Fall 2015 Issue of Horizons

NOT-FOR-PROFIT

∙ Use of organization property ∙ Privacy and confidentiality of employee donor and vendor information ∙ Accuracy of records and expense reporting

∙ Conflict of interest guidance ∙ Direction with respect to proper communications in social media and advertising

Key Takeaways From The AICPA Not-for-Profit Conference Not-For-Profit Tax Highlights There was a strong emphasis on the changing world of fundraising for not-for-profit organizations, including corporate sponsorships and the impact of social media. In addition, for Form 990 purposes, 2014 marked the release of the long-awaited Schedule A disclosures for supporting organizations and simplification of related party disclosures on Schedule L. There was also extensive discussion of the success of the new Form 1023-EZ, which provides a streamlined and expedited exemption application process for smaller organizations. Larger not-for-profit organizations are continually seeking new sources of fundraising revenue. Corporate sponsorships are an established source of not-for-profit revenue, and the proper structuring of the related contracts was discussed in depth. There is potential unrelated business income (UBI) exposure to not-for-profits if the sponsor receives certain types of substantial return benefits in exchange for the sponsorship. The conference presenters shared experiences from two recent IRS exams whereby the IRS focused exclusively on the provisions of sponsorship contracts to determine potential UBI applicability. Careful review by not-for-profit organizations and their service providers of the terms of sponsorship contracts is the key to mitigating UBI. These concepts require further analysis with the expansion of social media in the fundraising world, with phenomena such as the “Ice Bucket Challenge,” that raised over $100 million for not-for-profits, becoming more mainstream.

The implications of social media, including monitoring of name usage, safeguarding of assets, state fundraising registration and new fundraising vehicles (websites and one-time donation mobile applications), all need to be structured and considered very closely, not only for potential UBI, but for public perception reasons as well. The public nature of the Form 990, and the “story” that organizations thereby disclose on their Forms 990, continues to be monitored and fine tuned by the IRS. For 2014, there have been significant additions to Schedule A, Public Charity Status and Public Support, for supporting organization purposes. The changes that were previously enacted by the Pension Protection Act (October 17, 2006) have now been comprehensively added to Schedule A. In addition, the IRS has aligned and harmonized its definition of “interested person” for disclosure of related party transactions on Schedule L. Finally, in the continued spirit of streamlining processes and forms, the IRS released Form 1023-EZ, a simplified application for exempt status for smaller organizations. The IRS shared statistics that indicate the abbreviated form is working; specifically, the average application processing time of nine months has been decreased to 120 days in the past year. At the same time, the volume of applications processed increased from 50,000 to 117,000 in the same year span. Both the professional services speakers and personnel from the IRS spoke very favorably of the new form and emphasized that improvements in the process are expected to continue.

page 44 | horizons Fall 2015