Non-profit Tax

California A.G. files cease & desist order against 3 large charities alleging donated medicine was overvalued

“The Evolution of Law; Bas Relief, Los Angeles Superior Court” by JoeInSouthernCA is licensed under CC BY-ND 2.0

As mentioned previously, the conflict over donated pharmaceuticals has heated up again. It seemed to have faded away over the last couple of years but has now gained renewed visibility.

The California Attorney General has filed cease and desist orders against three large, high-profile charities who received between 70% and 98% of their revenue from medical GIK.

A complaint was filed against another charity for overvaluation of GIK. That charity essentially conceded the accusations in a stipulated settlement, agreeing to terminate the charity’s existence. That action is discussed here.

The three large charities are Food for the Poor, Inc., MAP International, and Catholic Medical Mission Board, Inc.

The cease and desist orders can be found at the AG’s web site:

This is a long post, approaching 2,200 words. Might be worthwhile to get a fresh cup of coffee before diving in.

 

Background

This post will walk through a number of key comments in the cease and desist orders, which I’ll referred to as C&DO. Because the C&DO are roughly parallel to each other, I’ll walk through the MAP order and add comments on the CMMB and FftP order where it is helpful. The CMMB C&DO does not have the comments regarding state charitable filing requirements.

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Jim Ulvog

Reduced staffing and funding for the Exempt Organization division of the IRS

“Internal Revenue Service” by saturnism is licensed under CC BY-SA 2.0

Staffing and funding for the IRS division that oversees tax exempt organizations has fallen dramatically in the last six years or so.

According to a behind-the-paywall article at the Washington Post, the budget for the Exempt Organization division has dropped from $102M to $82M between 2011 and FY 2017. That is a $20M decline, or 19.6%.

For the same years, staffing has declined from 889 to 642, according to the article. That is a decline of 247 positions, or 27.8%.

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Jim Ulvog

Helpful comments from 2017 CalCPA Not-for-profit conference, part 1

Image courtesy of Adobe Stock.

Here are a few of the comments from the May 24, 2017 Not-for-profit conference presented by California Society of CPAs that I thought would be of interest to others in the nonprofit community. Since all comments are the opinion of the speaker, neither their names nor organizations will be mentioned. The ideas mentioned can stand or fall on their own.

This is the first of two posts. The next discussion will address changes in financial statement presentation outlined in ASU 2016-14. In this post: tax, revenue recognition, and single audit.

Tax update:

  • It might just be possible that filing a form 1023 or 1023-EZ is so easy that people can get exempt status for an organization without knowing the requirements to properly operate a charity and maintain exempt status. In examinations to follow-up after exempt status is approved, the IRS is finding a lot of charities are out of compliance.
  • One of several focuses of the IRS is filing of FBARs, those forms used to report overseas bank accounts. One ripple effect of chasing money laundering is the impact on charities who have overseas accounts. Even though there is minimal risk of those accounts being used for tax evasion the FBAR filing requirement still apply. As a reminder, the deadline for filing FBARs is now April 15 with a six-month extension available.

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Jim Ulvog

Do some research on the Executive Order addressing religious freedom

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I don’t do politics on my blogs.

I do pay attention to issues affecting non-profits.

So when the president issues an Executive Order addressing religious freedom, it is worth discussing even though it is a politically loaded EO.

On May 4, the president issued an EO which reportedly pulls back on the ban against churches getting involved in political campaigns.

In a one sentence overstatement, under current law 501(c)(3) exempt organizations may not involve themselves in political campaigns and may only get involved in very limited ways in legislative efforts. Ok, I’ll add a second sentence – That means churches and other exempt organizations may not endorse or favor a political candidate but may exert some effort addressing matters before a legislative body.

Based only on initial reports, the EO appears to contain several major items. First, telling the IRS to use maximum discretion in applying the rules on the political ban. Second, telling the Attorney General to develop guidelines for federal agencies on how they apply their rules in terms of religious freedom. Third, asking federal agencies to make certain changes in health care requirements regarding contraceptive coverage.

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Jim Ulvog

Tips for churches on how not to mess up your payroll taxes

Image courtesy of Adobe Stock.
Image courtesy of Adobe Stock.

Church Law & Tax, site for Richard Hammar’s writing on issues affecting churches, recently tweeted about their presentation of Five Common Payroll Issues Ministries Face Slideshow.

If you are in a church, or any parachurch ministry for that matter, it would be worth your time to read through the slide deck.

I’ll guess this is old news for most people. However, if you see something that you don’t understand or seems contrary to how you are doing things, you might want to take that as a warning you ought to do some research. I’ll mention just a few highlights.

Remember to report the following as income (see slides 8 and 9): (more…)

Jim Ulvog

Another scam to beware: phishing for W-2 info

Image courtesy of Adobe Stock.
Image courtesy of Adobe Stock.

Ok, so you know it is a scam if you get a call from “the IRS” saying you have to pay your tax bill right this instant because the local cops are on the way to arrest you.

If you get one of those calls, hang up. Don’t even talk.

Here’s the newest phishing scam now starting to hit charities.

Kelly Phillips Erb explains the new scheme: IRS Issues Urgent Alert as W-2 Phishing Scam Spreads During Tax Season.

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Jim Ulvog

In case you hadn’t hear, those telephone calls claiming to be from the IRS demanding you immediately pay back taxes are a scam.

Wouldn't it be nice if the phone id actually was that accurate for every call? Image courtesy of Adobe Stock.
Wouldn’t it be nice if the caller ID was actually that accurate for every call? Image courtesy of Adobe Stock.

The most frequent scam in 2016 was the phone calls saying “This is the IRS and if you don’t pay your past due taxes this instant we will send someone to your house to arrest you right now.”

There are many things wrong with those calls.

As a starter, your first contact with the IRS will never be by phone. You will instead get a letter explaining what the IRS thinks you messed up.

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Jim Ulvog

Standard IRS mileage rates for 2017

Image courtesy of Adobe Stock.
Image courtesy of Adobe Stock.

The IRS announced the standard mileage rates for 2017 today. New rate for transportation and reimbursements is 53.5 cents. That is down from 54 cents in 2016.

According to IRS comments in Notice 2016-79:

The standard mileage rate for transportation or travel expenses is 53.5 cents per mile for all miles of business use (business standard mileage rate). See section 4 of Rev. Proc. 2010-51.

The standard mileage rate is 14 cents per mile for use of an automobile in rendering gratuitous services to a charitable organization under § 170. See section 5 of Rev. Proc. 2010-51.

The standard mileage rate is 17 cents per mile for use of an automobile (1) for medical care described in § 213, or (2) as part of a move for which the expenses are deductible under § 217.

Standard rates for the last few years:

Jim Ulvog

Free resource explaining overtime rules

Image courtesy of Adobe Stock.
Image courtesy of Adobe Stock.

The Evangelical Council for Financial Accountability has published a concise, free resource explaining many of the rules of overtime, especially in the context of the charity world.

You can find it here and get a copy merely by giving them your email address. Not to worry – I don’t think they are going to overload you with spam – I’ve signed up for several things from them and the only emails I get are for free resources and invitations to webinars that are actually of interest. Oh, and news that is of interest to those of us in the charity world.

Oh, did I say it was free?

Jim Ulvog

What to do about the new overtime rules since they are on hold?

Image courtesy of Adobe Stock.
Image courtesy of Adobe Stock.

The new overtime rules were set to go into effect tomorrow, December 1. The rules are on hold as a result of an injunction issued by a federal judge. What should charities do about changes that have been implemented, or announced, or on the drawing board?

Two articles have some suggestions:

11/29 – Baltimore Business Journal – Plenty of questions still surround blocked overtime pay law – It is very uncertain how the new overtime rules will be handled. Article cites the CEO of an outsourcing and payroll company. His advice is stay tuned to developments. The rules could be implemented, overturned, or modified.

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Jim Ulvog

Overtime rules on hold after federal judge issues nationwide injunction

Image courtesy of Adobe Stock.
Image courtesy of Adobe Stock.

…places a hold on the new rules regarding…

Image courtesy of Adobe Stock.
Image courtesy of Adobe Stock.

 

A federal judge in Texas issued an injunction putting on hold the new Department of Labor rule increasing the threshold for paying overtime. The judge concluded there was a reasonable likelihood (I don’t quite appreciate the technical description so will use casual wording) that the lawsuit by 21 states and a lot of businesses would succeed. He also concluded the rule could cause irreparable financial harm. Thus, he issued the injunction, which applies nationwide.

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Jim Ulvog

Time to get ready for filing those W-2s and 1099s – You have less time to file in 2017 and penalties are worse

Image courtesy of Adobe Stock.
Image courtesy of Adobe Stock.

Congress requires W-2s and W-3s be filed with the IRS and Social Security administration by January 31 starting with reports filed in 2017. Previously, the deadline for sending reports to the government was February 28 by paper and March 31 for electronic filing.

The same, accelerated deadline applies for 1099s which have non-employee comp reported in box 7.

You can see more details in an 11/4 article at Forbes: Compressed Deadlines and Higher Penalties for Forms 1099 and W-2.

Penalties

In addition to the deadline for filing getting accelerated, the penalties for dropping the ball in 2017 are getting more severe.

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Jim Ulvog

A completely different perspective on the crisis surrounding Wounded Warrior Project.

Image courtesy of Adobe Stock.
Image courtesy of Adobe Stock.

Here are a few articles which will give you a different way of looking at the recent publicity surrounding Wounded Warrior Project. I’ve been swamped by several major projects so haven’t had much time to write recently. Those projects are still not done so I won’t be able to spend as much time on this post as I would like, yet I want to get some comments online for those who have been following the story.

The biggest article is The First Casualty: A report addressing the allegations made against the Wounded Warrior Project in January 2016 by Doug White, published September 6, 2016.

There is a lot of information about the entire story which has received minuscule coverage. Here is my quick recap of his major points:

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Jim Ulvog

Restructuring underway at Wounded Warrior Project

Image courtesy of Adobe Stock.
Image courtesy of Adobe Stock.

Some of the recent news regarding WWP. Much more to say, not enough time today.

Wounded Warrior Project released their financial statements for fiscal year ending September 30, 2015. One sentence summary is they have continued the accounting practices in place for 2014, which have drawn lots of criticism. At first glance, looks to me like functional allocation of expense methodology is unchanged from 2014. Much more discussion is needed on the issue.

Tim Sandoval describes the issue on 8/17 at Chronicle of Philanthropy (behind paywall):  Wounded Warrior Sticks With Accounting Rules That Drew Fire.

Layoffs and restructuring have begun:

8/30 – News 4 Jax – I-Team: Executives laid off, reassigned at Wounded Warrior Project – Article says several executive vice presidents have been let go or reassigned. More changes at the EVP level are expected.

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Jim Ulvog