Fundraising events: Considerations for development departments

Editor’s note: read this if you work for, or are affiliated with, a charitable organization that receives donations. Even the most mature nonprofit organizations may miss one of these filings once in a while. Some items (e.g., the donor acknowledgment letter) may feel commonplace, but a refresher—especially at a particularly busy time of the year as it pertains to giving—can fend off fines.

As the holiday season is now in full swing, the season of giving is also upon us. Perhaps not surprisingly, the month of December is by far the most charitable month of the year, accounting for almost one-third of all charitable gifts made annually. And with all that giving comes the requirement of charitable organizations to provide donor acknowledgments, a formal “thank you” of the gift being received. Different gifts require differing levels of acknowledgment, and in some cases an additional IRS form (or two) may need to be filed. Doing some work now may save you time (and a fine or two) later. 

While children are currently busy making lists for Santa Claus, in the spirit of giving we present to you our list of donor acknowledgment requirements―and best practices―to help you gain control of this issue for the holiday season and beyond.

Donor acknowledgment letters

Charitable (i.e., 501(c)(3)) organizations are required to provide a donor acknowledgment letter to each donor contributing $250 or more to the organization, whether it be cash or non-cash items (i.e., publicly traded securities, real estate, artwork, vehicles, etc.) received. The letter should include the following: 

1. Name of the organization
2. Amount of cash contribution
3. Description of non-cash items (but not the value) 
4. Statement that no goods and services were provided (assuming this is the case)
5. Description and good faith estimate of the value of goods and services provided by the organization in return for the contribution, if any
6. Statement that goods or services provided by the organization in return for the contribution consisted entirely of intangible religious benefit, if any

It is not necessary to include either the donor’s social security number or tax identification number on the written acknowledgment and as a best practice should not be included in the letter.

In addition to including the elements above, the written acknowledgment is also required to be contemporaneous, that is, sent out in a timely fashion. According to the IRS, a donor must receive the acknowledgment by the earlier of:

• The date on which the donor actually files his or her individual federal income tax return for the year of the contribution
• The due date (including extensions) of the return in order to be considered contemporaneous

Quid pro quo disclosure statements

When a donor makes a payment greater than $75 to a charitable organization partly as a contribution and partly as a payment for goods and services, a disclosure statement is required to notify the donor of the value of the goods and services received in order for the donor to determine the charitable contribution component of their payment.

An example of this would be if the organization sold tickets to its annual fundraising dinner event. Assume the ticket costs $100 and at the event the ticketholder receives a dinner valued at $40. In this example, the donor’s tax deduction may not exceed $60. Because the donor’s payment (quid pro quo contribution) exceeds $75, the charitable organization must furnish a disclosure statement to the donor, even though the deductible amount doesn’t exceed $75.

It’s important to note that there are some exclusions to these requirements if the value received is considered to be de minimis (known as the Token Exception), but the value received needs to be relatively small (e.g., receiving a coffee mug with a picture of the organization’s logo on it). Please consult your tax advisor for more details.

If the organization does not issue disclosure statements, the IRS can issue penalties of $10 per contribution, not to exceed $5,000 per fundraising event or mailing. An organization may be able to avoid the penalty if reasonable cause can be demonstrated.

Receiving or selling donated noncash property? Forms 8283 & 8282 may be required.

If a charitable organization receives noncash donations, it may be asked to sign Form 8283. This form is required to be filed by the donor and included with their personal income tax return. If a donor contributes noncash property (excluding publicly traded securities) valued at over $5,000, the organization will need to sign Form 8283, Section B, Part IV acknowledging receipt of the noncash item(s) received.

By signing Form 8283, the donee organization is not only acknowledging receipt, but is also affirming that if the property being received is sold, exchanged, or otherwise disposed of within three years of the original donation date, the organization will be required to file Form 8282. A copy of this form is filed with the IRS and must also be provided to the original donor. Form 8282 is not required for sales of donated publicly traded securities. The penalty for failure to file Form 8282 when required is generally $50 per form.

Cars, boats, and yes, even airplanes? That would be Form 1098-C.

An airplane? Yes, even an airplane can be donated, and the donee organization must file a separate Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, with the IRS for each contribution of a qualified vehicle that has a claimed value of more than $500. Contemporaneous written acknowledgment requirements apply here too, and Form 1098-C can act as acknowledgment for this purpose. An acknowledgment is considered contemporaneous if it is furnished to the donor no later than 30 days after the date of the contribution if you plan to use the item for a mission-related purpose, or 30 days after the date of the sale of the item to an unrelated third party.

Penalties for failure to provide contemporaneous written acknowledgment for qualified vehicles can be pretty stiff, generally calculated as a percentage of the sale price if sold, or a percentage of the claimed value if not sold. Should you have any questions or receive a request regarding any of the forms noted above, please consult your tax advisor.

As you can see, the rules around donor acknowledgments can seem a lot like Grandma’s fruitcake―complex and perhaps a bit on the nutty side. When issuing donor acknowledgments this holiday season and beyond, be sure to review the list above and check it twice. Doing so may end up keeping you off of the IRS’s naughty list!

Benchmarking doesn’t need to be time and resource consuming. Read on for four simple steps you can take to improve efficiency and maximize resources.

Stop us if you’ve heard this one before (from your Board of Trustees or Finance Committee): “I wish there was a way we could benchmark ourselves against our competitors.”

Have you ever wrestled with how to benchmark? Or struggled to identify what the Board wants to measure? Organizations can fall short on implementing effective methods to benchmark accurately. The good news? With a planned approach, you can overcome traditional obstacles and create tools to increase efficiency, improve operations and reporting, and maintain and monitor a comfortable risk level. All of this can help create a competitive advantage — and it  isn’t as hard as you might think.

Even with a structured process, remember that benchmarking data has pitfalls, including:

• Peer data can be difficult to find. Some industries are better than others at tracking this information. Some collect too much data that isn’t relevant, making it hard to find the data that is.
   
• The data can be dated. By the time you close your books for the year and data is available, you’re at least six months into the next fiscal year. Knowing this, you can still build year-over-year trending models that you can measure consistently.
   
• The underlying data may be tainted. As much as we’d like to rely on financial data from other organization and industry surveys, there’s no guarantee that all participants have applied accounting principles consistently, or calculated inputs (e.g., full-time equivalents) in the same way, making comparisons inaccurate.

Despite these pitfalls, benchmarking is a useful tool for your organization. Benchmarking lets you take stock of your current financial condition and risk profile, identify areas for improvement and find a realistic and measurable plan to strengthen your organization.

Here are four steps to take to start a successful benchmarking program and overcome these pitfalls:

1. Benchmark against yourself. Use year-over-year and month-to-month data to identify trends, inconsistencies and unexplained changes. Once you have the information, you can see where you want to direct improvement efforts.
2. Look to industry/peer data. We’d love to tell you that all financial statements and survey inputs are created equally, but we can’t. By understanding the source of your information, and the potential strengths and weaknesses in the data (e.g., too few peers, different size organizations and markets, etc.), you will better know how to use it. Understanding the data source allows you to weigh metrics that are more susceptible to inconsistencies.

3. Identify what is important to your organization and focus on it. Remove data points that have little relevance for your organization. Trying to address too many measures is one of the primary reasons benchmarking fails. Identify key metrics you will target, and watch them over time. Remember, keeping it simple allows you to put resources where you need them most.

4. Use the data as a tool to guide decisions. Identify aspects of the organization that lie beyond your risk tolerance and then define specific steps for improvement.

Once you take these steps, you can add other measurement strategies, including stress testing, monthly reporting, and use in budgeting and forecasting. By taking the time to create and use an effective methodology, this competitive advantage can be yours. Want to learn more? Check out our resources for not-for-profit organizations here.

Read this if your CFO has recently departed, or if you're looking for a replacement.

With the post-Covid labor shortage, “the Great Resignation,” an aging workforce, and ongoing staffing concerns, almost every industry is facing challenges in hiring talented staff. To address these challenges, many organizations are hiring temporary or interim help—even for C-suite positions such as Chief Financial Officers (CFOs).

You may be thinking, “The CFO is a key business partner in advising and collaborating with the CEO and developing a long-term strategy for the organization; why would I hire a contractor to fill this most-important role?” Hiring an interim CFO may be a good option to consider in certain circumstances. Here are three situations where temporary help might be the best solution for your organization.

Your organization has grown

If your company has grown since you created your finance department, or your controller isn’t ready or suited for a promotion, bringing on an interim CFO can be a natural next step in your company’s evolution, without having to make a long-term commitment. It can allow you to take the time and fully understand what you need from the role — and what kind of person is the best fit for your company’s future.

BerryDunn's Kathy Parker, leader of the Boston-based Outsourced Accounting group, has worked with many companies to help them through periods of transition. "As companies grow, many need team members at various skill levels, which requires more money to pay for multiple full-time roles," she shared. "Obtaining interim CFO services allows a company to access different skill levels while paying a fraction of the cost. As the company grows, they can always scale its resources; the beauty of this model is the flexibility."

If your company is looking for greater financial skill or advice to expand into a new market, or turn around an underperforming division, you may want to bring on an outsourced CFO with a specific set of objectives and timeline in mind. You can bring someone on board to develop growth strategies, make course corrections, bring in new financing, and update operational processes, without necessarily needing to keep those skills in the organization once they finish their assignment. Your company benefits from this very specific skill set without the expense of having a talented but expensive resource on your permanent payroll.

Your CFO has resigned

The best-laid succession plans often go astray. If that’s the case when your CFO departs, your organization may need to outsource the CFO function to fill the gap. When your company loses the leader of company-wide financial functions, you may need to find someone who can come in with those skills and get right to work. While they may need guidance and support on specifics to your company, they should be able to adapt quickly and keep financial operations running smoothly. Articulating short-term goals and setting deadlines for naming a new CFO can help lay the foundation for a successful engagement.

You don’t have the budget for a full-time CFO

If your company is the right size to have a part-time CFO, outsourcing CFO functions can be less expensive than bringing on a full-time in-house CFO. Depending on your operational and financial rhythms, you may need the CFO role full-time in parts of the year, and not in others. Initially, an interim CFO can bring a new perspective from a professional who is coming in with fresh eyes and experience outside of your company.

After the immediate need or initial crisis passes, you can review your options. Once the temporary CFO’s agreement expires, you can bring someone new in depending on your needs, or keep the contract CFO in place by extending their assignment.

Considerations for hiring an interim CFO

Making the decision between hiring someone full-time or bringing in temporary contract help can be difficult. Although it oversimplifies the decision a bit, a good rule of thumb is: the more strategic the role will be, the more important it is that you have a long-term person in the job. CFOs can have a wide range of duties, including, but not limited to:

• Financial risk management, including planning and record-keeping
• Management of compliance and regulatory requirements
• Creating and monitoring reliable control systems
• Debt and equity financing
• Financial reporting to the Board of Directors

If the focus is primarily overseeing the financial functions of the organization and/or developing a skilled finance department, you can rely — at least initially — on a CFO for hire.

Regardless of what you choose to do, your decision will have an impact on the financial health of your organization — from avoiding finance department dissatisfaction or turnover to capitalizing on new market opportunities. Getting outside advice or a more objective view may be an important part of making the right choice for your company.

BerryDunn can help whether you need extra assistance in your office during peak times or interim leadership support during periods of transition. We offer the expertise of a fully staffed accounting department for short-term assignments or long-term engagements―so you can focus on your business. Meet our interim assistance experts.

Read this if you are at a not-for-profit organization.

There is no question that cryptocurrency has been gaining in popularity over the past few years. It may be hard to believe, but Bitcoin, the first and most commonly known form of cryptocurrency, has been around since the good old days of 2009! What was once only seen as a quasi-asset traded solely on the dark web by a handful of private yet savvy investors has recently begun to step out into the light. With this newly found mainstream popularity come many questions from the not-for-profit (NFP) sector about how their organizations should proceed when it comes to donations of cryptocurrency, and how they might benefit (or not) from doing so. 

This article will answer some of the questions we’ve received from clients in this area and attempt to shed some light on the tax reporting and compliance requirements around cryptocurrency donations for not-for-profit organizations, as well as other topics not-for-profit organizations should consider before dipping their toes into the crypto current.

So, what exactly is cryptocurrency? 

Cryptocurrency is a digital asset. It generally has no physical form (no actual coins or paper money). Further, it is not issued by a central bank and is largely unregulated. Its value is dependent upon many factors, the largest being supply and demand.

Can a not-for-profit organization accept cryptocurrency as a donation?

Yes! For tax purposes, cryptocurrency is considered noncash property, and is perfectly acceptable for not-for-profit organizations to accept.

With that said, NFPs absolutely need to review and update their gift acceptance policies as necessary as to whether or not they are willing to accept cryptocurrency. Having a clear and established policy position in place one way or the other can mitigate any confusion or misunderstanding between the organization and a potential donor.

The organization may also want to consider adding language to the policy regarding its intent to either hold the asset or sell it as soon as administratively possible. A savvy donor may request that the organization hold the cryptocurrency donation for a period of time after the donation is made, so organizations will want to have clear policies in place.

What about acknowledging the donor’s gift?

Standard donor acknowledgement rules still apply. Any donation of $250 or more requires a standard “thank you” acknowledgement to the donor. Remember, the IRS has deemed cryptocurrency to be noncash property, which means a description of the donated property (but not its value) should be mentioned in the donor acknowledgement.

Are there any other forms I need to be aware of?

Yes. Forms 8283 & 8282 apply to donations of cryptocurrency. Where the donation is noncash, the donor should be providing the organization with Form 8283, Noncash Charitable Contributions, for a claimed value of more than $500. Further, if the claimed value is more than $5,000, the Form 8283 should be accompanied by a qualified appraisal report. Form 8283 should be signed by the donor, the qualified appraiser (if applicable), as well as the recipient organization upon acceptance.

NOTE: Form 8283, Part V, Donee Acknowledgement, contains a yes/no question asking if the organization intends to use the property for an unrelated use. Where the property in question is cryptocurrency, the answer to this question is likely always to be ‘yes’.

Should the organization sell the underlying cryptocurrency within three years of acceptance, the organization must complete Form 8282, Donee Information Return, and file a copy with the IRS as well as providing a copy to the original donor. Other rules apply if the organization transfers the property to a successor donee.

NOTE: Organizations may want to consider referencing the Forms 8283 & 8282 in their aforementioned gift acceptance policy.

How is a cryptocurrency donation reported on the financial statements and Form 990?

If donated and held by the organization as of the end of the year, it will be reported as an intangible asset on the balance sheet, and contribution revenue on the statement of activities. 

Similar reporting would follow for 990 purposes—the donation would be reported as part of noncash contribution revenue with additional reporting on 990, Schedule B, Schedule of Contributors, and Schedule M, Noncash Contributions, as necessary.

Why should I accept cryptocurrency?

This is by far the hardest question to answer, for a variety of reasons. There is no question that cryptocurrency has its risks. Cryptocurrency is known to be highly volatile. Bitcoin, which originally was valued at eight cents per coin in 2010 soared to an all-time high of over $63,000 back in April of 2021—and then two months later sold for around $34,000 per coin. And who could forget the recent Dogecoin (I’m still not sure how to pronounce that) phenomenon? It too in recent months became a sensation only to see its value plummet by almost 30% in a single day after an appearance by Elon Musk on Saturday Night Live (it did subsequently rebound after a Musk tweet).

The fact is no one really knows where the value of cryptocurrency is headed, so should a not-for-profit organization decide to proceed, you should be aware it may not be worth what it was when originally accepted, which could be either good or bad depending on the day. Ultimately, any value is still good for a not-for-profit organization, but the risks with cryptocurrency and its volatility are very real.

Other things to know about crypto

As of right now, cryptocurrency has its own trading platforms. Robinhood, a platform in the news recently when it halted trading of Gamestop’s stock when speculative traders got the price to soar to all new highs, being the most well known. Large investment firms are well on their way to creating their own platforms as cryptocurrency gains in popularity, so we certainly recommend speaking with your current investment advisors to find the platform that best suits your needs.

Cryptocurrency is held in a digital wallet, which can only be accessed by a password, or private keys. Digital wallets can be stored locally on a computer, but there are also web-based wallets.

There have been horror stories about people losing or forgetting passwords, ultimately rendering the cryptocurrency worthless because it cannot be accessed. Cryptocurrency, due to its private nature, is very desirable by hackers who could also potentially access the wallet and steal its contents. And if stored locally, the currency could be lost forever if the computer containing the wallet were to become corrupted or compromised.

Organizations holding cryptocurrency will need to ensure proper internal controls are in place to make sure the funds are secure and cannot be easily accessed or potentially stolen. Working with your internal IT department is a good strategy here. The questions above are not intended to be all inclusive. Cryptocurrency is still finding its way in the world and we’ll continue to keep an eye on any developments and keep clients up to date as cryptocurrency continues to expand its reach and as further guidance is issued.

If you have any questions, please contact me or another member of our not-for-profit tax services team. We're here to help.

Read this if you are at a rural health clinic or are considering developing one.

Section 130 of H.R. 133, the Consolidated Appropriations Act of 2021 (Covid Relief Package) has become law. The law includes the most comprehensive reforms of the Medicare RHC payment methodology since the mid-1990s. Aimed at providing a payment increase to capped RHCs (freestanding and provider-based RHCs attached to hospitals greater than 50 beds), the provisions will simultaneously narrow the payment gap between capped and non-capped RHCs.

This will not obtain full “site neutrality” in payment, a goal of CMS and the Trump administration, but the new provisions will help maintain budget neutrality with savings derived from previously uncapped RHCs funding the increase to capped providers and other Medicare payment mechanisms.

Highlights of the Section 130 provision:

• The limit paid to freestanding RHCs and those attached to hospitals greater than 50 beds will increase to $100 beginning April 1, 2021 and escalate to $190 by 2028.
• Any RHC, both freestanding and provider-based, will be deemed “new” if certified after 12/31/19 and subject to the new per-visit cap.
• Grandfathering would be in place for uncapped provider-based RHCs in existence as of 12/31/19. These providers would receive their current All-Inclusive Rate (AIR) adjusted annually for MEI (Medicare Economic Index) or their actual costs for the year.

If you have any questions about your specific situation, please contact us. We’re here to help.

The COVID-19 emergency has caused CMS (Centers for Medicare & Medicaid Services) to expand eligibility for expedited payments to Medicare providers and suppliers for the duration of the public health emergency.

Accelerated payments have been available to providers/suppliers in the past due to a disruption in claims submission or claims processing, mainly due to natural disasters. Because of the COVID-19 public health emergency, CMS has expanded the accelerated payment program to provide necessary funds to eligible providers/suppliers who submit a request to their Medicare Administrative Contractor (MAC) and meet the required qualifications.

Eligibility requirements―Providers/suppliers who:

1. Have billed Medicare for claims within 180 days immediately prior to the date of signature on the provider’s/supplier’s request form,
2. Are not in bankruptcy,
3. Are not under active medical review or program integrity investigation, and
4. Do not have any outstanding delinquent Medicare overpayments.

Amount of payment:
Eligible providers/suppliers will request a specific amount for an accelerated payment. Most providers can request up to 100% of the Medicare payment amount for a three-month period. Inpatient acute care hospitals and certain other hospitals can request up to 100% of the Medicare payment amount for a six-month period. Critical access hospitals (CAHs) can request up to 125% of the Medicare payment for a six-month period.

Processing time:
CMS has indicated that MACs will work to review and issue payment within seven calendar days of receiving the request.

Repayment, recoupment, and reconciliation:
The December 2020 Bipartisan-Bicameral Omnibus COVID Relief Deal revised the repayment, recoupment and reconciliation timeline on the Medicare Advanced and Accelerated Payment Program as identified below. 

Application:
Applications for accelerated payments can be found on each MACs' website. CMS has established COVID-19 hotlines at each MAC that are operational Monday through Friday to assist providers with accelerated or advance payment concerns. Access your designated MACs' website here.

The MAC will review the application to ensure the eligibility requirements are met. The provider/supplier will be notified of approval or denial by mail or email. If the request is approved, the MAC will issue the accelerated payment within seven calendar days from the request.

When funding is approved, the requested amount is compared to a database with amounts calculated by Medicare and provides funding at the lessor of the two amounts. The current form allows the provider to request the maximum payment amount as calculated by CMS or a lesser specified amount.

We are here to help
If you have questions or need more information about your specific situation, please contact the healthcare consulting team. We’re here to help.

Read this if you are a business owner or interested in upcoming changes to current tax law.

As Joe Biden prepares to be inaugurated as the 46th President of the United States, and Congress is now controlled by Democrats, his tax policy takes center stage.

Although the Democrats hold the presidency and both houses of Congress for the next two years, any changes in tax law may still have to be passed through budget reconciliation, because 60 votes in the Senate generally are needed to avoid that process. Both in 2017 and 2001, passing tax legislation through reconciliation meant that most of the changes were not permanent; that is, they expired within the 10-year budget window. Here is a comparison of current tax law with Biden’s proposed tax plan.

If you have questions about your specific situation, please contact us. We’re here to help.

Read this if you are a tax-exempt organization.

The IRS recently issued proposed regulations (REG-106864-18) related to Internal Revenue Code Section 512(a)(6), which requires tax-exempt entities to calculate unrelated business taxable income (UBTI) separately for each unrelated trade or business carried on by the organization.

For years beginning after December 31, 2017, exempt organizations with more than one unrelated trade or business are no longer permitted to aggregate income and deductions from all unrelated trades or businesses when calculating UBTI. In August 2018, the IRS issued Notice 2018-67, which discussed and solicited comments regarding various issues arising under Code Section 512(a)(6) and set forth interim guidance and transition rules relating to that section. 

The good news
The new proposed regulations expand upon Notice 2018-67 and provide for the following:

• An exempt organization would identify each of its separate unrelated trades or businesses using the first two digits of the NAICS code that most accurately describes the trade or business. Activities in different geographic areas may be aggregated.
• The total UBTI of an organization with more than one unrelated trade or business would be the sum of the UBTI computed with respect to each separate unrelated trade or business (subject to the limitation that UBTI with respect to any separate unrelated trade or business cannot be less than zero). 
• An exempt organization with more than one unrelated trade or business would determine the NOL deduction allowed separately with respect to each of its unrelated trades or businesses.
• An organization with losses arising in a tax year beginning before January 1, 2018 (pre-2018 NOLs), and with losses arising in a tax year beginning after December 31, 2017 (post-2017 NOLs), would deduct its pre-2018 NOLs from total UBTI before deducting any post-2017 NOLs with regard to a separate unrelated trade or business against the UBTI from such trade or business. 
• An organization's investment activities would be treated collectively as a separate unrelated trade or business. In general, an organization's investment activities would be limited to its:
   
  1. Qualifying partnership interests
  2. Qualifying S corporation interests
  3. Debt-financed property or properties 

Organizations described in Code Sec. 501(c)(3) are classified as publicly supported charities if they meet certain support tests. The proposed regulations would permit an organization with more than one unrelated trade or business to aggregate its net income and net losses from all of its unrelated business activities for purposes of determining whether the organization is publicly supported. 

The missing news: Unaddressed items from the new guidance
With the changes provided by these proposed regulations we anticipate less complexity and lower compliance costs in applying Code Section 512(a)(6). While this new guidance is considered taxpayer friendly, the IRS still has more work to do. Items not yet addressed include:

• Allocation of expenses among unrelated trade or businesses and between exempt and non-exempt activities.
• The ordering rules for applying charitable deductions and NOLs.
• Net operating losses as changed under the CARES Act.

The IRS is requesting comments on numerous key situations. Until the regulations are finalized, organizations can rely on either these proposed regulations, Notice 2018-67, or a reasonable good-faith interpretation of Code Sections 511-514 considering all the facts and circumstances.
We will keep you informed with the latest developments.

If you have any questions, please contact the not-for-profit consulting team.