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Recently passed legislation will benefit nonprofit organizations by repealing an unpopular unrelated business income tax (UBIT) on expenses of nonprofits that provide transportation fringe benefits to their employees.

The “Parking Tax,” which was imposed under I.R.C. Section 512(a)(7) upon enactment of the 2017 Tax Cuts and Jobs Act, has now been retroactively repealed under the Taxpayer Certainty and Disaster Tax Relief Act.

Audits are important. Investors, lenders, government agencies, potential buyers and - in the case of not-for-profit organizations, your donors - rely on audit reports to assess your organization. Audits can be long, arduous, headache-inducing ordeals…but they don’t have to be. Proper preparation can go a long way towards simplifying the audit process.

Part 4 of a 5 Part Series

Not-for-profit boards have an important role in reviewing and approving the financial reports of the organization. In order to effectively evaluate the organization’s activities, plan for the future, and make decisions, financial reports are almost always on the agenda at board meetings.

The nature of charitable giving has changed, and there are four primary reasons for this:

• Technology has made it not only easier to give to charities, but to know about charities and how efficiently they perform.
• Changes in the U.S. tax code have created a disincentive for giving, especially for those who gave strictly for purposes of a tax deduction.
• The rise of Donor Advised Funds (DAF) has made it easier for donors to contribute meaningfully to a cause.
• Concerns for transparency and organizational efficiency have driven the need for increased disclosure and external oversight.

IRS Issues Guidance on Parking Expenses for Non-Profit Organizations

In Notice 2018-99, the IRS issued interim guidance on an issue that has vexed not-for-profit organizations since the passage of the Tax Cuts and Jobs Act (TCJA) in December of 2017. Under the TCJA, the payment of Qualified Transportation Fringes (QTFs) by not-for-profit organizations falls under unrelated business taxable income (UBTI) and is subject to a tax of 21%.

Does your nonprofit organization and its donors understand the IRS requirements surrounding charitable donations?

A nonprofit organization that does not understand the details of the IRS requirements, is not able to effectively communicate to donors, or provide donors with accurate and appropriate documentation, can risk alienating donors.  In addition, an organization could potentially miss an opportunity to increase donor giving levels and on the flip side, could be exposed to monetary penalties. 

To promote charitable giving, the IRS allows for tax deductions for contributions of cash or other monetary and non-monetary gifts as long as certain recordkeeping requirements are met.  

Folks can generally only deduct charitable donations to qualified organizations, such as places of worship and nonprofit organizations/hospitals (i.e., Colleges,  United Way, Girl Scouts).  If you're not sure that the organization you plan on making a donation to qualifies, ask them, or you can check the following website: (www.irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check).  Keep in mind that you cannot obtain a charitable donation deduction for contributions to individuals, or for the value of your time or services provided to an organization.

Once you've determined that the organization is qualified, you need to make sure that you're going to obtain a tax benefit by making the donation.  If you don't itemize your deductions (file a Schedule A), you will not have the ability to deduct the amount donated.  Also, you cannot (generally) deduct charitable contributions that exceed 50% of your Adjusted Gross Income ("A.G.I.").  Finally, if you’re A.G.I. is above a certain threshold (in 2016, $311,300 if you file jointly, $259,400 if you file as a single taxpayer),  your total charitable contributions, as well as your other itemized deductions (i.e., real estate taxes, mortgage interest) may be limited.

Let’s take a look:

Monetary gifts (cash, checks, payroll deductions, stock gifts, etc.)

To validate a deduction taken for a charitable contribution of any amount, the taxpayer (the one claiming the deduction on their tax return) must have:

• A bank record or a written communication from the charity displaying the name of the organization
• The amount of the contribution and,
• The date of the contribution.

Often, such contributions are made through payroll deductions to or facilitated by organizations such as the United Way.  In these instances, the taxpayer must maintain a pay stub or Form W-2.  The taxpayer may also furnish another employer-generated document that details the amount(s) withheld for payment to the charitable organization, along with a pledge card filled in by or at the direction of the donee charitable organization.  These basic documentation rules apply to all gifts unless a gift individually exceeds $250.

Read more from Chris Valponi

Additional requirements for gifts of $250 or more state that the taxpayer must obtain:

• A written acknowledgement of the contribution from the donee organization that stipulates the amount of cash and a description of any property other than cash contributed
• The taxpayer must obtain a statement whether the organization provided any goods or services in consideration for the contribution
• A description and good faith estimate of the value of any goods or services provided in consideration for the contribution

Keep in mind that for payroll deductions, the IRS states that the contribution amount withheld from each paycheck to a taxpayer is treated as a separate contribution for purposes of applying the $250 threshold.  To illustrate, 15 payroll deductions of $20 each, totaling $300 over the course of the year would not be considered to meet the additional requirements threshold of $250. 

Many not-for-profit organizations struggle to find qualified financial leaders for their boards. Often individuals possessing higher-level financial experience are asked to take on multiple roles, begging the question, “can a board member be both the treasurer and the chair of the audit committee”? 

The giving cycle. Funding cuts. Grant applications. Today, many professionals responsible for the fiscal health of a not-for-profit are consumed with a variety of concerns that impact the bottom line. Adding to that, the recent Financial Accounting Standards Board (FASB) proposed changes are certainly concerns that cannot be overlooked.

According to the National Center for Charitable Statistics (NCCS), more than 1.5 million nonprofit organizations are registered in the U.S. This number includes public charities, private foundations, and other types of nonprofit organizations, including chambers of commerce, fraternal organizations and civic leagues. The concern?  The FASB changes will affect nearly all not-for-profit entities who issue financial statements.