nonprofit advisor...(upmifa) (probate code 18502, et seq.). spending more than 7% of the fair market...
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Nonprofit Advisor Summer 2020
Contact Us At [email protected] www.windes.com
Windes Nonprofit Advisor
The Windes Nonprofit Advisor is a periodic technical publication
focusing on the tax, regulatory, and accounting issues confronting
nonprofit organizations.
The Windes Nonprofit Group possesses extensive experience in
preparing and reviewing more than 150 Forms 990, 990-T, 990-PF,
and state tax-exempt forms, in addition to having experience in the
preparation and filing of both federal and state tax exemption applications
for public charities, private foundations, and other exempt organizations.
Furthermore, we can assist in providing valuable guidance (governance / reasonable compensation
documentation / public support test / special events / lobbying / transactions with related parties) to
nonprofit organizations.
The Windes Nonprofit Group prepares audited financial statements and ERISA audits for more than 125
nonprofit organizations. For retirement plans, Windes has experts on staff for 403(b) plan administration
and compliance, including plan document issues, Form 5500 preparation and filing, non-discrimination
testing, and government compliance programs.
Our Nonprofit Group is composed of the following individuals who are dedicated to providing nonprofit
organizations with high-level tax, regulatory and accounting consulting, tax compliance services, and
financial statement audit and assurance services:
Michael Barloewen, CPA, CGMA Audit Partner, Nonprofit Group Practice Leader
Lance Adams, CPA Audit Partner
Tom Huey, CPA Audit Partner
Kelly Buck, CPA, MAcct Audit Senior Manager
Jessica Kober, CPA, CFE Audit Senior Manager
Ben McKinney, CPA Audit Senior Manager
Therese Cheevers, APA, ERPA Employee Benefit Services Partner
Connie Lee, CPC, QPA, QKA Employee Benefit Services Senior Manager
Donita Joseph, CPA, MBT Tax Partner
Jim Wilde, CPA, MST Tax Senior Manager
Chérie Williams, CPA, MPA Tax Manager
Please do not hesitate to contact any member of the Windes Nonprofit Group toll free at 844.4WINDES
(844.494.6337) or via email at [email protected].
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Using Endowment Funds During Any Emergency Situation, Such As Covid-19
If your organization has endowment funds, you may be
tempted to dip into them for operating expenses in a
situation like we have today with COVID-19. Many
nonprofit organizations have endowment funds, which
are donor-restricted funds that are intended to be invested
and used in perpetuity to support the nonprofit’s charitable
programs.
Nonprofits need to be cautious about how much they spend
from their endowment funds to be in compliance with the
Uniform Prudent Management of Institutional Funds Act
(UPMIFA) (Probate Code § 18502, et seq.). Spending more
than 7% of the fair market value of an endowment fund may create a presumption of imprudence (Prob.
Code, § 18504, subd (d)).
Before your organization decides to invade principal or borrow against the principal, which is not permitted,
the board should contact the donors to inquire whether they are willing to release or modify restrictions to
allow for more spending authority. (Prob. Code, § 18506, subd. (a)).
Charitable organizations that hold endowment funds that are more than 20 years old, and the total value
of the funds is less than $100,000, may release or modify the restrictions on the endowment funds after
60 days written notice to the Attorney General and the donor’s last known address. (Prob. Code, § 18506,
subd. (d).) In the notice to the Attorney General, the nonprofit must show how the endowment has become
unlawful, impossible, impracticable, or wasteful to operate with the restrictions. The notice should also
propose an alternate use that is consistent with the charitable purposes expressed in the gift instrument.
(Prob. Code, § 18506, subd. (d)).
For endowment funds over $100,000, charitable organizations may seek court approval to modify restrictions
in endowment funds. The Attorney General must be given notice of the petition. The organization should be
prepared to demonstrate either the purpose of the restriction has become unlawful, impracticable, impossible
to achieve, or wasteful, or that restrictions in the gift instrument regarding management or investment have
become impracticable, or wasteful, or that due to circumstances not anticipated by the donor, a modification
on the restriction will further the purposes of the fund. (Prob. Code, § 18506).
Notice to the Attorney General can be made to the following addresses:
For Petitions related to Northern California:
Office of the Attorney General, Charitable Trusts Section
455 Golden Gate Avenue, Suite 11000
San Francisco, California 94102-7004
For Petitions related to Southern California:
Office of the Attorney General, Charitable Trusts Section
300 South Spring Street
Los Angeles, California 90013-1230
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Using Endowment Funds During Any Emergency Situation, Such As Covid-19 (continued)
If a nonprofit organization does not follow the rules, it is possible that the Attorney General could bring an
action to enforce the terms of a restricted gift. An officer, director, or voting member might be able to
challenge a breach of trust. See, e.g., Corp. Code §5142 (for California nonprofit public benefit
corporations).
Before your organization is tempted to spend more than is allowed under UPMIFA, be sure you have the
correct procedures in place.
For questions or more information about this article, please contact Donita Joseph at [email protected]
or at 844.4WINDES (844.494.6337).
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Donita Joseph, CPA, MBT
Partner
Tax & Accounting Services
PPP Recognition for June 30, 2020 Fiscal Year-End
The Treasury released a list of organizations that received
more than $150,000 in Paycheck Protection Program (PPP)
loan funds, of which over 4,500 were nonprofit organizations
in California and 1,500 were nonprofit organizations in Los
Angeles and Orange County. While many of the loan funds
were generally received in March and April, use of funds
may take place over the following 8 to 24 weeks. However,
the official approval of the forgiveness by the bank may not
occur until later in 2020. As June 30 represents a common
fiscal year-end for many nonprofit organizations, this could
result in the receipt, use, and forgiveness of the funds in
different fiscal periods. Additionally, for nonprofit
organizations with a calendar year-end, June 30 represents the mid-year point where budgets may be
reviewed and financial reports may be provided to grantors and the board of directors. Understanding the
two models for recognition of forgivable loans received under the PPP presented by the AICPA’s Technical
Question and Answer (TQA) 3200.18 is important in order to determine the most appropriate accounting
model at June 30, 2020, or at any period-end when the amount of expected PPP loan forgiveness has not
yet been granted.
The TQA provides two models under which to recognize PPP loans:
Debt Model:
The entity follows the guidance in Financial Accounting Standards Board (FASB) ASC Topic 470
to treat the loan like any other debt.
The PPP loan is initially recorded as a liability and interest is accrued in accordance with the
agreement (not at the market rate). The entity will continue to record the proceeds as a liability
until either (1) the loan is partly or wholly forgiven and the entity has been legally released or
(2) the entity pays off the loan. At this point, the entity records a gain on extinguishment, in the
amount of the forgiveness.
Benefits: The forgiveness does not need
to be estimated at an interim period. The gain
is recognized at the time the entity is legally
released and there is no risk of gain being
erroneously recognized.
Drawbacks: The expenses that are incurred
in the use of the funds are likely to occur in a
different period than the gain on the
forgiveness of the loan.
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PPP Recognition for June 30, 2020 Fiscal Year-End (continued)
Grant Model:
Similar to conditional grant recognition, the entity would treat the PPP loan as a government grant that is
expected to be forgiven.
The entity would initially record the cash inflow from the PPP loan as a refundable advance.
The entity would then reduce the refundable advance and recognize the gain as the related
eligible costs are incurred (as the conditions are met).
Benefits: Gain on the forgiveness is recognized as the expenses are incurred. The entity
does not have to wait for the loan forgiveness application to be approved by the bank.
Drawbacks: Management must estimate the expenses that qualify for forgiveness at the
reporting period; there is a risk that the gain may be recognized early for expenses that do not
qualify.
Additionally, many nonprofit organizations receive grants that support operations, salaries, and program
costs. It is important, regardless of the recognition model used, that in determining what expenses qualify
for forgiveness, there is no “double-dipping” and expenses charged to grants are not also counted in the
forgiveness calculation.
The entity should consider the users of the financial statements and method of recognition that best
present their intended use of the funds. Additionally, it is important to disclose the accounting policy
used to recognize the loan forgiveness and explain the method to financial statement users.
If you have questions or would like more information, please contact Kelly Buck at [email protected] or
844.4WINDES (844.494.6337).
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Kelly Buck, CPA, MAcct Senior Manager
Audit & Assurance Services
New Electronic Delivery Rules for Retirement Plan Sponsors
The U.S. Department of Labor (DOL) announced a final rule in May 2020 addressing a new safe harbor
method of electronic disclosure available for employee benefit plan sponsors. The rule allows plan sponsors
who satisfy specific conditions to provide participants and beneficiaries with a notice that certain disclosures
will be made available on a website or furnished to them via email. The final rule, effective July 27, 2020 is
only applicable to qualified retirement plans, but not to welfare benefit plans.
Covered individuals must be provided an initial notification, on paper, that the method in which they currently
receive retirement plan disclosures (e.g., paper delivery in the U.S. mail) will change. The notice must inform
individuals of the new electronic delivery method, the electronic address that will be used, and the right to
opt out if they prefer paper disclosures, among other things. The notice must be provided before the plan
may use the new safe harbor method of delivery. Covered individuals can request paper copies of specific
documents, or globally opt out of electronic delivery entirely at any time, free of charge.
Covered Individuals The regulations provide that all participants, alternate payees and beneficiaries are considered “covered in-
dividuals” and are eligible for electronic delivery, provided the plan sponsor has a valid email address or mo-
bile telephone number for each individual.
Notifications of Internet Availability Covered individuals generally must be provided a notice of internet availability (NOIA) each time a new cov-
ered document is made available for review on the internet website. The NOIA may be sent via email or text
message and must include, among other things, a hyperlink to the covered document and statement of the
right to receive a paper version.
Covered Documents All documents that a plan sponsor is required to provide to retirement plan participants under Title I of the
Employee Retirement Income Security Act of 1974 may be distributed via the NOIA. Covered documents
must remain on an internet website for at least one year.
The DOL regulations enhance the ability of plan sponsors to furnish retirement plan disclosures electronical-
ly and can reduce administrative expenses. For some employees, electronic disclosures will be more readily
accessible and useful. However, plan sponsors should consider the administrative responsibilities required
to rely on the new safe harbor, such as procedures to administer opt-out requests, resolving invalid email
addresses and mobile phone numbers, and maintenance of contact information for terminated participants,
alternate payees and beneficiaries.
If you have questions or would like help implementing the new safe harbor rules, please contact Connie
Lee at [email protected] or 844.4WINDES (844.494.6337).
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Connie Lee, CPC, QPA, QKA Senior Manager
Employee Benefit Services
What the “New Normal” Looks Like for Nonprofits
The overall economy and our society rely on nonprofit organizations to provide critical support to those in
need even during the best of economic times. Nonprofit organizations impact a variety of areas, such as
health services, research, education, religion, employment, housing, food and nutrition, emergency relief,
reaching at-risk and under-served populations and communities with necessary resources, as well as
providing recreation and entertainment. With the stay-at-home restrictions continuing in southern California,
and many offices and companies remaining closed or mostly closed, we have seen our nonprofit clients
pivot to address these challenges in some positive and inspiring ways to fulfill their mission during unusual
circumstances and providing support where it is needed. Here are some examples:
Using emergency relief expertise to open and operate COVID testing sites across the country.
Providing students with laptops, tablets, headphones, internet hotspots and other technological
tools to ensure students can participate in online classes.
Opening satellite food pantries in parking lots; providing a week’s worth of packed lunches to
students and their families; delivering food and prescriptions to those unable to shop or go out
for themselves.
Reaching patients safely through telehealth meetings and assessments, and increasing access
for patients who may not be able to visit the office in person.
Designing online tours with museum staff and curators through exhibits and hosting virtual events
and programming to connect with the public.
Providing remote wellness and fitness programming taught by employee instructors.
Setting up a virtual team of trained mental health, spiritual care and health services professionals
who connect with families struggling with loss and grief due to the ongoing coronavirus pandemic.
They provide phone support, access to resources, virtual memorial services, and online classes to
facilitate coping skills to families in need.
Providing support to underserved small businesses through direct cash and technical assistances;
providing small businesses with resources and training to navigate loan applications, federal
assistance programs, how to navigate and modify operations and prepare business continuity
plans.
Reducing summer camp roster sizes to allow for social distancing and using suggested health and
safety guidelines like masks and outdoor activities; offering preschool centers for children of
essential workers.
A big concern for nonprofit organizations continues to be funding and contributions. With the future
economic outlook uncertain, some nonprofits have set up virtual or remote fundraising events in lieu of
the former large-scale galas. Growth and sustainability through the
ongoing pandemic will require ingenuity and use of technology,
however, the support from nonprofits in the community is priceless.
We continue to be amazed by what our clients have done, and look
forward to serving them in their accounting needs as they arise.
If you have questions or would like more information, please contact
Kelly Buck at [email protected] or 844.4WINDES (844.494.6337).
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Kelly Buck, CPA, MAcct Senior Manager Audit & Assurance Services
Windes is a recognized leader in the field of accounting, assurance, tax, and business consulting
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service that is directed at improving your bottom-line results. Quality and value-added solutions from
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The Windes team approach allows you to benefit from a wealth of technical expertise and extensive
resources. We service a broad range of clients, from high-net-worth individuals and nonprofit
organizations, to privately held businesses. We act as business advisors, working with you to set
strategies, maximize efficiencies, minimize taxes, and elevate your business to the next level.
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