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Resources for
not-for-profits
affected by COVID-19

07.21.20

Related Professionals

BerryDunn’s Healthcare/Not-for-Profit Practice Group members have been working closely with our clients as they navigate the effect the COVID-19 pandemic will have on their ability to sustain and advance their missions.

We have collected several of the questions we received, and the answers provided, so that you may also benefit from this information. We will be updating our COVID-19 Resources page regularly. If you have a question you would like to have answered, please contact Sarah Belliveau, Not-for-Profit Practice Area leader, at sbelliveau@berrydunn.com.

The following questions and answers have been compiled into categories: stabilization, cash flow, financial reporting, endowments and investments, employee benefits, and additional considerations.

STABILIZATION
Q: Is all relief focused on small to mid-size organizations? What can larger nonprofit organizations participate in for relief?
A:

We have learned that there is an as-yet-to-be-defined loan program for mid-sized employers between 500-10,000 employees. You can find information in the Loans Available for Nonprofits section (link below) of  the CARES Act as well as on the Independent Sector CARES Act web page, which will be updated regularly.

Q: Should I perform financial modeling so I can understand the impact this will have on my organization? Things are moving so fast, how do I know what federal programs are available to provide assistance?
A:

The first step in developing a short-term model to navigate the next few months is to gain an understanding of the programs available to provide assistance. These resources summarize some information about available programs:

Loans Available for Nonprofits in the CARES Act
Families First Coronavirus Response Act (FFCRA): FAQs for Businesses
CARES Act Tax Provisions for Not-for-Profit Organizations

The next step is to develop scenarios ranging from best case to worst case to analyze the potential impact of revenue and/or cost reductions on the organization. Modeling the various options available to you will help to determine which program is best for your organization. Each program achieves a different objective – for instance:

  • The Paycheck Protection Program can assist in retaining employees in the short term.
  • The Emergency Economic Injury Grants are helpful in covering a small immediate liquidity need.
  • The Small Business Debt Relief Program provides aid to those concerned with making SBA loan payments.

Additionally, consider non-federal options, such as discussing short-term deferrals with your current bank.

Q: How should I create a financial forecast/model for the next year?
A:

If you have the benefit of waiting, this is likely a time period in which it makes sense to delay significant in-depth forecasting efforts, particularly if your business environment is complicated or subject to significantly volatility as a result of recent events. The concern with beginning to model for future periods, outside of the next three-to-six months, is that you’ll be using information that is incomplete and ever-changing. This could lead to snap judgments that are short-term in nature and detrimental to long-term planning and success of your organization. 

With that said, we recognize that delaying this analysis will be unsettling to many CFOs and business managers who need to have a strategy moving forward. In developing this model for next year, consider the following elements of a strong model:

  1. Flexible and dynamic – Allow room for the model to adapt as more information is available and as additional insight is requested by your constituents (board members, department heads, lenders, etc.).
  2. Prioritize – Start with your big-ticket items. These should be the items that drive results for the organization. Determine what your top two to three revenue and expense categories are and focus on wrapping your arms around the future of those. From there, look for other revenue and expense sources that show correlation with one of the big two to three. Using a dynamic model, these should be automatically updated when assumptions on correlated items change. Don’t waste time on items that likely don’t impact decision making. Finally, build consensus on baseline assumptions, whether it be through management or accounting team, the board, or finance committee.
  3. Stress-test – Provide for the reality that your assumptions, and thus model, will be wrong. Develop scenarios that run from best-case to worst-case. Be honest with your assumptions.
  4. Identify levers – As you complete stress-testing, identify your action plan under different circumstances. What are expenditures that can be deferred in a worst-case scenario? What does staffing look like at various levels?
  5. Cash is king – The focus on forecasting and modeling is often on the net income of the organization and the cash flows generated. In a time such as this, the exercise is likely to focus on future liquidity. Remember to consider your non-income and expense items that impact cash flow, such as principal payments on debt service, planned additions to property & equipment, receipts on pledge payments, and others.  
CASH FLOW
Q: How can I alleviate cash flow strain in the near term?
A:

While the House and Senate have reacted quickly to bring needed relief to individuals and businesses across the country, the reality for most is that more will need to be done to stabilize. Operationally, obvious responses in the short term should be to eliminate all nonessential purchasing and maximize the billing and collection functions in accounts receivable. Another option is to utilize or increase an existing line of credit, or establish a new line of credit, to alleviate short term cash flow shortfalls. Organizations with investment portfolios can consider the prudence of increasing the spending draw on those funds. Rather than making a few drastic changes, organizations should take a multi-faceted approach to reduce the strain on cash flow while protecting the long term sustainability of the mission.

Q: How can I increase my organization’s reach to help with disaster relief? If we establish a special purpose fund, what should my organization be thinking about?
A:

Many organizations are looking for ways to increase their direct impact and give funding to individuals or organizations they may not have historically supported. For those who are want to expand their grant or gift making or want to establish a disaster relief fund, there are things to consider when doing so to help protect the organization. The nonprofit experts at Hemenway & Barnes share their thoughts on just how to do that.

FINANCIAL REPORTING
Q: What accounting standards have been delayed or are in the process of being delayed?
A:

FASB:
The $2.2 trillion stimulus package includes a provision that would allow banks the temporary option to delay compliance with the current expected credit losses (CECL) accounting standard. This would be delayed until the earlier end of the fiscal year or the end of the coronavirus national emergency.

GASB:
On March 26, 2020, the Governmental Accounting Standards Board (GASB) announced it has added a project to its current technical agenda to consider postponing all Statement and Implementation Guide provisions with an effective date that begins on or after reporting periods beginning after June 15, 2018. The GASB has received numerous requests from state and local government officials and public accounting firms regarding postponing the upcoming effective dates of pronouncements as these state and local government offices are closed and officials do not have access to the information needed to implement the Statements. Most notably this would include Statement No. 84, Fiduciary Activities, and Statement No. 87, Leases.

The Board plans to consider an Exposure Draft for issuance in April and finalize the guidance in May 2020.

ENDOWMENTS AND INVESTMENTS 
Q: What should I consider with regard to endowments?
A:

Many nonprofits with endowments are considering ways to balance an increased reliance on their investment portfolios with the responsibility to protect and preserve the spending power of donor-restricted gifts. Some things to think about include the existence (or absence) of true restrictions, spending variations under the Uniform Prudent Management of Institutional Funds Act (UPMIFA) applicable in your state, borrowing from an endowment, or requesting from the donor the release of restrictions. All need to be balanced with the intended duration and preservation of the endowment fund. Hemenway & Barnes shares their thoughts relative to the utilization of endowments during this time of need.

EMPLOYEE BENEFITS
Q: We are going to suspend our retirement plan match through June 30, 2020 and I picked a start date of April 1st. What we need help with is our bi-weekly payroll (which is for HOURLY employees). Their next pay date is April 3rd, for time worked through March 28th. Time worked March 29-31 would be paid on April 17th. How should we handle the match during this period for the hourly employees?
A:

The key for determining what to include for the matching calculation is when it is paid, not when it was earned. If the amendment is effective April 1st, then any amounts paid after April 1st would not have matching contributions calculated. This means that the amounts paid on April 3rd would not have any matching contributions calculated.

Q: Can you please provide guidance on the Families First Coronavirus Response Act (FFCRA) and how it may impact my organization?
A:

On March 30th, BerryDunn published a blog post to help answer your questions around the FFCRA.

If you have additional questions, please contact one of our Employee Benefit Plan professionals

ADDITIONAL CONSIDERATIONS
Q: I heard there was going to be an incentive for charitable giving in the new act. What's that all about?
A:

According to Sections 2204 and 2205 of the CARES Act:

  • Up to $300 of charitable contributions can be taken as a deduction in calculating adjusted gross income (AGI) for the 2020 tax year. This will provide a tax benefit even to those who do not itemize.
  • For the 2020 tax year, the tax cap has been lifted for:
    • Individuals-from 60% of AGI to 100%
    • Corporations-annual limit is raised from 10% to 25% (for food donations this is raised from 15% to 25%)
Q: Have you heard if the May 15th tax deadline will be extended?
A:

Unfortunately, we have not heard. As of April 6th, the deadline has not been extended.

Q: Could you please summarize for me the tax provisions in the CARES Act that you think are most applicable to not-for-profits?
A: Absolutely! Our not-for-profit tax professionals have compiled this document, which provides a high-level outline of tax provisions in the CARES Act that we believe would be of interest to our clients.

We are here to help
Please contact the BerryDunn not-for-profit team if you have any questions, or would like to discuss your specific situation.

Article
COVID-19 FAQs—Not-for-Profit Edition

With the most recent overhaul to the Form 990, Return of Organization Exempt From Income Tax, the IRS has made clear its intention to increase the transparency of a not-for-profit organization’s mission and activities and to promote active governance. To point, the IRS asks whether a copy has been provided to an organization’s board prior to filing and requires organizations to describe the process, if any, its board undertakes to review the 990.

This lack of ambiguity aside, it is just good governance to have an understanding of the information included in your organization’s Form 990. After all, it is available to anyone who wants a copy. But the volume of information included in a typical return can be daunting.

Where do you even start? Let’s take a look at the key components of a Form 990 that warrant at least a read-through:

  • Income and expense activity (Page 1 and Schedule D) – Does this agree to, or reconcile to, the financial reporting of the organization?
  • Narratives on Page 2 – Does it accurately describe your mission and “tell your story”?
  • Questions in Part VI about governance, management, and disclosures – If any governance or policy questions are answered in the negative, have you given consideration to implementing changes?
  • Part VII – Board information and key employee/contractor compensation – Is the list complete? Does the information agree with compensation set by the board? Does it seem appropriate in light of responsibilities and the organization’s activities

Depending on how questions were answered earlier in the Form 990, several schedules may be required. Key schedules include:

  • Schedule C – Political and lobbying expenditures
  • Schedule F – Foreign transactions and investments reported (alternative investments may have pass-through foreign activity)
  • Schedule J – Detailed compensation reporting for employees whose package exceeds $150,000
  • Schedule L – Transactions with officers, board members, and key employees (conflict-of-interest disclosures)

In addition to the Form 990, an organization may be required to file a Form 990-T, Exempt Organization Business Income Tax Return, if it earns unrelated business income. In general, it’s good practice to review the Form 990 with the organization’s management or tax preparer to be able to ask questions as they arise.

Filing and reviewing the Form 990 can be more than a compliance exercise. It’s an opportunity for a good conversations about your mission, policies, and compensation—a “health check-up” that can benefit more areas than just compliance. Understanding your not-for-profit’s operations and being an engaged and informed board member are essential to effectively fulfilling your fiduciary responsibilities.

Article
Good governance: Understanding your organization's Form 990

Read this if you are a business owner.

Here is some end-of-year tax information we would like to share. While it may vary in your specific situation, we are providing this general information for your review. Please contact us with any questions about your year-end preparations. 

As the world continues to contend with the COVID-19 pandemic and its economic fallout, businesses are doing all they can to mitigate risks and plan for a recovery that’s anything but certain. Here are some tax relief tactics that can help take your business from reacting to the day-to-day challenges to taking advantage of those incentives that are available to help move your business forward.

Tax strategies to generate immediate cash flow

While not exhaustive, here are several tax strategies to consider:

Debt and losses optimization

  • File net operating loss (NOL) carryback refund claims
  • File claim to relieve 2019 tax payments due with the 2019 returns for corporations expecting a 2020 loss 
  • Analyze the tax impact of income resulting from the cancellation of debt in the course of a debt restructuring
  • Consider claiming losses related to worthless, damaged, or abandoned property to generate losses 
  • Decrease estimated tax payments based on lower 2020 income projections, if overpayments are anticipated
  • Consider filing accounting method changes to accelerate deductions and defer income recognition with the goal of increasing a loss in 2020 for expanded loss carryback rules

Making the most of legislation and understand how the CARES Act can provide relief to employers: Defer payment of the employer’s share of Social Security taxes until the earlier of (1) Dec. 31, 2020, or (2) the date the employer’s Paycheck Protection Program (PPP) loan is forgiven

Take advantage of any remaining corporate AMT credit

Consider the Employee Retention Credit

Regardless of which tax strategies you leverage, keeping the focus on generating and retaining cash will help ensure your business can weather an extended period of disruption.

Optimizing operations: Uncover tax relief opportunities

The initial tumult of the pandemic and economic fallout has passed, but significant challenges remain. Although companies that have managed to survive up to this point may have overcome immediate safety and cash flow problems, we still face an uncertain future. No one can predict how long the downturn will last, whether the world will revert into crisis mode or the path towards long-term recovery has begun. 

Despite the uncertainty, savvy companies can position themselves to outperform their competitors by capitalizing on market shifts and strengthening their core business models. To do so, liquidity will continue to be at a premium, but many companies at this stage should be able to spend a bit in order to reap considerable returns. Tax planning is important to do just that. Consider which tax strategies can help you find a competitive edge, including: 

Uncovering missed opportunities for savings: 

  • R&D tax credit studies: The money companies spend on technology and innovation can offset payroll and income taxes via R&D tax credits.
  • Property tax assessment appeals: In the wake of the COVID-19 pandemic, some jurisdictions are reevaluating their property tax processes.
  • Cost segregation studies: Cost segregation studies can help owners of commercial or residential buildings increase cash flow by accelerating federal tax depreciation of certain assets.
  • State and local credits and incentives projects: By taking advantage of existing programs, as well as those implemented as a result of COVID-19, companies can qualify for state tax credits and business incentives. 
  • Opportunity zone program: This federal program is structured to encourage investors to shift capital from existing assets to distressed, low-income areas, and in doing so, deferring and even reducing taxes.

Maintaining compliance: If your business secured any federal funding in the early stages of the pandemic, those funds likely came with certain tax and financial reporting compliance measures attached. 

Continue to grow liquidity: Cash is still key to navigating an uncertain road ahead. Continue to leverage liquidity-generating tactics, such as:

  • Evaluating existing accounting methods and changing to optimal methods for accelerating deductions and deferring income recognition, thereby reducing taxable income and increasing cash flow.
  • Reviewing transfer pricing strategies to identify opportunities to optimize cash flow.
  • Pursuing a tax deduction through charitable donations.
  • Maximizing state NOLs through elections, structural changes, intercompany transactions, and triggering unrealized gains.

Moving forward: Adopt new business strategies to reimagine the future

In the recovery phase, demand for goods and services has returned to pre-pandemic-recession levels. The wisest companies won’t spend this time resting on their laurels but will instead use it to reimagine their futures. 

Plans made prior to spring 2020 may no longer make sense in a post-COVID world. Companies need to not only recover from COVID-19, but also integrate the lasting forces of change brought on by the pandemic to emerge more resilient and more agile than before it began. It’s time to reset vision and strategy—and tax needs to be an integral part of that process. Here are some tax considerations that can align with new business strategies: 

Workforce

During recovery, businesses have likely confirmed near-term strategies around where employees will work. While these plans need to balance employee safety and operational efficiency, they also come with important tax impacts. Tax considerations: 

  • Assess the tax implications of your mid- to long-term workforce strategy, whether you take an on-site, fully remote, or a hybrid approach
  • Ensure tax compliance with state or local tax withholding for employees working remotely 
  • Consider the tax implications of outsourcing any business functions

Finances

As demand for products and services increases, it’s likely profits will also grow, meaning many companies that may have been incurring losses may find themselves with taxable income again. At this point, tax strategies should focus on lowering the organization’s total tax liability. Tax considerations: 

  • Optimize the use of any available credits, incentives, deductions, exemptions, or other tax breaks 
  • Maximize the benefit of changes to the net operating loss rules included in the CARES Act 
  • Consider the foreign-derived intangible income (FDII) deduction, if applicable (i.e., companies that earn income from export activities)

Transactions

Many businesses may be considering strategic transactions, such as acquiring another company, merging with a peer, selling certain assets, or purchasing new resources. Each of these actions can have multiple tax consequences. Tax considerations: 

  • Assess potential tax benefits or liabilities of strategic transactions before they take place as a part of the due diligence process
  • Identify loss companies and plan around utilizing losses and credits
  • Structure acquisitions and divestitures in a tax-efficient manner to increase after-tax cash flow

Innovation

As companies reconfigure their businesses to adapt to COVID-19 changes—from greater shifts to e-commerce to outsourced back office functions to partially remote work arrangements—they should determine how to use tax strategies to offset the costs of these investments. Tax considerations:  

  • Consider using federal, state, or even other countries’ R&D tax credits to offset costs of new products, processes, software, and other innovations
  • Explore whether previously undertaken activities may also qualify for these credits 

Regulations and legislation

As the economy improves, regulatory oversight likely will also increase. Noncompliance can be costly and can reverse much of the progress a business has made in its recovery. At the same time, additional tax law changes are likely on the horizon, and companies will need to be able to act quickly when they appear. Tax considerations

  • Ensure compliance with rules around federal funding received during the pandemic
  • Monitor tax regulatory and legislative developments at all levels, especially in the area of digital taxation, post-election tax reform, and federal, state, and local policy changes 
  • Scenario plan to outline the potential impact of future tax legislation on the company’s overall tax liabilities

Transformation

Staying ahead in the “new normal” means accelerating efforts around digital transformation to build a business with agility and resilience at its core. This should always include evolving the tax function. Businesses must strive to fully integrate processes, people, technology, and data to understand total tax liability and forecast how decisions and changes will impact their tax standing. Tax considerations

  • Collaborate with leadership and other areas of the business on a company-wide approach to digital transformation efforts
  • Establish a clear, shared vision of the future state of the tax department
  • Develop the business case for transformation efforts

Whatever pivots your business takes once the worst has passed, tax strategy needs to be an integral part of the plan to move forward. Evolving your tax strategy alongside business strategy will help prevent unforeseen costs and maximize potential savings.
 

Article
Tax relief strategies for resilience

Read this if you are a small business owner. 

We are living in an age of information overload. A quick Google search produces millions of results and a scroll through social media offers hundreds of views. We are able to access this endless data around the clock using these tiny devices, which we spend more time in our hands than not on most days. Unending technological advancements increase the ability of business stakeholders to consume data, and that amplified ability fuels a bigger demand for more data. It is widely claimed that financial reporting has become far too burdensome and often provides more confusion than information to end-users. While each item in the reporting package may very well help users to better appreciate the financial statements, the worth is being lost due to the volume of data in its entirety. 

Financial statement simplification

So, what does this information overload mean to business owners today, and can you really achieve financial statement simplification while still providing effective and relevant information to your stakeholders? Our answer is ‘YES!’ You can add immediate value to an entity’s financial statements, without a substantial investment of time, money, and resources. By creating a month-end checklist, defining stakeholders' needs, considering materiality, and automating the reporting process, your organization can not only simplify its financial reporting, but also add immense value.

When it comes to month-end close, your team may have a very clear understanding of what needs to be done and who is responsible for each task. However, documenting the process is crucial to provide clarity and simplification. Your month-end checklist can be used as a tool to keep everyone organized, outline due dates, and define roles and responsibilities. A month-end checklist would include tasks such as reviewing outstanding accounts receivable (AR) and accounts payable (AP), booking depreciation, adjusting prepaids and accruals, bank reconciliations and posting loan interest. This outline should serve as a forecasting guide to quantify resources needed for the month-end close.

Relevant and specific financial reporting

Whether it is your banking institution, investors, auditors, or management, it is important to identify which reports (and what targeted and specific information) each set of users will need and in what frequency they want it. Your organization may be producing excellent financial reporting that is too extensive and too frequent for your stakeholders' needs. Once you gather what each audience requires, it makes the process more efficient and the information for each audience more valuable.

The methods of accounting your company uses can have a material effect on the financial statements and their usefulness to end users. Materiality refers to the impact that a misstatement or omission of information can have on a company’s financial statements. Materiality varies based on the size of an entity; therefore, it is crucial that every member of your accounting team is aware of the materiality your organization has decided on using. It is important to note that when the cost of a method of accounting outweighs the benefit of doing so, you are able to depart from this accounting principle. Your company should revisit materiality on a regular basis, since eliminating some transactions can significantly reduce the amount of time required to issue financial statements.

Automation options for improved accuracy

Lastly, there are countless options available for not only automating your reporting process but minimizing time spent during the month on various accounting functions. These tools are not only effective in reducing labor and administrative costs but also improving accuracy by mitigating human error. Accounts payable tools like Bill.com and Expensify streamline your payments and approvals process and can save an average of 50% of time spent on AP, this is nearly 36 business days per year. 

Our team at BerryDunn is available to discuss your specific needs and help to recommend the best tools, processes, and procedures to simplify your financial reporting and month-end close process. 

Article
Simplify financial reporting with an expert at your doorstep

Read this if you administer a 401(k) plan.

On December 20, 2019, the Setting Every Community up for Retirement Enhancement (SECURE) Act was signed into law. The SECURE Act makes several changes to 401(k) plan requirements. Among those changes is a change to the permissible minimum service requirements.  
 
Many 401(k) retirement plan sponsors have elected to set up minimum service requirements for their plan. Such requirements help eliminate administrative burden of offering participation to part-time employees who may then participate in the plan for a short period of time and then keep their balance within the plan. Although plan sponsors do have the ability to process force-out distributions for smaller account balances, a minimum service requirement, such as one year of service, can help eliminate this situation altogether.  

Long-term part-time employees now eligible

The SECURE Act will now require that long-term part-time employees be offered participation in 401(k) plans if they are over the age of 21. The idea behind the requirement is that 401(k) plans are responsible for an increasingly larger amount of employees’ retirement income. Therefore, it is essential that part-time employees, some of which may not have a full-time job, have the ability to save for retirement.  
 
Long-term is defined as any employee who works three consecutive years with 500 or more hours worked each year. This new secondary service requirement becomes effective January 1, 2021. Previous employment will not count towards the three-year requirement. Therefore, the earliest a long-term part-time employee may become eligible to participate in a plan under the secondary service requirement is January 1, 2024.  

403(b) plans not affected 

Please note this provision is only applicable for 401(k) plans and does not impact 403(b) plans, which are subject to universal availability. Furthermore, although long-term part-time employees will be allowed to make elective deferrals into 401(k) plans, management may choose whether to provide non-elective or matching contributions to such participants. These participants also may be excluded from nondiscrimination and top-heavy requirements.  
 
This requirement will create unique tracking challenges as plans will need to track hours worked for recurring part-time employees over multiple years. For instance, seasonal employees who elect to work multiple seasons may inadvertently become eligible. We recommend plans work with their record keepers and/or third-party administrators to implement a tracking system to ensure participation is offered to those who meet this new secondary service requirement. If a feasible tracking solution does not exist, or plans do not want to deal with the burden of tracking such information, plans may also consider amending their minimum service requirements by reducing the hours of service requirement from 1,000 hours to 500 hours or less. However, this may allow more employees to participate than under the three-year, 500-hour requirement and may increase the employer contributions each year. 

If you have questions regarding your particular situation, please contact our Employee Benefit Audits team. We’re here to help.

Article
New permissible minimum service requirements for 401(k) plans