Managing the Rapid Pace of Change: Marks Paneth’s Sixth Annual Nonprofit Industry Update SeminarOctober 28, 2021
The rapid pace of change in accounting standards, taxation, technology and compliance – compounded by the COVID-19 pandemic – has intensified the normal challenges that nonprofits face, providing ample grist for discussion at the 6th Annual Marks Paneth Nonprofit Industry Update Seminar.
Our October 7 virtual seminar brought together more than 300 nonprofit leaders to explore actionable solutions to their issues. Led by Joseph Kanjamala, CPA, CGMA, a partner in Marks Paneth’s Nonprofit, Government & Healthcare Group, the seminar featured presentations on FASB accounting standards, the Employee Retention Tax Credit, a Nonprofit Tax Update and Data Analytics for Nonprofit Leaders.
“There is much uncertainty” in the nonprofit community, Kanjamala said, “and our goal was to help clear up doubts. I believe we succeeded.”
Following is an overview of the topics discussed at the half-day seminar.
FASB Accounting Standards Update
Jeffrey Mechanick and Jeffrey Gabello, senior experts from FASB, provided a clear-eyed review of several issues, including gifts in kind and lease accounting.
For gifts-in-kind – also referred to as ‘contributed nonfinancial assets’ – the speakers noted that ASU 2020-07 was issued to increase the transparency of contributed nonfinancial assets for not-for-profit entities through enhancements to presentation and disclosure.
Regarding the change in accounting standards for reporting lease arrangements, the speakers focused on operating leases, emphasizing that such leases are on-balance sheet under Topic 842, Leases. They also discussed the effects of operating and finance leases on the statement of activities and cash flow statement.
Mechanick and Gabello also gave overviews of the FASB staff Q&A document on lease concessions during the COVID-19 pandemic and the FASB staff educational paper on debt restructurings and modifications. They also discussed various forms of COVID-19 government assistance such as Paycheck Protection Program (PPP) loans and the Employee Retention Tax Credit (ERC).
Employee Retention Tax Credit
Jay Brower, CPA, MST, a Marks Paneth partner and State and Local Tax leader, stressed that the ERC is a payroll tax credit and, as such, nonprofits are eligible to claim them and receive refunds of previously paid payroll taxes. Accounting departments need to have solid payroll records and the ability to make timely amended tax filings to calculate and claim the credit. Central to any understanding of the ERC is the definition of a qualifying entity that Brower described as “either one that suffered a complete or partial government mandated shutdown of operations; or an entity that can show a significant decline in receipts from all sources of revenues – by meeting a threshold of a decline of 50% during any quarter of 2020, and a threshold decline of 20% during any quarter of 2021, as compared to the same quarter of 2019.”
Brower demystified the regulations around the ERC, pointing out there are two major sets of rules governing the tax credit. The first is for the period between March 12 and December 31, 2020; and the second for calendar 2021. The key difference is that the percentage of wage credits available for refund per qualified employee went up from 50% in 2020 to 70% for 2021. Other key differences include the distinction between large and small employers that affects which wages can be used to generate credits.
Brower also pointed out the confusion that can spring from applying for PPP loan forgiveness and claiming the ERC.
“You cannot claim the ERC on any wages which actually gave rise to PPP loan forgiveness,” Jay stated. “I urge nonprofits to develop a plan: go online for IRS guidance, read their FAQs and definitions; then go back and review the amount of 2019 gross revenue per quarter and compare them to the corresponding quarter in 2020 and 2021 to determine if you’ve hit your 50% or 20% threshold; finally, do the math to see how the amount of PPP loan forgiveness differs from eligible ERC and the resulting impact on your financial statements. Only then can you make an educated decision.”
Nonprofit Tax Update
Magdalena Czerniawski, CPA, MBA, a partner in the Marks Paneth Nonprofit, Government & Healthcare Group, discussed the impact of ongoing COVID-19 provisions including payroll tax deferment, student loan assistance extensions and the expiration of paid family leave, among others. She moved on to donor disclosures with an update on the various legal and constitutional challenges around the requirements for nonprofits to disclose donors of amounts over $5,000. Next came an update on excise tax on excess executive compensation, followed by a discussion of new details concerning New York State charity tax filings, especially the streamlining and digitization of online accounts and e-signatures. Czerniawski noted that Form 990 had not changed much between 2020 and 2021 except for some formatting changes that have improved ease of use.
Data Analytics for Nonprofit Leaders
Sibi Thomas, CPA, CFE, CGMA, a partner in the Marks Paneth Nonprofit, Government & Healthcare Group, and Bryan Whalen, a Marks Paneth data analytics supervisor, closed the seminar with a session on leveraging your own data to improve business performance and operations. Using several financial reporting dashboards, they demonstrated how applying straightforward data analytics tools, many of which are off-the-shelf and customizable in-house, can yield significant and immediate benefits. Specifically, they cited improved processes through automation, thus gaining time to focus on value-added activities; better decision-making based on the ability to summarize insights into performance; and flexibility or the value of deploying dynamic analytics that evolve over time as business goals and objectives change.
Summing up the seminar, Kanjamala said the complementary issues of compliance and regulatory changes are the dominant concerns shared by most nonprofit leaders.
“This is especially true of human services agencies who are having to do the same or more with fewer dollars,” he said. The funding of rate-based programs is being cut due to downward pressures from their government funding sources. “This is an issue we will have to keep a close eye on.”
Other pivotal concerns include ongoing staffing shortages as employees leave the nonprofit marketplace for better paying positions. The “great resignation” phenomenon that is sweeping the U.S. workforce is hitting the nonprofit sector extremely hard.
There are opportunities, however.
“Much is going on in terms of directed philanthropy and there is real movement towards helping billionaire benefactors understand and deploy dollars more effectively,” Kanjamala said. “Whether it is for pure scientific research, or for substance abuse, or to combat homelessness, everyone in the nonprofit world needs to be aware of this trend and see to what extent they can benefit from it.”
If you have any questions, please feel free to contact Hope Goldstein, CPA, or Mike McNee, CPA, Partners in our Nonprofit, Government & Healthcare Group, or your Marks Paneth advisor for more information.