable” in the little green spaces.
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Is a PSA donated air time or contractual obligation?
From what I have been able to dig up it is a donation even though they are required to make the time available.
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A nonprofit gives money to a community foundation to create an endowment. Is that money permanently restricted?
It all depends on how you create it. Can you revoke the “gift” to yourself? I would guess that the money would be treated as permanently restricted until the nonprofit changes the status. It is different to me than a board designated fund always being considered unrestricted because in the above question you are giving control of the money to another organization.
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How to book membership income when the “membership” is actually a donation?
If your group solicits membership as a way of soliciting donations but no real value is exchanged for the membership, that membership is considered a donation and entered on your books as such. If the “member” gets a tote bag or equivalent item with their membership the value of that is deducted from the contribution and put into the earned income section.
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Are volunteers reported under a nonprofit’s worker compensation insurance?
By law, workers’ compensation benefits for volunteers are not required. A volunteer who does not receive compensation for his or her work is not entitled to workers’ compensation benefits, unless the agency for which the volunteer works chooses to provide these benefits (See Labor Code Section 3363.5).
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What is a single Audit? Do you need to do one?
You might if you get federal $. A link straight from the source: OFFM Single Audits
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Would you classify Certificates of Deposit as permanently restricted funds or if that is placed in a different category?
CD’s are a means of holding the money, like a checking account or a savings account. They are usually for a fixed amount of time, from 30 days on up to years I think. As a vehicle for holding money they would not fall not the category of restricted or unrestricted.
Now the money in the CD is a different story: as an example say you $100,000.00 to do a specific project over two years and you know that you won’t need $60,000.00 of that for the next 12 months. You could take that 60,000.00 and put it into a CD for 12 months and earn a higher rate of interest that it would typically accumulate just sitting in a checking account.
So the CD is not restricted but the money in it might be permanently restricted, unrestricted or temporarily restricted.
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Do we have to pay sales tax on auction items?
In California, yes. You can also get good tips here from the California State Board of Equalization. Don’t be caught in noncompliance!
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For a dinner-dance type fundraiser ticket, what is the portion of the ticket price is a donation?
Everything beyond what is a direct benefit to the donor. Those items are the actual cost of the items and services furnished to the attendees as inducements to attend the event: The food and beverages, the ballroom, the band, the decor.
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When do you value donations of stock?
The date the shares are transferred to your organization, the date of the gift. If a donor wishes to give your organization a gift of stock and take advantage of any tax deductions for tax year 200X they must make sure the transfer takes place before December 31 200X.
If they ask their broker to make the transaction in December but the broker doesn’t post the transfer until January 2nd, then the donation will have in fact taken place in January, not December.
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How many years do we keep donation records?
I have not found any official record keeping guidelines but looking at samples of other organizations in seem to range from 7 years to permanently, the latter for donated works of art, etc. My take is that as long as you maintain a donor database of any kind you will want to maintain a record of anything that person has given you.
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Are the administrative charges from a fiscal sponsor an admin expense or program?
From what I have been able to find it is an admin expense. Lots of great info on fiscal sponsorships can be found here.
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Should we list the building a nonprofit owns at its assessed value or its market value?
From what I can find out now and what I remember from my accounting classes you would use the assessed value as it is documented and verifiable.
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When providing the donor with a thank you letter for a donated car, what amount do we list?
From the IRS website:
If the claimed value of the donated motor vehicle, boat or plane exceeds $500 and the item is sold by the charitable organization, the taxpayer is limited to the gross proceeds from the sale. Under the new [2004] rules, the charitable organization must provide an acknowledgment to the donor within 30 days of the sale stating the amount of gross proceeds. Alternatively, if the charity significantly uses or materially improves the vehicles, the charity must certify this intended use and duration and provide an acknowledgment to the donor within 30 days of the contribution. If the charity significantly uses or materially improves the vehicle, generally, the donor may deduct the vehicle’s market value.
Also check Publication 526, it tells all about vehicle donations. It states that if the claimed value of the donated vehicle is more than $500.00 you can deduct what the charity sells it for OR the fair market value, which ever is LOWER.
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What is the pay rate for comp time?
According to HRCalifornia.com you must pay at the rate the time is used, not when it was accrued. Compensatory time off is a very tricky issue and any employer currently offering it or thinking of offering it needs to be aware of all the issues surrounding it. HRCalifornia.com recommends you not offer it for the most part, and be sure never to give comp time to exempt employees.
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Do internal transfers count as income under SB 1262 rules for determining when we need to get an audit?
No, not according to the text. Only “gross revenue.” But be careful how you are booking and describing the transfers to be sure that you are not calling it income, if indeed it is not.
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Can I donate to an individual?
The short answer, according to the IRS and Publication 526, is no. I have been asked this question several times over the years and there is one thing people always get stuck on: They want to donate money to a specific person that charity XYZ works with. They will write the check to the charity but specify who the money should be spent on. That is a charitable donation, right? Wrong.
To quote from the IRS:
You cannot deduct contributions to specific individuals, including the following:
Contributions to individuals who are needy or worthy. This includes contributions to a qualified organization if you indicate that your contribution is for a specific person. But you can deduct a contribution that you give to a qualified organization that in turn helps needy or worthy individuals if you do not indicate that your contribution is for a specific person. Example. You can deduct contributions for flood relief, hurricane relief, or other disaster relief to a qualified organization. However, you cannot deduct contributions earmarked for relief of a particular individual or family.
Payments to a member of the clergy that can be spent as he or she wishes, such as for personal expenses.
Expenses you paid for another person who provided services to a qualified organization. Example. Your son does missionary work. You pay his expenses. You cannot claim a deduction for your son’s unreimbursed expenses related to his contribution of services.
Payments to a hospital that are for a specific patient’s care or for services for a specific patient. You cannot deduct these payments even if the hospital is operated by a city, state, or other qualified organization.
This is not to say that those donors cannot donate to those individuals at all, just that those donations will not be tax deductible.
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What is the difference between a Commercial Fundraiser and Fundraising Council? What are the rules that tell us how to work with them?
In a nut shell a Commercial Fundraiser hold the funds they solicit on your behalf and then gives them to your organization less any fee.
Fundraising Council does not hold the funds for you. Contracts between CA nonprofits and commercial fundraisers need to be approved by the California Attorney General’s office. For all the details please see the overview of 2004’s Nonprofit Integrity Act (pdf), and go to here and here.
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How do we change our nonprofits name?
You may need to file updated Articles of Incorporation with the state and let the IRS know and anywhere you have registered to solicit funds. This guy has the goods.
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If we have a special event to raise funds and receive proceeds from a silent auction, where do we report the income?
In part VIII of the core form with the revenue and in any of the appropriate schedules. Schedule M is sole concerned with the valuation of the donated items. The IRS wants to make sure donors are not inflating the value of items donated to the nonprofit. For more on valuing donated items and how to book these please click here.
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Our organization collects funds and items from donors to give to another organization. How do we handle these transactions in our accounting system?
It sounds like these might be considered pass-through transactions and subject to SFAS 136 rules. For a clear description of these rules and how to handle them check out this link for more information and here to buy the book.
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Where do I find out about raffles and raffle registration in California?
The California Attorney General’s Office is where you get the forms and the CAN website has a nice FAQ section on raffles.
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What is the minimum reporting threshold for filing a w2-g?
Please read this from the IRS (opens in a PDF).
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Is there a minimum dollar threshold for registering our nonprofit’s raffle with the state of California?
No, but click here for more.
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Does the charity report the raffle winners to the state?
No it does not.
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Can a nonprofit accept a donation of the use of a donor’s timeshare?
Yes, but the donor will not get a tax deduction for the donation of the use of the time share. See Publication 526, all about contributions to nonprofits.
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Can a 501 (c) 3 donate to a 501 (c) 6?
If the missions are similar then we think yes, it should not be an issue. You said if I remember rightly that it was some old office equipment. If all the items to be passed on are fully depreciated then it really won’t be a problem either way since there is technically no book value moving between the organizations.
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Is a home office deductible if used for a charity?
Unfortunately no, just the cost of materials used (paper, ink, staples and such).
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Executive Director salary justification – who do we submit this report to? What are examples of how to justify the salary and is it only for the Executive Director?
The intermediate sanctions require that the board be able to show that they did proper research to determine that the salary of the exec is not excessive. The minutes should verify that some kind of salary survey was conducted that compared the salary being offered with organizations of similar size and type. The board needs to justify to itself that the salaries it offers top level staff, board members, contractors, etc. are not excessive.
The regulation applies to all salaries (mostly top level salaries), contracts, income paid to board members, any “insiders”. More information on Intermediate Sanctions can be found here.
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