Betsy Krisher, CPA, CGFM, has written an article on behalf of the PICPA regarding the talent pipeline shortage in public accounting and the AICPA’s National Pipeline Advisory Group (NPAG)’s efforts to address this important issue. While only in existence for a few months, the NPAG has made significant progress in identifying the key stages where loss of talent occurs. This will help direct the group in the development of potential solutions in attracting/retaining talented professionals.
As we are into the second half of the year, we would like to inform you of some key information relating to the Internal Revenue Service (IRS) and Exempt Organizations:
IRS TE/GE
The IRS TE/GE (Tax Exempt and Government Entities Division) has outlined the following priorities for its FYE 2023 (FY 2023 program letter ). A FY 2024 program letter will be issued in September 2023.
IRS Inflation Reduction Act Strategic Operating Plan
To address the use of its Inflation Reduction Act of approximately $80 billion in funding, the IRS has defined the following objectives for its IRS IRA Strategic Operating Plan issued in April 2023:
IRS Inflation Reduction Act Renewable Energy Credits
With the introduction of renewable energy credits, tax exempt organizations and local governments are eligible for clean energy tax credits for “qualifying energy projects” and will have access to “elective pay” for tax credits (direct payments). Energy credits can be made for the first taxable year beginning after December 31, 2022. Elections must be made no later than the due date (including the extension of time) for the return of tax for the taxable year for which the election relates. Credits to be paid are similar to payments of IRS refunds, and organizations must file an IRS Form 990-T (even if otherwise the organization would not be required to file an IRS Form 990-T.) Tax credits are earned in the year in which the project is placed into service.
The types of renewable energy credits most likely applicable for non-health care and non-higher education non-profits would pertain to credits involving Section 179D: Energy Efficient Commercial Building Property and Alternative Vehicle Fuels. Examples of eligible projects under Section 179D include energy efficient commercial building properties such as energy efficient lighting and HVAC. Monetization of deduction occurs through the allocation of deductions to the project designer. This would generally be the architect, engineer or contractor. The property must be certified as part of a plan to reduce total annual energy and power costs by 25%+.
For Alternative Vehicle Fuels (EV), incentives are offered to offset the cost of installing EV refueling/charging stations and credits to subsidize the purchase of EVs.
There are helpful resources online, including an FAQ issued by the IRS for additional information on the IRA energy credits:
https://www.irs.gov/credits-deductions/elective-pay-and-transferability-frequently-asked-questions
https://www.irs.gov/credits-and-deductions-under-the-inflation-reduction-act-of-2022
https://public-inspection.federalregister.gov/2023-12798.pdf
Generic Legal Advice Memorandum on NIL Collectives
The IRS has issued a generic legal advice memorandum (GLAM 2023-004) that addresses whether developing paid name, image, and likeness (NIL) opportunities for collegiate student-athletes furthers an exempt purpose. Some NIL Collectives to compensate student-athletes for services rendered have been established as nonprofit entities or existing charities chose to develop NIL opportunities. NIL activities included paying students for social media posts promoting the charity; attending fundraisers or autographing memorabilia for fundraisers. The IRS has concluded that such activities are unlikely to qualify as charitable or tax-exempt activities.
State Regulatory News
Areas of Interest That State Regulators Look Into
As a reminder, transactions of interest for regulators are NOT measured on financial statement audit materiality. State regulators do look for consistency and some holistic story between the audited financial statements and the IRS Form 990. Also, do not assume no one reads the IRS Form 990. The IRS Form 990 is the first document reviewed by regulators.
Notable areas of interest for state regulators include:
PA BCO Update
PA BCO registrations continue to be processed online or by mail. In Pennsylvania, there continues to be no taxation of PA UBIT. However, this is not true of many states and state taxation of UBIT compliance is ramping up. PA BCO resources can be found online here and instructions for the completion of PA Form BCO-10 can be found here.
If you have any questions regarding these tax matters or other questions in general on non-profit tax compliance, please contact a member of your engagement team.
The Internal Revenue Service (IRS) has issued the 2023 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile while the rate for medical and moving purposes is based on the variable costs.
Effective January 1, 2023, the IRS has increased the optional standard mileage rate by 3 cents from the mid year 2022 rate to 65.5 cents per mile driven. The rate for medical or moving purposes for qualified active-duty members of the armed forces remains 22 cents per mile (the same as the higher mid year rate for the second half of 2022). The rate for service on behalf of charitable organizations is 14 cents, which is set by statute and remains unchanged from 2022. The rates defined above are applicable to electric and hybrid electric automobiles, as well as gasoline and diesel powered vehicles.
As we are into the second half of the year, we would like to inform you of some key information relating to the Internal Revenue Service (IRS) and Exempt Organizations:
IRS Updates
Other Matters to Monitor:
We will continue to monitor the progress of this bill.
Organizations of all types are challenged with retaining and recruiting employees, including the nonprofit sector. Employee retention and recruitment requires a multi-faceted approach, involving a deliberate organization strategy, organization culture, and employee engagement in the mission of the organization. As nonprofits seek creative solutions to their human resource needs, those solutions can have implications beyond impacts on employee headcount. Some key matters to consider:
REMOTE ONLY WORKERS: If your organization has positions that can be filled by fully remote individuals, your pool of eligible applicants greatly expands, and highly prized talent can be obtained. That remote hire in another state or major metropolitan area is likely to bring requirements for filing of related state and local taxes employment taxes. They also can require conformity to any state or local municipal employee pay, leave, or workers compensation regulations. In addition, such a hire can trigger the need for business registration and business taxes in that new remote hire’s area as well as charitable entity registration. State and local municipal approaches to remote workers and the types of filings required vary by state to state and locale to locale. To protect your organization, review the filing requirements via the appropriate state and local municipal websites and be prepared to file/register as needed within 30 days of the remote employee’s start date (best practice). Consultation with legal counsel on these matters could be advisable.
BONUSES: No matter how an organization labels them, payments of cash and cash equivalents (gift cards, gift certificates, use of a credit card, etc.) to employees are never excluded from tax and should be processed through the organization’s payroll cycle and taxed accordingly. IRS Publication 15 is a good place to start when considering tax implications of payments to employees. Don’t forget your employee benefit plan provisions. Consider how bonuses and other “out of the ordinary” payments to employees are treated for purposes of your employee benefit plan and ensure the appropriate processing for contribution purposes (both employee and employer) are followed.
FRINGE BENEFITS: There are a wide array of fringe benefits that can be provided to employees that are excluded from employment taxes including educational assistance, employer provided cell phones, HSAs, and working condition benefits, etc. Consult IRS Publication 15-B for further discussion.
TRAINING AND DEVELOPMENT: Employer provided training and development directly related to maintaining and improving employee skills for their current positions (not a new type of work) are NOT taxable. Review “education required by employer or by law” and “education to maintain or improve skills” at the IRS tax benefits for education information center .
With the 2022 personal tax filing season well underway, there has been a lot of attention on the issues facing the IRS as they try to fulfill their tax administrations duties. The IRS employees are trying, but with pandemic shutdowns, COVID protocols, retirements, and additional COVID relief duties such as personal stimulus checks and employee retention credit processing, the obstacles for the IRS as a whole have been significant. Some key issues are highlighted in the National Taxpayer Advocate 2021 Annual Report to Congress:
While understandably much of the media attention has been focused on personal and business returns, exempt organizations have experienced the similar frustrations as any organization that has had difficulty e-filing their forms or has had to reply to an IRS notice can tell you. A unique aspect of IRS administration for exempt organizations is the Exempt Organization Business Master File (EO BMF). The EO BMF is the record source of information about exempt organizations and the data in the BMF generally has to match key information in the return being filed in order for a Form 990 series return to be successfully e-filed. The EO BMF is not updated on a timely basis and has generally lagged 60 days or more behind. Common issues that arise include:
Primarily these issues have to be resolved with hours of phone calls with multiple IRS representatives or long waits while the IRS handles the correspondence. More can be learned about this by reading this AICPA blog on EO BMF issues .
IRS EO officials are aware of these issues and numerous groups continue to advocate for awareness and change, including the AICPA , EO Committee of the American Bar Association Tax Section, and TEGE EO Council . Advocacy efforts have been helpful in having the IRS stop notices while they get caught up as discussed in more detail at IRS IR-2022-31, February 9, 2022, and the IRS has increased requested holds on accounts being levied for penalties and fines for generally 60 days rather than 30 days.
Due to the backlog in processing returns, the IRS on March 25th announced they are suspending issuance of 10 notices generally sent to tax exempt organizations about late return filings. The intent of this suspension is to avoid confusion when a filing is still in process. For more information on the suspended notices, refer to the update published in the Journal of Accountancy.
So what you can do if you are having an issue with the IRS?
Did you know the Internal Revenue Service (IRS) has an Employee Plans Compliance Resolution System (EPCRS) that enables retirement plan sponsors to correct retirement plan failures? The EPCRS allows corrections in three different areas:
Self-Correction Program (SCP) – this program allows for the correction of certain plan failures without contacting the IRS or paying a user fee.
Voluntary Correction Program (VCP) – this program allows for the correction of failures not eligible for SCP and solicits approval from the IRS that the failures were properly corrected.
Audit Corrective Action Program (CAP) – this program corrects errors discovered during an IRS audit that can’t be corrected using SCP.
The IRS has made significant changes to the EPCRS in Revenue Procedure 2021-30. These revisions include:
Overpayments Correction Options: This option enables plan sponsors to fix operational failures when plan participants or beneficiaries receive payments from defined benefit plans that exceed what is permitted by the terms of the plan, effective July 16, 2021. This reduces the need to seek repayment from participants or beneficiaries who received overpayments, and in some cases, does not require the plan sponsor to reimburse the plan for overpayments to participants.
Expansion of Self Correction for Significant Operational Failures: This extends the correction period of significant operational failures from two to three years, effective July 16, 2021.
Expansion of Self Correction for Retroactive Plan Amendments: This makes it easier to use retroactive plan amendments to correct operational failures by removing the requirement that all participants in the plan benefit by the retroactive amendment, effective July 16, 2021.
Anonymous VCP submissions: Effective January 1, 2022, Rev. Proc. 2021-30 eliminates anonymous submissions under VCP.
Anonymous Pre-Submission Conferences: Effective January 1, 2022, the IRS will permit plan sponsors or their representatives to make an anonymous written request for a pre-submission conference to discuss a potential VCP submission at no cost to the plan sponsor. Following the pre-submission conference, if the plan sponsor submits a VCP request, it can no longer be anonymous.
Extension of Automatic Enrollment Failures: This option extends the sunset of the safe harbor correction method to correct missed elective deferrals for eligible employees subject to an automatic contribution feature in Section 401(k) or 403(b) plans.
Increased Threshold for De Minimis Correction Amounts: This option increase from $100 to $250 the threshold for certain de minimis amounts for which a Plan Sponsor is not required to implement correction.
If you have any questions regarding your retirement plans, you can refer to the IRS website or contact us for additional information.
The Small Business Administration (SBA) has launched a Community Navigator Program to strengthen outreach to underserved communities by partnering with organizations with deep roots in their communities. Through this program SBA will engage with states, local governments, SBA resource partners, and other organizations in targeted outreach for small businesses underserved communities. This program reflects a $100 million investment, as part of the American Rescue Plan Act of 2021, to establish Community Navigator Programs for individuals with disabilities and/or in minority, immigrant, rural, and other underserved communities across the country. Competitive grant awards will range from $1 million to $5 million for a two-year performance period. Applicants have until July 12, 2021, to submit their applications at grants.gov. Performance periods are projected to commence in September 2021. The following organizations are eligible to apply for this program:
For more information on this program, review the SBA announcement page.
On April 8th, the Small Business Administration (SBA) launched a portal for its Shuttered Venue Operators Grant Application. (Note that as of the date of this blog being posted, the site has been temporarily suspended due to technical difficulties, but we encourage you to regularly check the SBA site, so you can submit your application online once the site is back up and running again). This grant program provides emergency assistance for eligible venues impacted by the COVID-19 pandemic. As many non-profits fall into this category, we would like to provide you a summary of SBA’s guidance regarding the program:
Which Non-Profits Are Eligible To Apply?
Additionally, organizations must have been in operation as of February 29, 2020. Note that if your organization has received a Paycheck Protection Program (PPP) loan on or after December 27, 2020, the eligible grant amount you receive through this program will be reduced by the amount of your PPP loan. However, under law, entities will be ineligible for a PPP loan AFTER they receive a SVOG. Any PPP borrower that received a PPP loan before December 27, 2020, however, will not have the PPP loan amount deducted from any subsequent SVOG.
What Are The Grant Amounts?
How Will The Grants Be Prioritized?
What Are The Allowable Use of Funds?
Grant funds may be used to cover the following expenses:
Grantees may not use award funds to buy real estate, make payments on loans originated after February 15, 2020, make investments or loans, or make contributions or other payments to, or on behalf of, political parties, political committees, or candidates for election.
What Recordkeeping Is The Grantee Responsible For?
Grantees will be required to maintain documentation demonstrating their compliance with the eligibility and other requirements of the program. They must retain employment records for four years following their receipt of a grant and retain all other records for three years. An SVOG award will count toward the Single Audit Act threshold.
For additional information, please refer to the SBA FAQ.
