Showing you how to stay tax exempt Become Critical

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Showing you how to stay tax exempt
and run a successful organization.
In This Issue
Change of Responsible Party
Meet a Hawkins Ash Accountant
Know Your Funding
Risk Management
Finding Information Quickly in
Unrestricted Funds
How to Retroactively Reinstate Taxexempt Status
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Change of
Responsible Party
Form 8822-B has always been used to
report to the IRS a change in your
mailing business address, but effective
January 1, 2014, organizations will be
required to report a change in the
identity of a responsible party on this
form as well.
May 2014
Risk Management: How to Contain Threats Before They
Become Critical
Financial risks may be the most obvious threats to the well-being of nonprofits, but these organizations
need to worry about other risks as well - from their reputation in the community to their volunteers' conduct.
If you don't have a comprehensive risk management plan, your nonprofit may be courting unnecessary
Your Risk List
The first step is to identify your organization's greatest risks. Some are common to most nonprofits, such
Dishonest staff, volunteers, donors or clients,
Financial losses,
Threats to physical and intangible property,
The unexpected departure of key employees,
Loss of donor and community goodwill, and
Revocation of tax-exempt status.
What are your organization's specific risks? For example, you may rely heavily on state governmental
grants. Your endowment may be invested in high-performing but risky securities. Board members may not
always adhere to your conflict-of-interest policy, or volunteers may accept cash donations without staff
oversight. Increasingly, online hackers and the unmonitored use of social media by staffers threaten
Identify your areas of greatest risk exposure, and then determine how you'd act if forces beyond your
control challenged them. For example, if your cash-strapped state government eliminated your funding,
where would you apply for new grant money? How would you keep your programs operating in the
Prioritize Financial Threats
Managing and protecting financial resources is the biggest challenge for most nonprofits, so start building
your risk management plan there. Address any acts that could lead to the loss of value of financial assets including theft, fraud, misuse of funds, poor investment decisions, and inappropriate selection of sponsors
and partners.
Then establish policies and procedures to prevent such losses. For instance, by requiring your organization
to maintain a certain amount in a cash reserves account, your board can manage the risk that at some
point you'll confront a budget shortfall or financial emergency.
Formal internal controls also are essential. Mandate proper oversight by senior management and board
members, and document procedures for authorizing transactions, securing assets, and preventing and
detecting fraud.
Cover All the Bases
Don't try to develop a risk management policy alone. To ensure you're covering all the bases, involve your
board, managers, insurance company, legal counsel, and financial advisors. Depending on the risk, you
might also want to talk to staff members and volunteers for a ground-level perspective.
If, for example, your organization serves children, you can't afford to overlook a single risk. Some measures
may seem obvious, such as obtaining liability waivers from parents, conducting criminal background
checks on adults who will work with the children, and maintaining up-to-date records of the children's
allergies and medications. But have you considered a photo-taking policy? What about procedures to follow
For nonprofits, a responsible party is
defined as the person who has a level
of control over, or entitlement to, the
funds or asset in the entity that, as a
practical matter, enables the individual,
directly or indirectly, to control,
manage, or direct the entity and the
disposition of its funds and assets.
The form is to be filed within 60 days of
the change. Currently there are no
penalties for failure to file Form 8822-B
or failure to file within the specified time
Join Our Mailing List
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The Nonprofit Connection
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Tax and Business Alert
Meet a Hawkins Ash
Chuck Krueger, CPA
Chuck Krueger joined Hawkins Ash
CPAs accounting and auditing staff in
1987. As a senior manager in the firm's
Manitowoc, WI office, he provides audit
services to school districts,
municipalities, and nonprofit entities. In
the community Chuck is President of
the Kiwanis Club of Greater Manitowoc
and Treasurer for the Manitowoc
Family Aquatic Center
Here are some fun facts about Chuck:
Hometown: Manitowoc, WI
Describe a perfect day:
allergies and medications. But have you considered a photo-taking policy? What about procedures to follow
in the event of an accident? Do staff members and volunteers know what to do if they spot a stranger
lurking outside your playground?
After you develop a detailed plan to address such risks, communicate that plan to staff and volunteers, and
provide training, if necessary. Also keep in mind that risk management is an ongoing process, so your
nonprofit should continually review and revise policies and procedures to address emerging risks.
Insurance Protection
Insurance also helps nonprofits offset risk. Aside from general (or commercial general liability) policies,
some specialty products are available, including:
Accident and injury,
Product liability (if your nonprofit sells anything to the public),
Directors and officers (D&O), and
Professional liability (malpractice).
An insurance professional can help you decide which policies you need and provide information about
limits, deductibles, and cost.
Of course, insurance won't solve all of your risk issues. Tax-exempt status and fundraising capacity can't
be protected by insurance. And not even the best or most inclusive insurance policy will help you repair
damage to your reputation. That's why you need a complete risk management plan in place to complement
your insurance coverage.
Complex Undertaking
Risk management is a complex undertaking. You likely already have some policies and procedures in
place, but to ensure you've taken steps to mitigate the biggest and most costly risks, consult with your
financial and legal advisors.
Finding Information Quickly in QuickBooks
An organization stores more and more data in a QuickBooks file as time goes on. At times you may need a
quick and easy way to find and retrieve specific information. The Find window can help find any form or
other transaction based on search criteria, including the date, customer/vendor name, form number,
transaction amount, check number, and more. You can even use multiple criteria. There are three ways to
access the Find window. Click on the Find icon in the icon bar or click on the Edit menu and choose the
Find command or use the <Control> F key to open it.
Describe a perfect day:
Spending the day with his wife at their
camper in Door County.
Favorite Food:
Chicken spaghetti
What is your favorite sports
team? Green Bay Packers
What is your favorite restaurant?
Texas Roadhouse
Why do you like to work with
nonprofits? Observing the passion
nonprofit employees have for the
organization's mission is inspiring. This
motivates Chuck to do everything he
can to help the organization
accomplish its mission and achieve its
Contact Chuck:
[email protected]
Know Your Funding
As a 501(c)(3) nonprofit, your
organization likely receives a mix of
contributions it can use in different
ways. Decide from the onset what type
of funds you want to solicit - and what
types you're willing to accept. Here are
three categories to consider:
Unrestricted funds are free of donor
stipulations. Nonprofits need an
adequate and steady supply of
unrestricted funds to meet ongoing
operating expenses and unanticipated
costs. Board-designated funds are
included in this category because they
aren't restricted by the donor. Although
the board has decided to use these
funds for a certain purpose, it can
"undesignate" the funds at a future
Temporarily restricted funds are
subject to donor-imposed stipulations
that can be removed with the passing
of time or when spent for the purpose
intended by the donor.
Permanently restricted funds,often
called endowments, are subject to
lasting donor stipulations, which
mandate that the funds be "held in
perpetuity." The earnings can be used
for a specific purpose or to support
When you find the information that you are looking for, you can open it by selecting the entry in the table in
lower part of the window and click Go To.
Unrestricted Funds: The Stairway to Flexibility
The Greater Anytown All-Needs Association is in trouble. Individual, corporate and state funding has
dwindled in recent years. And the 501(c)(3) organization doesn't know where the money will come from to
pay its bills - and its staff - next month.
Greater Anytown has over $2 million in endowments, but all of these funds' earnings are earmarked for
food and shelter programs. And a recent bequest of $450,000 is restricted for funding educational activities
for the next 10 years. What a pickle the 20-year-old nonprofit has found itself in!
Wanted: Funding without strings
The above example is fictitious and, with responsible planning, could likely be avoided. But it illustrates an
elementary point: Charitable organizations need cash to carry out their daily operations. And having an
adequate and steady stream of funds without strings attached - also known as "unrestricted funds" - is the
best way to keep a charity's operations and programs strong and sustainable.
Unlike temporarily or permanently restricted funds (see the sidebar "Know your funding"), unrestricted
funds can be used to cover the cost of operating expenses, such as rent, utilities, salaries, and other dayto-day expenses. The grants and individual donations a nonprofit receives for general operating support
allow it to refocus its efforts from raising funds to improving its programs and responding to emerging
community needs.
Not Always an Easy Task
Before an organization sets out to solicit unrestricted funds from individual and corporate donors, it should
understand what it's up against: There's a public sensitivity toward nonprofits that spend too much money
on administrative costs and too little on programs that fulfill their mission.
To secure funds without restrictions, prove to donors that you'll use their money wisely. One way to do that
is by presenting a healthy program service expense ratio and results-focused information on your Form
990, which you should make publicly available.
Direct is Desirable
When asking for unrestricted funds, being direct is best. The University of California at Los Angeles, for
example, is clear in telling alumni that its UCLA Fund is a collection of approximately 70 unrestricted funds
that help it in myriad ways.
Also explain in your fundraising materials how unrestricted gifts offer greater flexibility than restricted gifts
and how they help ensure you have adequate funds to keep the doors open. Moreover, encourage donors
to make multiyear commitments for unrestricted gifts.
Ask funders to designate their donations "as unrestricted funds that help the organization." You also might
consider naming a fund after a family or individuals who only give unrestricted funds. It might just help
encourage contributions of this type.
Sometimes grantors, such as government agencies, require that funds be restricted to a particular program
or function. If that's the case, you may still be able to factor in an administrative component of, say,
8%-10% to help cover operational costs.
Widen Your Net
Even with unrestricted funds, make sure you're involving a variety of funding sources. If one large source of
unrestricted funding dries up, for example, you'll still have a number of other sources to draw from. Look for
and identify new sources each year that fund organizations with missions on a par with yours.
Is There a Way to Have My Tax-exempt Status
Retroactively Reinstated Due to a Failure to File?
Written: Sandy Jensen, CPA
Written: Sandy Jensen, CPA
Contact: 608.784.7737 or [email protected]
Yes, organizations may be able to apply to have their tax-exempt status retroactively reinstated.
Organizations will receive a notification of its tax-exempt status being revoked because it failed to file the
required informational returns (990, 990EZ or 990-N) for three consecutive years.
Smaller nonprofit organizations (those that are required to file a 990E-Z or 990-N) that have not previously
had their tax-exempt status revoked can have their status reinstated by completing the steps listed below:
Complete Form 1023 (application for Recognition of Exemption under Section 501(c) 3 of the
Internal Revenue Code) or Form 1024 (application for all other not- for -profit entities) to the IRS.
Clearly write "Revenue Procedure 2014-11, Streamlined Retroactive Reinstatement" on the top of
the application
Submit the appropriate user fee.
Mail to the IRS within 15 months of the revocation.
Properly filing all outstanding Form 990-EZ will still be required, but no penalties for filing late will be
associated with these returns.
Larger organizations that file Form 990 will not qualify for the streamlined retroactive reinstatement
process, but may still be able to have their tax-exempt status retroactively reinstated. These organizations
Complete and submit Form 1023 or 1024 within 15 months of the revocation.
Clearly write "Revenue Procedure 2014-11, Retroactive Reinstatement" on the top of the
Include a statement explaining the reasonable cause why they were unable to properly file the
required annual informational return for one of the three consecutive years.
Include a statement that they are in compliance with filing all past and present returns.
Write "Retroactive Reinstatement" on any of the annual returns that they are filing to be in
Larger organizations that apply for reinstatement beyond 15 months after revocation may still qualify for
retroactive reinstatement of their tax-exempt status. They must complete all the steps included above for
larger organizations and include a statement that demonstrates they had reasonable cause for failing to file
annual returns for all three consecutive years in which they failed to file.
Hawkins Ash CPAs
Wisconsin: Green Bay | La Crosse | Manitowoc | Marshfield | Medford
Minnesota: Rochester | St. Charles | Winona
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