Our Public Sector Blog

Important Nonprofit Issues for the Year Ahead

2011-12-01T14:02:00.000-08:00

One of the first questions many donors ask is: "What percentage of my donation will go to directly support the organization’s programs?"　

An important question, to be sure, but this narrow and sometimes misguided definition of a nonprofit’s ability to achieve its mission, can lead organizations to underreport their overhead costs and mislead the public about the nature of their operations. This is, in part, due to pressure by charity watchdog organizations that report nonprofit organizations’ fundraising, administrative and program cost percentages and rate them according to these statistics.

It is important for each organization to take a careful look at their unique circumstances and operations and the nature of their expenses when determining an indirect allocation methodology. The Nonprofit Association of Oregon recently published an interesting and timely article.

To read the article click here

Contact Shannon Gonzalez, sgonzalez@aktcpa.com, with questions regarding your organization’s functional allocation of indirect costs.

Recommended Improvements to the Not-for-Profit Financial Reporting Model

2011-10-20T11:03:00.000-07:00

The Financial Accounting Standards Board (FASB) established a Not-for-Profit Advisory Committe (NAC) in October 2009. The FASB NAC is comprised of professionals throughout the Not-for-Profit sector and meets regularly to discuss critical issues affecting Not-for-Profits and to provide a direct resource to the FASB and staff on Not-for-Profit specific topics.

Of recent note is the FASB NAC's statement of recommendations for improvements to the Not-for-Profit financial reporting model. These include:

Revising Net Asset Classifications

Incorporating a form of "Management Discussion and Analysis" to bring context to a Not-for-Profits' financial story

Streamlining existing Not-for-Profit specific disclosures to improve relevance and clarity

To stay abreast of NAC developments that may impact your organization, bookmark the following link. Click here

For more information on Not-for-Profit sector accounting and reporting developments, please contact Shannon Gonzalez at sgonzalez@aktcpa.com or see our website at http://aktcpa.com/AKT-PublicSectorandNonprofit/

Grant Writing Resources

2011-08-17T08:34:00.000-07:00

The Grant. Free money for doing what we do every day – fulfilling our missions. This is the mother load for every nonprofit. And it’s becoming more important than ever to find grant funds as individual donors and fee for service programs see declining participation. As every nonprofit across the nation is facing this dilemma, competition for grants is at its highest. I’d like to point you to some local, and online, places where nonprofits can go to find some very helpful tips on effective grant writing.

There are several resources available to nonprofits for improving their grant writing skills. It may be worth your time to check with your local colleges and universities, many have grant writing resource centers, and offer grant writing programs and workshops. Alumni typically receive free access to various Federal, Foundation, and Corporate databases to help identify funding sources (which typically cost companies hundreds of dollars for an annual subscription). Grantwriters.net offers grant writing workshops for individual organizations, as well as free online assistance. At biztree.com you can download “Business in a Box”, a program that provides templates for various grant writing needs.

The point of this is to let you know that you are not alone! There is a wealth of resources out there to help you write an effective grant. In fact, here at AKT, we can help you put your mission into a number that will speak to granting agencies. Our financial and business analysts can be a great resource for your organization. For more information contact eclarke@aktcpa.com

Happy Granting!

2011-07-01T16:11:00.001-07:00

Tax year 2010 is the final transition year of the three year transition period set by the IRS to file the new redesigned IRS Form 990. This applies to exempt organizations with fiscal year ends of June 30, 2011 who will file the 2010 tax year return in 2011 or later.

When the new form was introduced for 2008 tax years (returns filed beginning of 2009), the IRS set filing thresholds based on gross receipts and total assets at higher limits to provide relief to the smaller organizations to continue to file the 990-EZ . This allowed many exempt organizations to prepare the necessary recordkeeping requirements to file the full form 990 and necessary schedules. The filing thresholds in this final year of transition are set as final limits at;

AKT assists a variety of nonprofit organizations gather the necessary information and provide guidance on the record keeping process that will be rquired to file the full Form 990. We can provide updated templates to ease the process of your form 990 preparation needs. For more information, please contact Elsa Romero at eromero@aktcpa.com.

How to develop and retain a strong board of directors.

2011-06-10T06:57:00.000-07:00

One of the biggest challenges a Not-for-Profit Organization faces is the development and retention of a strong Board of Directors. Once an organization has what it thinks is a competent and caring Board, how does the organization know if the Board is functioning as well as possible? Hiring outside governance and organizational leadership consultants is always option to gain perspective on the group. Another option is to compare the overall function of the Board with other Boards that members may sit on or other organizations similar to your own.

The article below from the Society for Nonprofit Organizations lets you in on eight different Boards and their function. Does you organization’s Board think and operate the same way? What signs of strength or weakness do you share?

http://www.snpo.org/samples/V200111.pdf

How does your nonprofit stack up?

2011-05-14T16:42:00.000-07:00

There are over 1.8 million charitable organizations in the United States alone. If an individual is looking to donate to just one organization, there is no way to narrow down the selection without some help. Fortunately, there are websites out there to do the heavy lifting. These websites obtain data from the IRS form 990 and analyzes, organizes and simplifies the information concisely in one location. Sites like these makes it much easier for donors to make informed decisions about where to give their money.

If you are a charitable organization, it is critical to track and follow these websites to see how information about your organization is being delivered to the general public. Do donors see your organization in the best light possible? Does the information in your Form 990 accurately portray the activities of your organization? If you don't know the answers to these questions, we suggest making it a policy to track and review the mjor charity rating websites on a regular basis.

How does your charity stack up? Where does it rank among other organizations who perform similar services? Visit Charity Navigator at www.charitynavigator.org or Guide Star at www.guidestar.org to find out.

Andy Maffia
Nonprofit Services
AKT LLP, CPAs and Business Consultants
amaffia@aktpca.com

Survey Shows Plenty of Holiday Giving Despite Economy

2010-12-08T11:32:00.000-08:00

For many nonprofits the holiday season provides a good opportunity for charitable giving. A survey released by Convio, a fundraising software company, projected giving in excess of $48 billion by American donors during the holiday season. The survey found that online contributions are projected to grow by close to 30 percent to more than $6 billion. According to the survey, the apporaches that have the strongest appeal to donors are direct mail (43%), supermarket checkouts (41%), purchase from a catalog or charity gift shop (25%), galas and other special events (24%), online appeals (21%) or purchasing from a company that gives a portion of the proceeds to charity (14%). The survey also suggests holiday giving is emotional and appeals that provide information on people or animals in need of assistance or who are less fortunate are the most persuasive. According to the survey, people said they would respond to appeals of that nature as opposed to messages regarding organizational strategy or the potential tax deduction.

Despite the difficult economy there are still opportunities for nonprofits to receive significant contributions during the holiday season. Each organization is different and fundraisers need to figure out the approach that will be the most successful for their organization. Whether it's appealing to the emotions of as many holiday donors as possible or just strengthening the connection with key donors, the holiday season is a good time to focus on fundraising.

The full survey can be viewed at www.convio.com/holiday10.

Big Changes on the way....1099 Reporting Requirements

2010-10-29T13:26:00.000-07:00

In an effort to capture unreported income, the IRS will require payments of more than $600 for goods and services to be reported on Form 1099 effective January 1, 2012.

There are two key changes that will have a major impact on companies and non-profit organizations:

1099s must be filed for purchases of merchandise and services (now only required for services).
1099s must be filed for ALL vendors (corporations, partnerships, sole proprietorships and individuals).

Many business organizations, including the AICPA, have argued for the modification or repeal of this mandate of the Healthcare Reform legislation. See CNN's news story about the upcoming changes at:

http://money.cnn.com/2010/05/05/smallbusiness/1099_health_care_tax_change/

Meanwhile, it might be an opportune time to review your organization's procedures for tracking vendors and issuing 1099s. If this rule does take effect as planned on January 1, 2012, it could create a significant burden on your staff and resources. Some prior planning may ease the transition and may enhance the controls your organization already has in place, even if the legislation is repealed prior to 2012.

FSP 117-1 Endowments of Not-for-Profit Organizations

2010-10-01T14:32:00.000-07:00

On August 6, 2008, the FASB issued FASB Staff Position 117-1 (FSP 117-1), Endowments of Not-for-Profit Organizations, which greatly altered the landscaped for non-profit organizations. Since that time U.S. financial markets have suffered one of the sharpest declines since the Great Depression. The restrictions placed on spending by FSP 117-1, combined with the significant losses on investments and declined levels of giving, resulted in a perfect storm for a very difficult year for most not-for-profit organizations.

These difficult times have necessitated a serious look at the programs and services that are being provided and their related costs from an operations standpoint. It has also resulted in a serious review of current policies and procedures from a governance viewpoint. As a result, many non-profits have begun to re-review the endowment policies they put in place just a few years ago. The following article provides some good tips for managing endowments in a down market, all with the hope that with continued recovery, the tips put in place will result in even greater gains.

http://findarticles.com/p/articles/mi_hb042/is_2003_Nov-Dec/ai_n29046314/?tag=content;col1

FYI Tax-exempt Organizations

2010-09-17T08:19:00.000-07:00

Since the healthcare reform law passed there have been a lot of questions about how the different aspects of the law impact exempt organizations. While we don't have all the answers yet the IRS did just post some guidance on one piece of the new law. The IRS announced the release of a draft version of the Form 8941 that both small businesses and tax-exempt organizations will use to calculate the small business health care tax credit during the 2011 tax season. The credit is desinged to encourage small employers to offer health insurance coverage or maintain the coverage they currently offer their employees.

While small businesses will include the amount of the credit as part of the general business credit on their tax returns, tax-exempt organizations eligible for the refundable credit will claim the credit on a revised Form 990-T. The revised Form 990-T will enable eligible tax-exempt organizations to claim the tax credit even though they owe no tax on unrelated business income. This means that organizations that normally would not file a 990-T will have to do so if they want to claim this credit, while this isn't the best possible solution it is at least a solution.

Is Your Exempt Status Safe?

2010-09-10T10:53:00.000-07:00

One of the more significant changes in the Form 990, but much less publicized, was the change in the filing requirements for small exempt organizations. Under the previous rules, a small exempt organization, generally under $25,000 in gross revenues, was not required to file a Form 990. Under the new rules, those same organizations are required to file a very simplified return, known as a 990-N filing.

Unaware of the changes in the filing requirements, many non-profit organizations have not filed their 990-N filings for the past 3 years. According to the IRS website, these organizations are at risk of automatic revocation of their exempt status.

Fortunately, the IRS has announced a one-time amnesty program for these organizations, but in order to be brought back into compliance, the Form 990-N must be completed and filed by October 15, 2010.

The process of completing the Form 990-N filing can be accomplished online and takes less than 30 minutes. This includes setting up an online account and completing the 8 informational questions.

If you are a small, tax exempt organization and haven't filed any type of Form 990 for at least the past 3 years, we recommend that you check into the filing relief program. If you have further questions, or need assistance with completing the Form 990-N please contact AKT.

For more information on the IRS program, see http://www.irs.gov/newsroom/article/0,,id=225959,00.html

Noncash Contributions - A Nonprofit Organization's Perspective

2010-08-10T14:02:00.000-07:00

You are in charge of your nonprofit organization's big annual fundraiser and the date is approaching fast. The idea is simple really; showcase your organization in the best light possible, but do it quickly, efficiently, and bring the most amount of money while keeping costs to a bare minimum. Sounds easy right? And to top it off, you will need to do this in addition to your normal hectic schedule. If this sounds familiar to you then you are among thousands of others who have been tasked as fundraisers.

But how does one go about making these special events profitable? One of the most common ways is to focus on minimizing expenses and having most (or hopefully all) of the goods, services, and event locations donated instead of paying for it. Donated noncash items are essential to just about every nonprofit organization in the U.S. and can range anywhere from postage stamps to automobiles. But while those donated goods are great for the organization, often times they are not recorded properly in the accounting records, or sometimes not recorded at all. Proper accounting for these donated noncash items is not only required by generally accepted accounting principles, but is essential for helping organizations track the true costs of their activities. To help you identify different types on noncash donations that you may be excluding, here is a list of some of the most common:

Investments (stocks, mutual funds, bonds, CDs, etc.)
Property and equipment (land, buildings, furniture, equipment, auto & trucks, etc.)
Free use of facilitites (land, buildings, furniture, equipment, auto & trucks, etc.)
Below market rent
Collection items (works of art, historical treasures, rare books, etc.)
Interest-free or below-market-interest loans
Guarantees of the organization's debt
Settlement or cancellation of liabilities
Advertising (print ads, mailers, postage, TV & radio airtime, etc.)
Royalties
Patents

Once you have identified that you have received a noncash item, the next step is to determine whether it should be recorded or not. Recording these contributions can seem daunting at first, but once you develop a good system and understand some of the basics, it is not difficult. Just remember that some noncash items are unique and will require some judgement about the fair market value and how they should be recorded. In addition, some items have special recording requirements that need to be considered.

For more information on noncash contributions, see section 958 of the FASB Accounting Standards Codification at http://asc.fasb.org

Twitter me this...Or is it Tweet?

2010-07-06T10:21:00.000-07:00

Meet the modern nonprofit's new best friend, Social Media. This is a nonprofits dream market - thousands, even millions, of people connected and interacting every day. How does an organization effectively use social media resources? Dialing in and building up a "friend" and "follower" base alone isn't enough to tap the infinite amount of new supporters that could be out there. Sarah DiJulio and Marc Ruben co-authored a chapter in People to People Fundraising: Social Networking and Web 2.0 for Charities, where they provide a guide for planning your entry into social networking. We will highlight a few of their tips below.

1) Pick the right social network - Larger isn't always better. Choose a small but well connected site. It may serve you better in the long run.

2) Extend your reach - Don't just set up a profile and let it go. Create groups, post events, become an official sponser of an activity or community. Take advantage of all the site has to offer.

3) Post your edgiest, most viral content - Use creative profile names, flash animation and videos. Your contents needs to be passed around, which will only happen if it has the "cool" factor.

4) Think of social networking as an investment in your future. The young people who thrive off social media are your donors of tomorrow.

To see the rest and read more, check out the book listed above. It is available at Amazon.com. Good luck and happy tweeting!

2010-06-18T10:03:00.000-07:00

One of the most important exercises a nonprofit organization can perform is a fraud risk assessment. Many nonprofit organizations rely upon a culture of trust; however, this cannot replace good internal controls in preventing and detecting fraud. The following article provides a cautionary tale:

http://www.acfe.com/newsletters/fraud-examiner.asp?copy=june10-nonprofit-fraud

2010-06-16T16:37:00.000-07:00

There is growing interest in the nonprofit community about a relatively new legal entity called an L3C. An L3C is a low-profit limited liability company that can facilitate investments in socially beneficial for-profit ventures. L3C's simplify compliance with the IRS rules for Program Related Investments. Currently, L3C's are only permitted in about a half dozen states, but they are likely to gain popularity as more states allow them to be formed. Can you see benefits to the nonprofit sector by establishing these organizations?

The New Form 990 Update - After One Year

2010-06-04T08:24:00.000-07:00

The following are some highlights of the updates for the 2009 Form 990:

Statement of Program Service Accomplishments: If an organization has made any significant changes in ther program services the organization should report the undisclosed new activities even if they started in a prior year on From 990. As well as add an explanation on Schedule O. In the past, organizations were required to send a letter to the Exempt Organizations Office.

Compensation: Clarification of the current five highest compensated employees to be reported on the core form section A table do not include officers, directors, trustees, or key employees.

Compensation: Clarification that the entire compensation for the calendar year ending with or within the tax year must be reported for an individual who is a key employee for only part of the tax year.

Attachments: Free-form unstructured attachments are not permitted.

Public Disclosure Documents: The organization's conflict of interest policy and audited financial statments are not open for public disclosure. In certain states, such as California, the Attorney General regulates charities and may require that an exempt organization under 501c3 make the audited financial statements and notes to the statements available for public disclosure.

Below is a link to the IRS website which has a complete listing of the changes to the 2009 Form 990 and related Form 990 schedules in table form.

http://www.irs.gov/charities/article/0,,id=218938,00.html

Creating a Dialogue in Religious Fundraising

2009-10-14T10:31:00.000-07:00

To complement our recent posting on the case of Foundation of Human Understanding v. U.S., we would like to point our readers to an article recently written in TheNonProfitTimes, a business publication for nonprofit management, titled Creating a Dialogue in Religious Fundraising. The article focuses on how to create a dialogue instead of a monologue in fundraising activities for religious organizations. It also speaks to harnessing social networking sites and other media outlets, such as Facebook and talk radio. The article touches on other aspects of fundraising as well. Tom Pope, the author, touches on one of the interesting challenges many nonprofit organizations are facing today of targeting a younger audience v. the traditional older audience. We found it very intriguing and encourage you to take a peek!

The article can be found online at:
http://www.nptimes.com/instantfund/09Oct/IF-091008-1.html

Donor Advised Funds

2009-10-06T09:21:00.000-07:00

Since the early 1990’s, when an organization or an individual wanted to funnel private money to charitable organizations, it was typical to set up a private foundation or an endowment with a particular nonprofit. However, private foundations require annual tax forms, can be expensive to run and difficult to diversify. Increasingly popular became the donor-advised fund.

So what is a donor-advised fund? A donor-advised fund allows a private entity, whether it is an organization or an individual, to place money in a variety of diversified investments at a low-cost. The donor can take an immediate tax deduction while continuing to control to whom the funds should be distributed later. These funds invest assets and make grants to charities from individual accounts based on donors’ recommendations.

The shift from private foundations to donor-advised funds has become popular for many reasons, including the immediate tax deduction mentioned above. They cost thousands of dollars less to maintain, operate as independent charities, and distributions do not have to be made as often as in a foundation. Also, donors can disperse funds in many different forms – cash, securities, and even tangible assets such as art.

As a nonprofit, it is important to remember all the different ways that donors can give to your organization. As the shift continues from private foundations to donor-advised funds, take the time to research how they work, and most importantly, how they can support your mission.

The Wall Street Journal, April 22, 2009

When is a church not a church?

2009-08-10T15:40:00.000-07:00

An Oregon-based religious group that once qualified as a “church” for tax-exempt purposes recently lost its church status in a ruling by the Court of Federal Claims.

Late last month, The Foundation of Human Understanding in Grants Pass was told that it no longer qualified under IRC 170(b) because the extent to which it “brings people together to worship [became] incidental to its main mission…[of] dissemination of its religious message through radio and Internet broadcasts, coupled with written publications.”

The Foundation failed to meet the association test as set out in the IRS Internal Revenue Manual , according to the court.

To qualify as a church, "an organization must serve an associational role in accomplishing its religious purpose."

The Foundation argued that its broadcasts constitute a religious service and fulfill the associational threshold.

The court said the broadcasts "lack critical associational aspects characteristic of religious services and are therefore instead properly regarded simply as broadcasting and publishing services insufficient to qualify a religious organization for church status.”

The case is Foundation of Human Understanding v. U.S. (July 21, 2009) (available on LEXIS in the Tax Analysts at 2009 TNT 139-8).

Valuing gifts in-kind, donated services

2009-08-03T14:27:00.000-07:00

Nonprofits receive contributions in many different forms, not just cash or cash equivalents. Gifts in-kind are an increasingly common way for donors to contribute to their favorite organization. Gifts in-kind include donated services, cars, computers, and even buildings. However, gifts in-kind can be a challenge. As a nonprofit, how do you record a gift in-kind? How do you assign a value to it? Donated services are trickier to value than more tangible items.

SFAS 116, Accounting for Contributions Received and Contributions Made has specific rules that a nonprofit should adhere to when recording donated services in its financial records.

If the service creates or enhances a nonfinancial asset, the cost of the services should be capitalized at fair value on the date of the donation.
a. For example, a welder’s time to build a frame for a building addition would be capitalized as a building improvement.

If the service requires specialized skills, is provided by persons with those skills, and would have been purchased if it hadn’t been donated the costs are accounted for by recording contribution income and a related expense at the fair market value of the services provided.
a. Services donated by lawyers, accountants, and architects are generally considered specialized skills.

By following these two rules and using the appropriate resources to determine fair value, recording donated services becomes a breeze!

For more information go to http://www.fasb.org/cs/BlobServer?blobcol=urldata&blobtable=MungoBlobs&blobkey=id&blobwhere=1175818819163&blobheader=application%2Fpdf

IRS releases good governance standards

2009-07-27T16:33:00.000-07:00

Nonprofit boards are under more pressure than ever to become more effective in their governance role. Last week, the IRS released new training materials on governance matters.

While the federal tax code does not set out governance standards for the IRS to enforce, the tax agency has shown increasing interest in keeping an eye on charity governance practices.

As stated on its website, the IRS believes a “well-governed charity is more likely to obey the tax laws, safeguard charitable assets and serve charitable interests than one with poor or lax governance.”

Did you know that most states have codified nonprofit board responsibilities under three main “duties?”

1. Duty of reasonable care describes the level of competence expected of a board member. This means be interested, prepare and participate, and be alert to potential problems.

2. Duty of loyalty describes a standard of faithfulness. Board members can never use information obtained as a member for personal gain. In general, do you have a conflict of interest policy?

3. Duty of obedience describes faithfulness to the organization’s mission. The basis for this rule lies in the public’s trust that the organization will manage donated funds to fulfill the organization’s mission.

SOP 98-2, joint activities

2009-07-20T13:24:00.000-07:00

We begin this blog with a question: What are the three main costs that a nonprofit has? Most would reply “programming, overhead (management and general), and fundraising.” The distinction between these three classes of expenses is very important, as each bucket of expenses has unique financial reporting characteristics. But what happens when an activity straddles the line between fundraising and programming? Nonprofits need to consider the AICPA’s Statement of Position (SOP) 98-2 on joint activities, or in other words, activities that combine both a fundraising component with one or more mission related components.

Luckily, SOP 98-2 provides a distinct set of criteria to help determine when an activity would be considered a joint activity.

1. Purpose: Does the activity in question accomplish a program function or management and general function?
2. Audience: Is the audience chosen for the activity based on their likelihood or ability to donate?
3. Content: Are specific actions called for by the audience that will help accomplish the organization’s mission?

If the activity in question fails the criteria of purpose, audience and content, then it must be reported as fundraising. If it passes, the costs of the activity can be allocated using a reasonable and systematic method between programming and fundraising costs.

For more information, visit http://www.journalofaccountancy.com/Issues/1998/Aug/capin.htm.

New standards issued for nonprofit mergers

2009-07-07T15:38:00.000-07:00

New accounting standards now govern proper accounting for nonprofit mergers and acquisitions.

Statement 164, “Not-for-Profit Entities: Mergers and Acquisitions,” marks the completion of a decade-long project to create specific guidance for the combination of one nonprofit organization with another and ends the dependence on parallels to business-combination accounting.

The Financial Accounting Standards Board issued the statement in early May, shortly after an unrelated study indicated that nonprofit mergers and acquisitions are trending up during this economic downturn. The study by the Bridgespan Group found M&A activity to be largely influenced by financial pressures or leadership vacuums. Read more about the study at http://www.philanthropyroundtable.org/article.asp?article=1581&cat=139.

If you’re considering a merger with another nonprofit entity, keep in mind the new accounting standards, which outline requirements for determining whether a certain combination is a merger or acquisition, how to account for each, and what necessary disclosures should be made. To read Statement 164, visit www.fasb.org.

AKT’s nonprofit professionals have formed a team to help you with your merger. Read more about our services at www.aktcpa.com.

Understanding the Cy Pres Doctrine

2009-07-02T14:05:00.000-07:00

Hospital foundations routinely accept charitable gifts that are restricted in terms of scope, duration, purpose and outcome.

While such gifts are oftentimes “memorialized” with a well crafted gift acceptance agreement, they are just as frequently accepted with a loose description of the donor’s intent. Either way, time can have a way of making the most well intentioned bequest or gift seem out of date, which can be a real dilemma for foundation executives and future generations.

University of Tennessee College of Law Professor Iris Goodwin has written a remarkably thoughtful analysis of the cy pres doctrine (which holds that courts will only act to change the donor’s original intent in the event that their wishes are “impossible, impracticable or illegal” to fullfil). Her article centers on a conflict between Princeton University and a large donor whose original gift became subsequently difficult to administer. The article is very thorough and informative and recommended reading for any foundation director or large gift officer. It can be accessed on the Social Science Research Network here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1124573

Staying exempt

2009-06-03T16:39:00.000-07:00

We cannot deny it anymore – the economy is bad. Not only has it had a negative impact on private businesses, but it also has had a profound impact on you and your charitable organization.

As a result nonprofits are expanding fundraising activities and exploring new and creative ways to generate income. This is a great opportunity for innovation and entrepreneurship. Yet, be careful where you step or you could be answering to the IRS and new tax consequences.

We bring this up because while most nonprofits are tax-exempt, it does not mean they are free from paying taxes. More specifically, we are talking about the unrelated business income tax and the effect it can have on you.

According to the Internal Revenue Service, unrelated business income (UBI) is income from a regularly-carried-on trade or business that is not substantially related to the organization’s exempt purpose. To determine if your organization has income that is UBI, there is a three part test.

Is your activity a trade or business? For example, does your organization sell goods or services to generate income? If so, this could be UBI.
Is your activity regularly carried on?
Does it substantially depart from your exempt purpose?

Any income producing activity that does not directly further your organization’s mission could generate UBI, especially if it meets the other two requirements of the three-part test. If you determine that you have UBI, it is taxable and must be included in your Form 990 tax return. UBI is taxed at the trust tax rate, which ranges from 26 to 34 percent.

In general, when expanding your funding sources and activities be conscious of what may or may not be deemed unrelated business income. UBI is not bad; some nonprofits generate great amounts of revenue that can be put to furthering their mission through UBI. It is just important to be aware of what it is and how it can affect your tax position.

Get more details at http://www.stayexempt.org/.