The past year has been a whirlwind for everyone, and nonprofits are no exception. We’ve seen our nonprofit partners provide extraordinary support, stepping up when their community needed them most. Unfortunately, there is not a lot of time to relax, as the industry will continue to face opportunities, challenges and hurdles. This blog summarizes a few accounting and other top issues directed at nonprofits to create awareness around current topics impacting the industry.
If you would like additional information around these topics, check out an upcoming seminar here presented by different solution leaders at BerganKDV. The seminar will discuss in further detail the current state of nonprofits as well as the tax and accounting changes brought upon by COVID-19.
Navigating COVID-19 Related Government Initiatives and Support
Many nonprofits were able to apply and receive government support provided through the well-documented Paycheck Protection Program (PPP). As the second round wraps up, eligible organizations will be calculating and filing for their potential forgiveness soon. From our perspective, PPP has provided the boost nonprofits needed to help navigate the financial aspects of the pandemic.
Some nonprofits may find additional support through other government programs, including the Employee Retention Credit (ERC), Shuttered Venue Operators (SVO), and Provider Relief Funds (PRF) programs. The ERC provides eligible employers with credits of up to $5,000 and $28,000 per employee for 2020 and 2021, respectively, while eligible SVO applicants may be eligible for grants of up to 45% of their gross revenue earned. PRF funds were generally provided to healthcare organizations and supplied additional aid to those providers. Guidance provided on these programs seems to be changing by the minute, and reaching out to trusted advisors is critical to ensure that organizations understand the eligible programs, reporting requirements, etc.
Nonprofits should make their supporters aware of advantageous temporary tax laws as well. The CARES Act provided charitable giving incentives by raising the limitations on deductible charitable contributions of cash by individuals who itemize. As well as providing a $300 above-the-line deduction to individuals who do not itemize and raising the cap for deductible charitable contributions of cash by corporations.
The Families First Coronavirus Response Act, signed into law on March 18, 2020, temporarily expanded the Family and Medical Leave Act to permit certain employees to take up to 12 weeks of expanded family and medical leave for specified reasons related to COVID-19.
Accounting and Auditing Updates
Through the last year, many organizations have dealt not only with the operational needs of the pandemic but also worked to understand and implement accounting updates. Most organizations have implemented Topic 606 – Revenue from Contracts with Customers, and the corresponding ASU 2018-08, Accounting Guidance for Contributions Received and Made. These changes clarified how organizations recognize and report their revenue, including significantly enhanced disclosures. The guidance in ASU 2018-08 has also proved beneficial in accounting treatment for COVID-19 related funding, including PPP and ERC.
Nonprofits will now need to turn their attention to the upcoming implementation of ASU 2016-02 –Leases and ASU 2020-07 – Contributed of Nonfinancial Assets. ASU 2016-02, effective for periods beginning on or after December 15, 2021, will significantly alter the traditional reporting of operating leases, pushing what was previously off-balance-sheet commitments of long-term leases to the balance sheet. ASU 2020-07, meanwhile, will require significant enhanced presentation and disclosure of contributed nonfinancial assets (aka gifts-in-kind) and is effective for periods beginning on or after June 15, 2021.
Organization’s audited financial statements will see changes in their independent auditor’s report. A series of Statement on Auditing Standards (SAS) is effective for reporting periods ending on or after December 15, 2021. These changes significantly alter the auditor’s report. Users of audit reports, including management, those charged with governance, and third-party stakeholders should take time to read and understand the new report, which provides clarity to what management and the auditor’s responsibilities are.
Form 990-T Changes
First enacted with the Tax Cuts and Jobs Act (TCJA), organizations are now required to calculate unrelated business income tax separately for each trade or business, no longer allowing the losses of one trade or business to offset the income from another. Under the final regulations, an organization’s various trade or business “silos” will be separately identified using a 2-digit North American Industry Classification System (NAICS) code. There are currently 20 such codes. Any shared expenses are to be allocated among the various silos on a reasonable basis.
As a result of the tax law changes, the 2020 Form 990-T was substantially redesigned. The 990-T is now a 2-page summary, requiring an organization to attach a separate Schedule A for each unrelated trade or business activity.
Curious to learn more about the key topics impacting the nonprofit industry? I encourage you to register for this seminar centered around nonprofits. The session will provide insight on the state of the nonprofit marketplace as it stands today from various solution leaders at BerganKDV.