DGC Enewsletter 9-09

Nonprofits are unique, in that, they must be able to simultaneously manage their programs, their donors, and their public transparency, often with fewer resources than their for-profit counterparts. Ever changing compliance regulations aimed at making nonprofit organizations (NPOs) more transparent are putting the squeeze on many organizations. To be successful in today’s economic environment, NPOs must be more financially savvy and able to capitalize on the few advantages that come their way (see “Endowment” article below).

Since many of our clients and colleagues also sit on the boards of nonprofits, we believe it’s helpful for everyone to be aware of the issues affecting NPOs. Going forward, you’ll see more articles addressing various topics related to this industry. For more information about DGC’s Nonprofit niche, visit http://www.dgccpa.com/Industry-Expertise/Nonprofit-Organizations.

Donald J. Troy, Partner
dtroy@dgccpa.com
781-937-5358

New Law Loosens Restrictions on Endowments for Nonprofits
By Todd Ellis, CPA

Much has been publicized about losses in endowment funds of major educational institutions such as Harvard, MIT and others, forcing cutbacks in budgets and spending in key areas. However, smaller, lesser known nonprofit organizations (NPOs) are also struggling with plummeting investment values. A new law loosens some restrictions on endowments, giving smaller NPOs a little breathing room.

Endowments usually consist of monies given to organizations with the restriction that the funds cannot be spent on a current basis. The income generated by these monies may only be used for a specific purpose. For example, in larger institutions where endowments amount to billions of dollars, the income that is produced every year is significant and is utilized to fund things such as jobs and research.

In the past, NPOs have been allowed to spend a portion of the increase in value of the funds due to appreciation of investments. However, they were not allowed to spend amounts that would result in the endowment dipping below its "historic dollar value" or principal. Therefore, in down markets, the amounts that NPOs could spend in their operations would be significantly less, leaving them strapped at a time when they needed the funds the most.

The Uniform Prudent Management of Funds Act (UPMIFA), which was signed into law on July 2, 2009 in the Commonwealth of Massachusetts, will help alleviate some of the restrictions. Prior law in Massachusetts not only prohibited the spending of original principal but also imposed numerical limits on the percentage of these assets that NPOs could withdraw on an annual basis. Under UPMIFA, the NPO is not restricted to the "historical dollar value" threshold for spending. Rather they are allowed to set a spending policy based on what they deem is "prudent". This is based on the donor's intent, the purpose of the funds and a number of economic factors. This means that NPOs may spend from "underwater" funds provided that their actions are considered prudent.

This new law creates the possibility for NPOs to use some of their endowments during times of need. However, with this flexibility comes added responsibility on behalf of the organization and its board.

To learn how DGC can assist your organization with implementation of UPMIFA or other compliance requirements of nonprofit organizations, please contact Todd Ellis, CPA at tellis@dgccpa.com.

Energy Efficient Commercial Building Deduction Expanded to Benefit Designers
By Beth Golden, CPA

Taxpayers who own or lease commercial buildings and install property that meet certain energy efficiency guidelines may receive a current deduction for a portion of these expenditures, rather than recovering the costs through depreciation. To take advantage of the deduction, they must adhere to procedures established by The Energy Policy Act of 2005 and subsequent IRS guidance. Moreover, the Energy Improvement and Extension Act of 2008 extended this benefit to include property placed in service through December 31, 2013.

In the case of property owned by a Federal, State, or local government (or political subdivision thereof), the deduction for energy efficient commercial building property may be allocated to the designers. This includes architects, engineers, contractors, environmental consultants, and energy service providers who create the technical specifications for a new building or an addition to an existing building. The deduction may be taken by the designer in the tax year that the property is placed in service and must be installed before December 31, 2013. If there are multiple designers, the owner of the property may determine who is primarily responsible and allocate the full deduction to that designer, or may allocate the deduction among several designers.

To qualify for the deduction, the new construction must qualify as energy efficient commercial building property, defined as property:

Installed on or in any building located in the United States that is within the scope of Standard 90.1-2001 of the American Society of Heating, Refrigerating and Air Conditioning Engineers and the Illuminating Engineering Society of North America;
Installed as part of the (i) interior lighting systems, (ii) heating, cooling, ventilation and hot water systems, or (iii) the building envelope; and
Certified as being installed as part of a plan designed to reduce the total annual energy and power costs by 50% or more in comparison to a reference building which meets the minimum requirements of Standard 90.1-2001 (as in effect on April 2, 2003).

The maximum tax deduction is $1.80 per square foot of building floor area (60 cents for each of the three primary building components that qualify for the deduction). Energy savings must be calculated using IRS approved computer software. Before the deduction can be claimed, the taxpayer must obtain certification from a qualified, properly licensed engineer or contractor (licensed in the jurisdiction in which the building is located) that the property installed is qualifying energy efficient commercial building property.

For more information about these or other energy credits, contact a member of the DGC team.

IRS Plans 6,000 Employment Tax Audits
By Michael Cohn
SOURCE: WEBcpa, September 21, 2009

The IRS reportedly wants to find out how closely companies are complying with requirements for paying employment taxes by doing audits of about 6,000 companies.

A major concern will be how well companies are classifying their employees and independent contractors, according to Bloomberg.com. The Government Accountability Office released a report in August indicating that employee/independent contractor misclassifications remain a problem, although the full extent is unknown. It recommends better coordination between state and federal agencies and between the Labor Department and the IRS.

The IRS, in its upcoming audits, will focus not only on employee misclassifications, but also on how well companies report executive perks such as use of company cars, personal use of company-owned vacation property, and salaries at S corporations, according to Bloomberg. The new audits could be an uncomfortable experience for the accounting departments that will be facing them. Major companies like FedEx are already in hot water over their classification of home delivery truck drivers as independent contractors.

An IRS audit of the company’s 2002 taxes is going to cost FedEx $14 million in taxes and penalties if the company doesn’t win its appeal, and the IRS is still doing audits of the delivery giant's 2004 through 2008 taxes. Companies facing similar audits might need to make sure they’re prepared for heavy penalties if the IRS decides they haven’t been paying their fair share of employment taxes.

CLICK HERE to view article.

Deadline for Data Security Regulations Extended to March 1, 2010
Massachusetts recently amended the Standards for the Protection of Personal Information of Residents of the Commonwealth, 201 CMR 17.00 (the “Regulations”), giving businesses until March 1, 2010 to comply with security safeguards for personal information of Massachusetts residents. Generally speaking, the regulations mandate that ANY entity which stores personal information including a combination of name and Social Security number, bank account number or credit card number of Massachusetts residents must follow these guidelines. For a complete overview of the proposed regulations, CLICK HERE for a complete overview of the proposed regulations.

Due to the nature of our business, DGC has been at the forefront of these security regulations, and we would be more than happy to assist your company with understanding these regulations. Businesses need to evaluate their policies, procedures and systems in conjunction with these regulations so they are compliant by the March 1st deadline.

For more information about data security regulations, contact Cheryl Burke, COO, at cburke@dgccpa.com or 781-937-5116 for more information.

September 29 – TMA – Troubled Times: Challenges and Opportunities in Distressed Real Estate
October 2 – Greater Boston Chamber of Commerce - Financial Services Forum
October 13 – Boston Young Professionals Association - Professional Networking: Leads and Referrals, Series
October 14 – Small Business Assoc. of New England (SBANE) - MA Breakfast Series
October 15 – Greater Boston Chamber of Commerce - Small Business of the year Awards
October 15 – Commercial Finance Association (CFA) - Trade Fair and Cocktail Reception
October 21 - 21st Annual REFA Gala
October 22 - Small Business Assoc. of New England (SBANE) - 20098 "Profitable Connections" Awards Dinner