MCB Accounting Blog

New Compliance Laws for D.C. Nonprofits Effective January 1, 2012

All domestic and foreign nonprofit corporations authorized to do business in the District of Columbia must comply with new laws pursuant to The DC Nonprofit Corporation Act of 2010 ("The Act"). This is the first substantial change to the D.C. Official Code since 1962. The new laws replace old laws formed under DC law in 1962 and later. Additionally, the new laws apply to nonprofits formed before 1962, which are still covered under the pre-1962 law ("Old Act Companies"). Old Act Companies have a transition period of two years before they are required to comply with the new laws, which are effective January 1, 2014.

The Act contains several provisions that address matters such as the new filing deadline for the biennial report, record-keeping requirements, standards of conduct for officers, directors, and committees, the structure of the board and committees, voting rights, maintaining Articles and Bylaws, the inspection of membership lists, maintaining corporate records and financial statements, domestication, and notice of charitable dissolution. 

We have outlined the most important revisions below:

  • The DC biennial report is now due every two years by April 1. Previously, the due date was January 15.
  • Corporate records can now be kept in digital form.
  • Records of board minutes must be kept permanently.
  • Records such as articles, bylaws, and all communication to members must be kept at the corporation's principal office for the most recent three years.
  • Minimum board quorum is now the greater of 1/3 of the directors in office or two directors. 
  • New guidelines for establishing committees and a designated body.
  • There must be at least two separate officers. One officer must be responsible for management, such as a president, and one must be responsible for finances, such as a treasurer. The president and treasurer cannot be the same individual.
  • New definitions of fiduciary duty, director liability, indemnification, and "Member".
  • New guidelines for determining a conflict of interest, holding membership meetings, providing notice for membership meetings held, electing directors, ballot voting, amending articles and bylaws, providing membership lists to all members before a membership meeting, providing corporate records to members upon request, domesticating a foreign corporation (domestication), and providing notice of charitable dissolution.
D.C. nonprofit corporations should develop a strategic approach in determining if their corporate records and policies should be re-structured to be in compliance with the new laws.

MCB has over 60 years of experience working with not-for-profit organizations on their accounting, audit, tax and compliance needs. Contact Kathy Flaherty at 703.218.3600 or at info@mcb-cpa.com  for more information regarding the compliance changes or to schedule a meeting to discuss your not-for-profit compliance requirements.

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New Rules for a New Year: New Regulations Affecting Businesses in 2012

A number of new regulations affecting business activities including financial instruments, human resources, health care and retirement plans and accounting are set to take effect in 2012.  Included are new Securities and Exchange Commission regulations spawned by the sprawling Dodd-Frank financial law. Rules yet to come include some involving swaps and derivatives, an executive compensation "claw-back" provision and other regulations involving so-called "conflict minerals."  The extent of and deadlines for these forthcoming rules are uncertain.

Employers are bracing for requirements stemming from the 2010 health care overhaul. Several of these provisions go into effect in 2012.  Companies must provide a short summary of their health care benefits to all employees, showing employees' share of the cost in common medical situations. Final rules are pending  on the exact information to be included.

Companies will have to report the value of their health care plans on employees' W-2 forms.  These figures eventually could be used to determine whether companies could be fined for not providing health care of might have to pay the tax on so-called Cadillac health plans.

In addition, companies will have to pay $1 per plan participant to fund an independent research group that will study the effectiveness of medical treatments. 

New rules for employer-sponsored 401(k) retirement plans require companies to disclose in plain English how much plan administrators are charging participants.

Accounting changes involve a new standard on fair-value measurement designed to align U.S. and international practices and new rules on goodwill impairments to streamline the process used to take write-downs on assets that have lost value.

Contact an MCB Adviser for your audit, tax and accounting needs at 703.218.3600 or at info@mcb-cpa.com.

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IRS Extends Tax-Exempt Filing Deadline to March 30

The IRS has extended the filing deadline for tax-exempt organizations with January and February 2012 filing due dates until March 30, 2012.  It is granting the extension because the e-file system that processes electronically filed returns of tax-exempt organizations will be off-line in January and February to implement changes for the 2011 tax year.

The extension also applies to organizations that have already obtained a three-month extension and now have an extended filing deadline of January 17 or February 15, 2012.  The majority of tax-exempt organizations are unaffected by the extension because they operate on a calendar-year basis and have a May 15 filing deadline.

The extension applies to affected organizations that file Forms 990, Form 990-EZ, 990-PF or 1120-PF.  Form 990-N filers are not affected.

No form needs to be filed to receive the March 30 extension.  To avoid receiving a late filing penalty notice, a reasonable cause statement should be attached to the tax return.  If organizations receive late filing penalty notices, they should contact the IRS to abate the penalties.

The IRS is encouraging affected to consider e-filing early--before the end of December 2011--or wait until March 2012 to file electronically. In addition, certain affected organizations normally required to file electronically have the option to file a paper return during January and February.

The IRS reminded organizations that an extension of the time to file is not an extension of time to pay any tax liability that may be due for the year.

Click here to view IRS Notice 2012-4, which provides further details.

MCB has over 60 years of experience working with not-for-profit organizations on their accounting, audit, tax and compliance needs. Contact Kathy Flaherty at 703.218.3600 or at info@mcb-cpa.com  for more information or to schedule a meeting to discuss your not-for-profit compliance requirements.

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Witnesses Tell Congressional Subcommittee Small Business Health Tax Credit Is Too Complicated

The tax credit designed to encourage small businesses and tax-exempt organizations to provide health insurance coverage for employees is too complicated, according to witnesses who testified before a congressional panel on Thursday, November 17, 2011. The IRS had estimated that the credit would apply to 4 million businesses and tax-exempt organization. However, as of mid-October 2011, only 309,000 taxpayers had claimed the credit.

The credit is complex, and employers are having difficulty determining whether they are eligible for it. To receive the credit, which offsets up to 35% of an employer's health insurance premium costs, the employer must have 25 or fewer full-time equivalent employees who earn average wages of $50,000 or less. Phaseout rules apply as well. The credit increases to 50% of premium costs in 2013.

Recommendations to improve the tax credit include the following:

  • Change the definition of a small business so that it is based on either gross receipts or the employee count from the prior year or the prior two years.
  • Increase the count number of full-time equivalent employees.
  • Make definitions used to determine eligibility more straightforward and consistent with other tax provisions.
  • Eliminate the phaseout calculations for the employee count and annual salary. The phaseouts make the credit difficult to apply and require numerous calculations.

Click here to view the complete Journal of Accountancy article.

Closely held businesses are the backbone of MCB's success.   We understand the pressures you face today.  We work together with our clients as accounting, business, and tax advisers to navigate the current economic difficulties.  Contact an MCB adviser for your tax and accounting needs at info@mcb-cpa.com or 703.218.3600 to start building a relationship with a CPA firm who strives to earn your RESPECT and CONFIDENCE as a TRUSTED business adviser.

 

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Small Businesses Can Benefit from Health Care Credit

Far fewer small businesses than expected have taken advantage of a new tax break for providing health insurance coverage to their employees. Despite efforts by the IRS to promote the credit, including sending out 4.4 million informational postcards to businesses that could potentially be eligible for it, only about 309,000 small businesses and their owners have taken advantage of the health care credit.

The tax credit is generally available to businesses that pay for at least half of the cost of their employees' health care, have fewer than 25 employees and pay them an average of $50,000 or less per full-time employee. Both taxable and tax-exempt firms qualify.

For 2010 through 2013, the credit is worth up to 35% (25% for tax-exempt employers) of a small business's premium costs. This amount increases to 50% (35% for tax-exempt employers) in 2014. The credit phases out gradually for firms with average wages between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full-time workers.

Businesses cannot take a tax credit for insurance premiums paid for owners of the business (e.g., owners of corporations, partners in a partnership, and sole proprietors). For small businesses structured as C corporations, no tax credit is available for employees who own more than 5% or more of the corporation. For S corporations, no tax credit is available for employees who own 2% or more of the S corporation.

Closely held businesses are the backbone of MCB's success.   We understand the pressures you face today.  We work together with our clients as accounting, business, and tax advisers to navigate the current economic difficulties.  Contact an MCB adviser for your tax and accounting needs at info@mcb-cpa.com or 703.218.3600 to start building a relationship with a CPA firm who strives to earn your RESPECT and CONFIDENCE as a TRUSTED business adviser.

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IRS Introduces Final Form 990 Regulations

The IRS has issued final regulations to accompany the substantially redesigned Form 990 that was issued in 2008. The new regulations became effective September 8, 2011. All tax-exempt organizations required to file Form 990 are affected by these regulations.

Click the download button below to view a summary of the final regulations.

MCB has over 60 years of experience working with not-for-profit organizations on their accounting, audit, tax and compliance needs. Contact Kathy Flaherty at 703.218.3600 or at info@mcb-cpa.com  for more information or to schedule a meeting to discuss your not-for-profit compliance requirements.

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Advisory Committee Recommends Improvements to Not-for-Profit Financial Reporting

The Not-for-Profit Advisory Committee, an advisory group to the Financial Accounting Standards Board (FASB), has recommended changes in accounting rules that would enable not-for-profit organizations to better report and explain their finances to donors and other interested parties.  Key recommendations include the following:
 
  • Reconsidering current net asset classifications and how they may be relabeled or refined to improve how liquidity is portrayed in a organization's statement of financial position and related notes. This is intended to clarify terms such as "unrestricted net asset" that commonly cause confusion. This is a critical area for not-for-profits, since net asset classes are used to determine liquidity and liquidity risks.
  • Improving the statements of activities and cash flows to more clearly communicate the not-for-profit's financial performance. Recommendations address improving how information is aggregated and classified and creating better cohesiveness between financial statements. For example, committee members agreed that more clearly segregating and defining "operating" versus "nonoperating" activities, for example, would result in greater comparability in financial reporting.
  • Creating a commentary and analysis framework, somewhat similar to the Management Discussion and Analysis provided by publicly traded companies in their annual reports, to help directors and managers provide context regarding the organization's financial health and operations. Members felt that adding this section would help not-for-profits meet the accountability needs of donors and other interested parties.
  • Streamlining existing not-for-profit-specific disclosure requirements to improve their relevance and clarity. This would include identifying current disclosures that might be better suited for the proposed commentary and analysis section.
The recommendations will be submitted to the FASB chairman in a formal agenda request and are expected to be discussed at a public meeting later this year.

More information about the Not-for-Profit Advisory Committee and its recommendations are available at www.fasb.org.

MCB has over 60 years of experience working with not-for-profit organizations on their accounting, audit, tax and compliance needs. Contact Kathy Flaherty for more information or to schedule a meeting to discuss your not-for-profit compliance requirements.



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IRS Announces Retroactive Reinstatement of Small NFPs Tax-exempt Status

The Pension Protection Act of 1996 ("PDA") requires tax-exempt organizations with average annual receipts of less than $25,000 to submit a new form with the IRS, known as the 990-N or e-postcard.  In the event that small tax-exempt organizations failed to submit their 2007, 2008 and 2009 annual returns their tax-exempt status was automatically revoked.

In spite of the Internal Revenue Service's (IRS) education outreach, many small tax-exempt organizations had no knowledge of the new filing requirements, and approximately 275,000 organizations had their tax exempt status revoked by the IRS. Organization's whose tax-exempt status has been automatically revoked, are listed on the IRS's website.  Click here to view the list. 

To minimize the impact of automatic revocation, the IRS issued transitional relief in Notice 2011-43 in June 2011 to provide allow for retroactive reinstatement of the organization's tax-exempt status. To obtain reinstatement of its tax-exempt status, an organization must apply for reinstatement with the IRS, even if it was not originally required to apply for tax-exempt status.

Under Notice 2011-43, the IRS will treat an organization as having established reasonable cause for failure to file Form 990-N for taxable years 2007, 2008 and 2009 if:

  • The organization was not required to file annual information returns (e.g., Form 990, Form 990-EZ, Form 990-PF) for taxable years beginning before 2007;
  • The organization was eligible in each of its taxable years beginning in 2007, 2008 and 2009 to submit a Form 990-N e-postcard. This generally means organizations with annual gross receipts that are normally less than $25,000; and,
  • On or before December 31, 2012, the organization submits to the IRS a properly completed and executed application for reinstatement of tax-exempt status.

The tax-exempt status of organizations that meet the above requirements will be reinstated retroactively to the date of revocation. An organization seeking reinstatement of tax exempt status pursuant to this method must write "Notice 2011-43" on the top of the form it uses to apply for reinstatement of tax-exempt status (e.g., IRS Form 1023 or IRS Form 1024) and on the envelope. The organization must also attach the following statement:

[Name of Organization] was not required to file annual information returns for taxable years beginning before 2007; was eligible in each of its taxable years beginning in 2007, 2008 and 2009 to file a Form 990-N e-Postcard; and had annual gross receipts of normally not more than $25,000 in each of its taxable years beginning in 2007, 2008 and 2009.

The transitional relief in Notice 2011-43 pertains only to certain small tax-exempt organizations. 

MCB has over 60 years of experience working with non-profit organizations on their accounting, audit, tax and compliance needs.  Contact Kathy Flaherty for more information or to schedule a meeting to discuss your non-profit compliance requirements.

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DOL Postpones New Disclosures for 401k Plans

The U.S. Department of Labor's (DOL) Employee Benefits Security Administration (EBSA) announced last week the postponement of two new regulations that are intended to reduce costs and assign fiduciary responsibilities in 401k plans.

The EBSA announced that it is amending the effective date of Service Provider Fee Disclosure Requirements under Employee Retirement Income Security Act (ERISA) § 408(b)(2) to April 1, 2012. This is the regulation that requires all plan providers who receive compensation greater than $1,000 to provide reports to the plan sponsor indicating the amount of compensation, the services provided and whether or not the provider is serving as a plan fiduciary.

In addition, the deadline for meeting participant-level disclosure under ERISA 404(a) has been extended to 60 days after the effective date of the 408(b)(2) requirements. The new deadline for issuing the initial participant-level disclosure is May 31, 2012. This is the regulation that requires the plan sponsor to disclose to each of the participants the total cost they are incurring as a participant as well as a report on the performance of the investments relative to their respective benchmarks.

MCB has teamed with Piedmont Independent Fiduciaries to inform our employee benefit plan clients of new 401k plan regulations.  Piedmont Independent Fiduciaries provides investment management and fiduciary risk management to 401(k) plan participants and sponsors.  For more information, please contact Kevin O'Neil at kevin@pif401k.com

 

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Changes to 990 Reporting Requirements

The Internal Revenue Service announced Revenue Procedure 2011-15 last week that will allow small nonprofits to shift over to the simpler Form 990-N, also known as an e-Postcard, for their 2010 annual information reporting, if they receive less than $50,000 a year.

For tax years beginning on or after January 1, 2010, most tax-exempt organizations whose gross annual receipts are normally $50,000 or less can file the e-Postcard. The threshold for filing Form 990-N was previously set at $25,000 or less. The IRS noted that supporting organizations of any size must file the standard Form 990 or, if eligible, Form 990-EZ.

MCB understands the compliance and economic pressures facing the nonprofit industry.  Contact an MCB Nonprofit Practice Leader today at 703.218.3600 or email info@mcb-cpa.com for a proposal for your next audited or reviewed financial statements.     

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