Final Planning for IRS Form 990 and FASB 117-1

Nonprofit

Date:

12/10/2008

As we look forward to 2009 and the hope that our economy recuperates from these difficult times, our HW Nonprofit Group would like to remind you of a couple of the more important tax and accounting issues you will have to address in the upcoming year.

There has been much discussion about the new IRS Form 990 and how encompassing this form has become. Responses to many of the questions within the new Form 990 may take advanced planning by you. The days of beginning to prepare the Form 990 one week before the deadline are behind us. Some of the questions include:

Was a copy of the Form 990 provided to the organization's governing body before it was filed? All organizations must describe the process, if any, they use to review the Form 990.

Has the organization's mission statement been approved by the Board? If it has not, the mission statement cannot appear on the new form 990.

Does the organization have written policies and procedures governing the activities of chapters, affiliates, and branches to ensure their operations are consistent with those of the organization?

Did the process for determining compensation of the organization's Executive Director or other officers or key employees of the organization include a review and approval by independent persons, comparability data and contemporaneous substantiation of the deliberation and decision?

Does the organization have a committee that assumes responsibility for oversight of the audit, review, or compilation of its financial statements and selection of an independent accountant?

Among the many questions, there are also questions regarding whether the organization has implemented the following:

Audit Committee Charter
Charity Care Policy
Code of Ethics
Conflict of Interest Policy
Conservation Easement Policy
Debt Collection Policy
Document and Destruction Policy
Endowment Policy
Executive Compensation Policy Fundraising Policy
Gift Acceptance Policy
Investment Policy
Policy of Minutes
Rebuttable Presumption for Any Transaction with an Interested Person Policy
Reimbursement of Travel & Entertainment Expenses Policy
Tax-Exempt Bond Compliance Policy

It is unclear what the repercussions from the IRS will be if any of the policies or procedures are not implemented. The IRS's Exempt Organization Sector has been discussing their strategic approach to enforcement of the tax law and accomplishing this through a concept of "Vision for Compliance". The "Vision" starts with strategic planning to detect emerging or possible areas of non-compliance. Along with tax compliance is also the ease of access of the Form 990 on GuideStar® that potential funders can access. Considering tax compliance and ease of access of the Form 990 for potential funders, I would recommend you address implementing the aforementioned policies and procedures as soon as possible.

Also in 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position 117-1 Endowments of Not-for-Profit Organizations: Net Asset Classification of Funds Subject to an Enacted Version of the Uniform Prudent Management of Institutional Funds Act (UPMIFA), and Enhanced Disclosures for All Endowment Funds. The provisions are effective for fiscal years ending after December 15, 2008. The guidance is intended to improve the quality and consistency of financial reporting of endowments held by not-for-profit organizations.

This new guidance requires enhanced disclosures of donor-restricted endowments and board- designated funds. Also, it addresses accounting for classification of the net assets associated with donor-restricted endowment funds held by organizations that are subject to an enacted version of UPMIFA. Currently in the State of Ohio, the bill to approve UPMIFA has not been enacted as of the beginning of December 2008 but will most likely be approved soon. Once UPMIFA is enacted, organizations with donor-restricted endowment funds will have to account for donor-restricted endowments in accordance with FASB Staff Position 117-1. You can track the enactment of UPMIFA and see how this law varies from current law at http://upmifa.org.

We highly recommend that if you have donor-restricted endowments or board-designated funds, you should address how this new FASB Staff Position will affect your financial statements. Feel free to contact us with any questions regarding FASB Staff Position 117-1 or the new IRS Form 990.

Final Planning for IRS Form 990 and FASB 117-1

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