Upcoming Changes to Not-for-Profit Accounting

Those who prepare not-for-profit financial statements face significant changes, thanks to a new guidance proposed in April of 2015 by FASB. Practitioners have until August 20 to comment.

The changes are intended to improve the information provided in not-for-profit financial statements and notes to financial statements. It’s been 20 years since not-for-profit statements have had changes of this magnitude.

“We believe that these changes will refresh the model in ways that will make not-for-profit financial statements even more useful to donors, lenders, and other users,” stated FASB member Lawrence W. Smith.

The document outlines the FASB’s proposed improvements to current net asset classification requirements and information presented in financial statements and notes to financial statements about a not-for-profit organization’s liquidity, financial performance, and cash flows.

Specifically, they are intended to:

  • Better reflect financial performance in the statement of activities by showing—in two measures of operating performance—available amounts that have been generated by or directed at carrying out the mission of a not-for-profit in the current period, both before and after any governing board actions affecting that availability.
  • Simplify the existing net asset classification scheme along with enhanced note disclosures.
  • Enhance information in the notes to help financial statement users better assess a not-for-profit’s liquidity and how it is being managed.
  • Make information about expenses more comparable and useful by requiring that all operating expenses be reported by both function and nature and investment return be reported net of related expenses.
  • Make the statement of cash flows more understandable by (a) presenting cash flows provided by operating activities using the direct method of reporting, rather than the indirect (reconciliation) method, and (b) classifying cash flows in ways that are more consistent with classifications in the statement of activities.

The FASB first undertook this project in 2011 based on input provided by its Not-for-Profit Advisory Committee (NAC) and other stakeholders. The NAC members said they believed that, while sound, existing standards for financial statements of not-for-profit organizations could be updated and improved to provide better information to donors, creditors and others*.

For more information on the summary of decisions made to date (April 7, 2015), click here.

* Source: www.ohiocpa.com

2015 Tax Return Filing Deadline

The IRS announced in Revenue Ruling 2015-13 the filing deadline for 2015 income tax returns for individual taxpayers will be Monday, April 18th, 2016 instead of the usual April 15th date most commonly associated with taxes, even though April 15th falls on a Friday in 2016.  The District of Columbia recognizes Emancipation Day as a legal holiday which falls on Saturday April 16th but is observed on the preceding day, Friday, April 15th.

In accordance with IRC Sec. 7503, filing and payment deadlines that fall on a Saturday, Sunday, or legal holiday are timely satisfied if met on the next business day.  Therefore, most taxpayers will have until Monday, April 18th to file their 2015 tax returns.  However, taxpayers who reside in Maine in Massachusetts will have until Tuesday, April 19th to file in order to observe Patriot’s Day, Monday, April 18th, which is a statewide legal holiday in those two states.

“Jock Tax” Update: Cleveland Files Motion for Reconsideration

Cleveland city attorneys filed a motion for reconsideration in response to the Ohio Supreme Court’s decision that the city’s method for taxing professional athletes is unconstitutional (click here to read our previous article regarding ruling).  Hunter Hillenmeyer, formerly of the Chicago Bears, successfully took the city to court and is due to receive a partial refund as a result of the recent ruling.  Among several reasons shown in the city’s motion for reconsideration, they provide a strong argument that the United States Supreme Court case precedent says that an apportionment method must only be reasonable and that their method does not grossly distort the result  The city even cited Tom Brady’s ongoing “Deflategate” controversy as support in their attempt to maintain their historical method for taxing athletes.

While it is a common occurrence for losing sides to file such motions, it is very unlikely the Court will reconsider their 7-0 unanimous ruling in favor of the former NFL player.  The city of Cleveland has not yet announced what new method they will adopt now that their preferred method has been struck down.

To read the complete motion for reconsideration filed by city attorney’s, click here.

Professional Athletes: State Income Tax Planning

The NFL recently held its 2015 draft in Chicago, Illinois for the first time in 51 years where 256 former college athletes were selected by 32 teams.  The three other major professional sports leagues in the United States will conduct their draft next month: MLB (June 8-10), the NBA (June 25) and the NHL (June 26-27).  As the newly drafted players begin negotiating and signing their first professional sports contracts, which can be worth millions of dollars for the top selections, properly establishing a state of residency with a low state income tax rate can result in millions of dollars in savings for the highest paid athletes.

Click here to view our white paper on professional athletes: Athlete – State Income Tax Planning.

For more information on state income tax planning for professional athletes, please contact an ARM tax professional.

State income taxes rates by state:

State Income Tax Rates

IRS Releases HSA Adjustments for Tax Year 2016

The Internal Revenue Service released Revenue Procedure 2015-30 on May 4th, 2015 providing the 2016 inflation adjustments for Health Savings Accounts (HSAs).  The annual limitation on deductions for an individual with self-only coverage under a high deductible health plan is $3,350.  The deduction for an individual with family coverage under a high deductible health plan is $6,750.  An individual age 55 or older is allowed an additional $1,000 toward their annual limitation under both self-only and family coverage.

For 2016, a high deductible health plan is defined as a plan with an annual deductible of not less than $1,300 for self-only coverage or not less than $2,600 for family coverage, and where the annual out-of-pocket expenses do not exceed $6,550 for self-only coverage or $13,100 for family coverage.

For tax year 2015, the annual limitation on deductions for an individual with self-only coverage under a high deductible health plan is $3,350 while the deduction for an individual with family coverage under a high deductible health plan is $6,650.

Cleveland’s “Jock Tax” Under Scrutiny

Several professional athletes have questioned the method that the city of Cleveland is using to tax their income earned when working for short periods of time in the city.  On Thursday, April 30th, the Ohio Supreme Court ruled that the method is unconstitutional because it violates athletes’ due process rights.

Hunter Hillenmeyer, formerly of the Chicago Bears, is due a partial refund because the city unfairly imposed a 2 percent tax on his income based on games played in the city as a percent of total games played.  Cleveland uses a games-played method which treats professional athletes salaries as earned only when playing games even through they are also being paid to attend training camps, practices and team meetings.  The method used by most cities takes into consideration the days spent in a city compared to the total days in the season.  For example, a visiting football player who spent 2 days in a city for a 160 day season would be taxed on 1.25% of his salary.  Per Cleveland’s method, 5% of the total salary would be taxed by the city because a player played 1 game out of a 20 game season in Cleveland (16 regular season and 4 preseason games).

Sport leagues including the NBA, NFL and NHL disagree with the law because they feel that athletes are being taxed unfairly.  Cleveland’s defense of their method was that they believe they are taxing athletes on what they are primarily paid to do, which is to play games, but their argument didn’t stop the method from being ruled as unconstitutional.    Cleveland spokesman Daniel Bell said that the city will look further into how the decision will affect the city’s economy.