Tag Archives: 990

Nonprofit News Roundup

Posted on July 8, 2009 | Leave a comment

IRS and the 990

logo-irsAs I mentioned in the post below the Urban Institute’s 990 online is getting ready to start processing the updated form 990. They hope to be ready to go by the end of July (not the end of June as I previously mentioned in my last post).  There is a great piece in Blue Avocado about the system and a call to action to help improve it. Worth a read, especially for those thinking of jumping in and using the system.

Perhaps not everyone wants to read the IRS’s five year strategic plan?  No problem, the nice folks at Guidestar have and let us know what the Internal Revenue Service has in store for tax exempt organizations. Between what they lay out here and several recent speeches by Lois Lerner and Sarah Hall Ingram (also reported on by Guidestar in the above link) we can be pretty sure of where their focus will lie.  As the article points out, nonprofit should:

Pay the proper employment taxes on your staff; use appropriate comparable wage data to set executive compensation and document your decisions; file Form 990 promptly and accurately (and electronically, if possible); use efficient fundraising methods; and spend most of your revenues on achieving your tax-exempt purpose.

Good advice all around.

Managing in Tough Times

In case there was any confusion about it, times are still tight.  Two items from the Bridgespan Group and The Listening Post Project give us an update, and California’s budget meltdown is being replayed in other states.

Bridgespan’s piece is a follow-up to their November 2008 7 Steps article. From the opening paragraph:

The percentage of nonprofits that have resorted to layoffs has increased, as has the percentage that has made broad-based programmatic reductions. More organizations have drawn down their reserves. Nonprofit leaders appear to be optimistic about the future, though: Almost half of the respondents reported that they believe their organization will be on stronger financial footing in a year’s time.

a9bcc559-4fd0-4b8f-b149-620850b27ae9

Click on the image for a larger view

The Listening Post Project, from the Center for Civil Society Studies at Johns Hopkins University, released a new study, “Impact of the 2007-09 Economic Recession on Nonprofit Organizations” (link opens a PDF). From the executive summary:

Key findings from the 363 organizations responding to this Sounding include the following:

  • 83 percent of responding organizations reported some level of fiscal stress during the target period of September 2008 to March 2009.
  • Close to 40 percent of the organizations considered the stress to be “severe” or “very severe”.
  • Theaters and orchestras were particularly hard hit, with 73 percent of the former and half of the latter reporting “severe” or “very severe” stress.

The deadline to pass California’s budget came and went last week.  The Chronicle of Philanthropy has a good piece on how CA nonprofits will be effected by the state government’s game of chicken.

Nonprofit Financial Tools

I’ll try to end this post on a happier note with a couple of tips and resources! For accounting!  Leading off is a recent article from Guidestar, “Ensuring a Smooth Annual Audit.” While it may not have a lot of revelations in it it is solid advice for any organization that is planning on a annual financial audit.

Tye Bridgespan Group is offering nonprofit organizations its new Nonprofit Cost Analysis Toolkit.  This is a fine set of tools to help nonprofits understand what are the true, real, honest costs of running our organizations.  Not knowing what it really costs your organization to do all that it does makes it difficult to move forward.

More cost analysis and fiancial tools can be found in my Managing Challenging Times section.

Leave a comment

Posted in IRS, Nonprofit Accounting

Tagged , , ,

IRS Info and Some Questions and Answers

Posted on June 25, 2009 | 4 comments

Questions and AnswersIRS, Governance and the Form 990

I’ll lead off with some exiting news.  Well, it’s exiting to me at least.   Last week I learned that the Urban Institute’s efile.form.990 site should start being able to process the latest version of the form 990 by the end of July (not June).  Their system allows you to electronically prepare and file your organization form 990, 990 EZ and extensions to file.  There is a small fee, but I encourage anyone who prepares your organizations forms by hand to look into their system.

Sarah Hall Ingram, the IRS Commissioner for Tax Exempt and Government Entities, made a presentation at Georgetown Law Center this week on nonprofit governance issues and what the IRS sees as its role relating to that.

While both state regulation and sector self-regulation are important, and I welcome and respect them, they do not get the IRS off the hook. Congress gave us a job to do, and we cannot delegate to others our obligation to enforce the conditions of federal tax exemption.

If you would like to read her remarks they are available as a PDF here.

Collaboration Resources

Need some tips on online collaboration tools? Gayle C. Thorsen at IMPACTMAX has a good rundown on some resources that should help you.

Questions and Answers: Revenue Recognition

Each year we have several matching gifts that come in after the fiscal year end of June 30.  Should these receipts be counted toward the past fiscal year or the current year?  For donor recognition purposes we count these gifts in the year they were pledged.  For accounting purposes, how should we be dealing with this?

You should count them the same way you do for recognition. Nonprofit accounting rules for donations take into account the donors intent, and if the check was written in before the end of your fiscal year, or the pledge was made before then end of your fiscal year, it should be counted as that fiscal years money.

Questions and Answers: Employee or Independent Contractor?

I’m a bookkeeper trying to help a recently started, all volunteer nonprofit. The one concern I have is the administrative costs for the person who runs it. If the nonprofit were to reimburse that person for a missed day at work, would they be considered an employee of the nonprofit?

You can’t reimburse somebody for a missed day of work, that is not a “real” expense. That would be considered compensation. This could be a 1099 / independent contractor relationship OR an employee relationship. I would look carefully at the duties tests between the two and make your judgment. The IRS is pretty serious about making sure employers classify folks correctly.  You can check out their resource pages here.

Question and Answers: Hiring Costs

We are a small nonprofit that had a change in our Executive Director. The costs to recruit, interview and move a new Executive Director to our state was extremely expensive. These costs are a one-time charge that are impacting our net assets. Is there a way that I can capitalize them to spread out the impact?

Not in this case. Capitalizing an expense is done for physical assets that have a long useful life so that the expense of the item is spread out over its time of use.  Employees can’t get treated the same way.

Just make sure to clearly explain and footnote the situation on all of your reports and financials so people will not think there is something wrong with the organization and you should be OK.

Do you have a question?  Click here to ask it

4 Comments

Posted in IRS, Q&A

Tagged , , , , ,

Nonprofit Administrative Costs

Posted on May 20, 2009 | 4 comments

Two questions recently got me thinking about administrative and overhead expenses.  Below are the questions and the answers I sent:

Question #1: Should a depreciation expense be included in the calculation when looking at the percentage of administration expenses to total operating expenses with a nonprofit?

Answer: It is a good idea to allocate and include depreciation expense in program(s), admin and fundraising. This helps show the cost of doing the work, as at some point equipment will have to be replaced and it is good to know which program is “using” it the most. If your organization does an audit it will show depreciation as a part of your total expenses and allocate it across all your functional areas.

Question #2: We have two independent contractors doing work for our nonprofit. Is the money paid to these people “administrative costs” straight across, or can we separate it out by program? Doesn’t this all come under administrative costs?

Answer: How you code the transactions will depend on the type of work you paid for. If the consultants worked on administrative tasks, their fees would be an administrative cost, if they worked in program areas it would be program costs. Just because the expense is for an independent contractor does not mean it is automatically an administrative cost.

I’ve linked to this topic in my Q&A section and below is what the IRS says about administrative costs in the updated Form 990 instructions on page 33:

990-page-33

Click on the image for a larger / clearer view

A nonprofit’s expenses are classified by what they were used for within the three broad categories / functional areas of administration, program and fundraising.  Program costs are considered direct expenses, expenses that have a direct effect on fulfilling the mission of the nonprofit organization.  Administrative costs are indirect expenses, they affect the mission of the organization indirectly.  The organization can’t get by without those expenses but, according to the IRS and others, they have no direct effect on the mission.

This point, of course, can be argued and I think it is where much of the confusion resides when talking about classifying nonprofit expenses.  But this is the world we operate in and those are the rules, so it is best to make sure we understand the rules so we can present our numbers in the most honest fashion to show what it costs to do the work we do.

Another nice breakdown of what administrative / overhead costs are comes from this post from the Nonprofits Assistance Fund.  It links to this pdf of overhead cost definitions which is very handy.  That post also brings up the specter nonprofits face of spending too much on overhead expenses and the focus on the financial ratio of administrative expenses to program expenses.  While that may be a useful figure, I think we need to always keep in mind just what expenses are admin and what are program so we know just what is being measured.  Then we need to make sure that as a sector we are all labeling our expenses the same way.

And while we are looking at those ratios we need to look at the nonprofit’s ability to deliver its mission.  One financial ratio used in isolation is no true measure of any organization.  Only by looking at both the numbers and the program outcomes can we judge whether an organization is effective or not.

4 Comments

Posted in IRS, Nonprofit Accounting, Q&A

Tagged ,