Tag Archives: Contributions

IRS Info and Some Questions and Answers

Posted on June 25, 2009 | 4 comments

Questions and AnswersIRS, Governance and the Form 990

I’ll lead off with some exiting news.  Well, it’s exiting to me at least.   Last week I learned that the Urban Institute’s efile.form.990 site should start being able to process the latest version of the form 990 by the end of July (not June).  Their system allows you to electronically prepare and file your organization form 990, 990 EZ and extensions to file.  There is a small fee, but I encourage anyone who prepares your organizations forms by hand to look into their system.

Sarah Hall Ingram, the IRS Commissioner for Tax Exempt and Government Entities, made a presentation at Georgetown Law Center this week on nonprofit governance issues and what the IRS sees as its role relating to that.

While both state regulation and sector self-regulation are important, and I welcome and respect them, they do not get the IRS off the hook. Congress gave us a job to do, and we cannot delegate to others our obligation to enforce the conditions of federal tax exemption.

If you would like to read her remarks they are available as a PDF here.

Collaboration Resources

Need some tips on online collaboration tools? Gayle C. Thorsen at IMPACTMAX has a good rundown on some resources that should help you.

Questions and Answers: Revenue Recognition

Each year we have several matching gifts that come in after the fiscal year end of June 30.  Should these receipts be counted toward the past fiscal year or the current year?  For donor recognition purposes we count these gifts in the year they were pledged.  For accounting purposes, how should we be dealing with this?

You should count them the same way you do for recognition. Nonprofit accounting rules for donations take into account the donors intent, and if the check was written in before the end of your fiscal year, or the pledge was made before then end of your fiscal year, it should be counted as that fiscal years money.

Questions and Answers: Employee or Independent Contractor?

I’m a bookkeeper trying to help a recently started, all volunteer nonprofit. The one concern I have is the administrative costs for the person who runs it. If the nonprofit were to reimburse that person for a missed day at work, would they be considered an employee of the nonprofit?

You can’t reimburse somebody for a missed day of work, that is not a “real” expense. That would be considered compensation. This could be a 1099 / independent contractor relationship OR an employee relationship. I would look carefully at the duties tests between the two and make your judgment. The IRS is pretty serious about making sure employers classify folks correctly.  You can check out their resource pages here.

Question and Answers: Hiring Costs

We are a small nonprofit that had a change in our Executive Director. The costs to recruit, interview and move a new Executive Director to our state was extremely expensive. These costs are a one-time charge that are impacting our net assets. Is there a way that I can capitalize them to spread out the impact?

Not in this case. Capitalizing an expense is done for physical assets that have a long useful life so that the expense of the item is spread out over its time of use.  Employees can’t get treated the same way.

Just make sure to clearly explain and footnote the situation on all of your reports and financials so people will not think there is something wrong with the organization and you should be OK.

Do you have a question?  Click here to ask it

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The Funder is Not the Program

Posted on April 30, 2009 | 3 comments

monryshirtWhen I work with nonprofits I will often hear them talk about their [insert name of funder] program.  I always cringe a little at this because  it means they are sliding into thinking of the funder and the program as one in the same.

They are not.

I can see how this thinking has evolved in the sector.  Someone has a great idea for a program and they look for funding.  A particular foundation loves the idea and gives them a grant.  It then can be easy to associate the two things as one.  But I repeat here the mantra I was taught: “The funder is not the program.”  What happens if that big funder decides to stop giving money to that program?  Does it end?  Probably not.  The nonprofit will seek additional sources of income.  But the program could suffer if there is an interruption of funding and the nonprofit does not have some other way to keep money flowing into it.

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Posted in Nonprofit Accounting

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Some Questions and Answers

Posted on March 10, 2009 | 2 comments

Questions?What would be the accounting transaction recorded by a 501(c)3 organization for a permanently restricted donation received?

The particulars will depend on what accounting software you are using. Basically you would debit cash or receivables (depending on if you got the money or just a letter saying you were getting the money) and credit an income account. If you are using QuickBooks you also would code the income to a ‘class’ that is called something like ‘permanently restricted funds’ and to the particular funder (customer / job).

I’m new to a nonprofit board. Big discussion always about the income statement which shows a multi-year grant vs. the expense of that money. Is the income booked in the current fiscal year of receipt and the expense booked in the next fiscal year of expense? Or, are they both booked in the year of expense, which is in this example the next year, and is what I would do in the private sector with a pre-paid item? Is there a difference in the answer depending upon whether the money was received or merely pledged?

Also, can you recommend a good nonprofit accounting starter guide or overview?

First off I’d recommend this book.  Short, easy to read and great basic financial information for nonprofit staff and managers. There are lots of other great books out there but this is always the first place I look when I have a question.

You have touched on one of the big issues of nonprofit accounting. The matching principal in regular accounting gets thrown out the door for the most part. For what you describe above the 100,000 is booked as income for this fiscal year. Next fiscal year will have all the expenses and the nonprofit will need to figure out a way to explain this that will make sense to folks.

One way I recommend adding in an income item in a P&L report called “grant monies released from restriction.” As you do the work that the 100,000 is paying for you can ‘add’ income here to balance the expenses. This addition of income is actually a release of funds from restricted monies to unrestricted monies, not just revenue pulled out of the air.

As for pledge or cash, it matters when you are promised, or pledged the monies. If you get a letter from the funder at the end of this fiscal year awarding you the grant but don’t actually received checks until next FY, it is still considered revenue to the organization when you received that first official notification.

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Posted in Nonprofit Accounting, Policies and Procedures, Q&A

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