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Candi

CPA | Shareholder

This home-grown gal has spent her entire career at Clark Nuber and enjoyed every minute of it, working with “the most talented and knowledgeable not-for-profit accounting and tax experts in the Pacific Northwest.”

March 31 update: Gift tax deadline extended to July 15, 2020.

March 20 update: Tax deadline extended to July 15, 2020.

March 23 update: The Internal Revenue Service issued clarifying guidance regarding the previously announced changes to the upcoming tax deadline.

This article was originally published on March 17, 2020. It will continue to be updated with current tax deadline information as announcements are made.

In response to the current COVID-19 pandemic, the Internal Revenue Service announced a postponement of the upcoming tax deadline that may affect millions of individuals and businesses. In addition to deferring payment of any tax liability, tax forms will also now be automatically extended until July 15 without incurring interest and penalties. The Internal Revenue Service recently released clarifying guidance (Notices 2020-18 and 2020-20) regarding the announced changes to the upcoming tax deadline.

The automatic extension applies to any individual, trust, estate, partnership, or corporation, that previously had a tax return deadline of April 15, 2020. The extension also applies to all gift tax returns (Form 709), which were previously due April 15. No interest or penalties will be assessed on Federal income or gift tax payments related to the 2019 taxable year or for first quarter 2020 estimated income tax payments. No formal extension forms need to be filed by April 15 in order to receive this extension.

Extension Options

Whether an individual or a business files a return or utilizes the automatic extension option by July 15, payment of the outstanding tax liability is now not required until that date, and interest and penalties will not be assessed. Normally, full payment is due by April 15.

The intent behind the tax liability payment extension is to help stimulate the American economy, which has already been significantly affected by the COVID-19 pandemic. It will also relieve some pressure on the Treasury Department, which is understaffed as is and whose workforce may face further stress as the pandemic continues.

That being said, the earlier you file, the earlier you can expect a refund. According to Treasury Secretary Steven Mnuchin, taxpayer refunds will continue to be processed, and taxpayers are encouraged to still file their return by April 15. According to the IRS FAQ page, most refunds are issued in less than 21 calendar days. With this change to the tax deadline, it’s unknown how quickly refunds will be issued in the future.

Tax Filing Updates for States

If you work outside of Washington state or have investments in other states, you may also be wondering how state governments are handling the upcoming tax filing deadline. Many states have already issued guidance regarding their state deadlines, and others will likely release statements shortly. These changes are not the same across all states, and I would encourage you to contact your tax advisor regarding the most up-to-date guidance for a particular state.

In Conclusion

Whether you decide to file a return by April 15 or not, you have until the extended deadline, July 15, 2020, to file your tax forms and make your tax payment without any penalties. To the extent that you have already compiled the tax documents necessary for filing your return, I would encourage you to continue working on preparing your return – or working with your tax preparer, if you have one. You and your tax preparer will both be happier once it’s filed and crossed off the proverbial to-do list, especially if you will be receiving a refund this year.

The situation is evolving daily and there may be further guidance issued on a Federal or state level in the near future. If you have any questions regarding the recommendations, please contact the appropriate advisor. We are in uncharted waters now, so please contact us if you have questions.

Regardless of whether you choose to take advantage of the unique situation we’re in or not, stay healthy out there!

© Clark Nuber PS and Developing News, 2020. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Clark Nuber PS and Developing News with appropriate and specific direction to the original content.

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Frequently Asked Questions: COVID-19, Not-for-Profits and Canceled Events

Due to the unfolding COVID-19 pandemic, many not-for-profits have recently had to cancel major upcoming events, including musical and theatrical performances, symphony and performing arts shows, fundraising events, and conferences. These circumstances leave some not-for-profit organizations wondering how to account for the prepaid tickets to these events. First, organizations with deferred revenue related to now-canceled events must decide whether there is a legal obligation to return the funds to purchasers. Organizations should consult legal counsel for guidance. If an organization has the opportunity to keep the funds, they should understand the accounting and tax implications of doing so. The following Frequently Asked Questions help address these issues. Q1: If an organization has deferred revenue for a now-canceled event, and the event will not be rescheduled, when can the organization remove the ticket value from deferred revenue liability? The recognition of revenue under generally accepted accounting principals (U.S. GAAP) will depend on the facts and circumstances unique to the organization. Some organizations are requesting ticket holders donate the ticket value to the organization. For any tickets that are “donated back” to the organization, the organization should recognize contribution revenue and remove the deferred revenue liability when they receive notice from each ticket holder that the ticket holder is donating the ticket value. In other cases, the organization may issue a credit or gift certificate to the ticket holder for purchasing a ticket to a different show at a later date. In this situation, the organization would follow its normal procedures for accounting for credits and gifts certificates. Typically, this means the ticket value would stay in deferred revenue liability until it is redeemed by the ticket holder for a purchase at a later date. Finally, some organizations have a “no refunds” policy for canceled shows and are relying on that policy to forego issuing a refund or credit to the ticket holders. In this situation, the organization would recognize revenue and remove the deferred revenue liability following its normal procedures for when to recognize ticket revenue from a canceled show. In determining the appropriate timing of when to recognize the ticket revenue, the organization should consider the details of its “no refunds” policy, such as if there is a short window of time where the organization allows refund requests for canceled shows (for example, 60 days after the date of the canceled show). Q2: When an organization does recognize the revenue, should the revenue be classified as contribution revenue or ticket revenue? The categorization of the revenue as either a contribution or ticket (earned) revenue depends on the facts and circumstances that triggered the revenue recognition. Below are some guidelines to consider in classifying the revenue:
  • Contribution: If revenue is recognized because of communication with the ticket holder that they are donating the ticket to the organization, then the revenue recognized should be classified as a contribution. The communication may be directly from the ticket holder making an affirmative decision to donate the ticket. Alternatively, the communication could be from the organization to the ticket holder stating that the organization will consider the ticket donated back to the organization if the ticket holder doesn’t request a refund by a certain date.
  • Ticket revenue: If there is no communication with the ticket holder about donating the ticket back to the organization, then the revenue recognized should be classified as ticket (earned) revenue.
Q3: To the extent the organization converts deferred revenue to contribution revenue, does the organization need to issue a donor receipt letter? An organization electing to keep prepaid funds essentially converts what was a fee-for-service arrangement into a charitable contribution. The purchase price of the ticket is deemed returned to the purchaser, followed by a charitable contribution of the same amount back to the organization. While no cash exchanges hands, the organization must now recognize a charitable contribution. The organization should consider the following:
  • Donor records are updated to reflect the donation. If the ticket purchaser is also a regular donor to the organization, this contribution should be added to the donor’s records.
  • Issue a donor receipt letter if the ticket price is more than $250.
  • Include the contribution in any year-end donor summary provided to donors.
Note that since the ticket is deemed refunded, the ensuing charitable contribution is in the form of cash. This is not a noncash contribution of a ticket, as the ticket is worthless once the associated event is canceled. Q4: If an organization has a deferred revenue liability for prepaid tickets from a canceled event, but the organization intends to reschedule the event for later this year, what accounting issues should the organization consider? The organization should follow its normal procedures for accounting for the ticket revenue for events that are rescheduled for a later date. Typically, this means leaving the deferred revenue liability on the balance sheet until the rescheduled event occurs. Any refunds paid to ticket holders that do not want to attend the event on the rescheduled date would reduce the deferred revenue liability. If you have any other questions regarding how to handle a cancelled event at your not-for-profit, contact a Clark Nuber professional.
© Clark Nuber PS, 2020. All Rights Reserved

Families First Coronavirus Response Act Tax Credits – What You Should Know

This article was updated on March 31, 2020 with new information on the CARES Act.  On Wednesday March 18, 2020, President Trump signed the Families First Coronavirus Response Act. Although media coverage of the Act understandably focuses on the paid sick leave and expanded family and medical leave aspects of the legislation, the Act also contains tax credits to help employers offset the cost of the newly mandated paid leave coverage for their employees.

Sick Leave and Family Leave

The Act requires employers with fewer than 500 employees to pay for up to 10 workdays (80 hours for full-time employees) of qualified family leave or sick leave at the employees’ full salary. However, there is a cap of $511 per day and $5,110 total for personal sick leave and $200 per day and $2,000 total to care for another person. Employers with fewer than 50 employees can seek exemption from this coverage. In addition, the Act provides for mandated extended paid family medical leave coverage. The required leave payments kick in after an optional 10-day unpaid leave period, during which the employee can elect to use accrued vacation or sick days. The extended paid leave is capped at the lower of two-thirds of the employee’s regular pay rate or $200 per day and $10,000 in the aggregate per employee.

Tax Credits

To help employers pay for the mandated leave, the Act provides for an employer payroll tax credit of 100% of the qualified paid leave against the employer’s Social Security or Railroad Retirement payroll tax and also against withheld employee payroll taxes, including withheld Federal income tax. This credit applies to eligible wages paid starting 15 days after enactment of the Act (April 2, 2020) and through December 31, 2020. The credit is capped at the daily mandatory payment caps discussed above: $511/$200 per day; $5,110 or $2,000/$10,000 aggregate. Credits are also capped at the amount of the employer’s payroll tax liabilities (see below) but reduced for any credits claimed for employment of qualified veterans or qualified small business research expenditures. Excess credit, if any, is then treated as a refundable credit against income or payroll taxes. Please see below for how to claim the credit. Claiming the credit is optional. To prevent “double dipping” by impacted employers, the Act requires that the employer’s income be increased by the amount of the credit claimed to offset what would otherwise be a tax deduction for payroll taxes later credited back to the employer. For self-employed persons, the Act provides for a refundable credit against self-employment taxes for “qualified sick leave equivalent amounts.” The credit is limited to the lesser of $200 per day ($511 for sick leave) if the self-employed person is unable to work or 67% of their average self-employment income (net earnings from self-employment divided by 260). To prevent a double benefit for self-employed persons, their “sick leave equivalent” amounts are reduced to the extent they also receive payments from an employer under either the sick leave or paid family leave requirements of the Act but limited to either $2,000 for family leave or $5,110 for sick leave. The credit allowed is increased by the employer’s qualified health plan expenses that are “allocable” to the qualified sick leave wages for which the credit is allowed. Allocation of the expenses that is pro rata among covered employees or pro rata based on periods of coverage are considered “properly made.”

Employers Will Retain Employer Payroll Tax and Employee Withholdings to Fund Leave Payments

Although the Act provides for tax credits for employers paying the new leave benefits, employers will be required to pay the benefits up front, except employers that qualify for exemption, with credit for the payments against future payroll tax obligations. The IRS released guidance on Friday March 20, 2020 that states the employer will be able to retain withheld employee Federal income tax, Social Security tax, and Medicare tax to cover the cost of qualifying leave payments. In addition, the employer will retain its portions of Social Security and Medicare taxes. If the payroll taxes are not sufficient to cover the cost of the qualified leave payments the employer will be able to file a request for an accelerated payment from the IRS. The IRS is promising to process the requests promptly.

CARES Act

President Trump signed the CARES Act into law on Friday March 27, 2020. Included in the $2.2 trillion financial stabilization bill are the following:
  • Employee retention credits,
  • Tax rebates for certain individuals,
  • Penalty free access to retirement account dollars,
  • Restoration of net operating loss carryback claims,
  • Delay of payroll tax payments until December 31, 2021 and 2022,
  • Small Business Administration “Paycheck Protection Program” Loans.
The CARES Act is the third economic recovery bill passed by Congress so far to deal with the fallout of coronavirus, social distancing, and business disruption. Congress is now working on a fourth bill that will address economic stimulus versus economic stabilization as in the CARES Act. In other words, Congress is just getting started on providing relief for businesses and individuals impacted by the coronavirus. More help is on the way. If you have any questions about the mandated leave costs and related tax credits, please contact your Clark Nuber representative. © Clark Nuber PS, 2020. All Rights Reserved

Maintaining Strong Internal Controls During the Coronavirus Pandemic

As the COVID-19 pandemic grows, we’ve begun receiving questions from our clients on how to best handle the many disruptions. To help broadly respond to the situation, we’ve decided to publish our responses and recommendations here. So far, the impacts we’re seeing in and out of Washington state include cancellation of events, declining investment portfolios, and employees having to work from home, either for safety reasons or to care for children not in school. While working from home is recommended by authorities for containing the outbreak, employees remoting in creates challenges when following internal control policies and ensuring proper segregation of duties. Given all of this, some best practice recommendations to consider include:

Accounting Policies and Procedures

  • As a Certified Fraud Examiner (CFE), I highly recommend calling an email requester before wiring funds, sending a check, sending sensitive information, changing direct deposit accounts, or updating system settings. Unfortunately, fraudsters will see the coronavirus as an opportunity to push out phishing and spear phishing attacks on organizations.
  • Consider how all your approval processes will change for areas in which you aren’t currently using an online approval process.
  • Diligently check online banking at least weekly, if not daily, since segregation of duties is harder to accomplish.
  • Make sure you understand your business disruption insurance to see if it might provide coverage during this time for lost revenue or canceled events. Call your insurance advisor if you are unsure of your coverage.
  • Consider checking with your investment advisor regarding your investment portfolio and any recommendations they might have given the recent significant declines.
  • For those with loans, you may need to start talking with your lender about waiving possible loan covenant violations. Some organizations have canceled events or experienced major declines that could cause them to fail a financial ratio covenant. Other businesses may be required to submit audited financials by a certain date, something that may be difficult to achieve if your staff or the audit firm’s staff are experiencing setbacks from the pandemic.
  • For those with grants or contracts that have periods of availability specified in them, you may want to reach out to the funders and negotiate a longer period of availability if your capacity to execute on the agreement is limited during this time.
  • Payroll is typically an organization’s largest expense. Whether you do it yourself or outsource the responsibility, develop a plan for processing and approvals in a remote environment.
  • For those hosting paid events such as performances or conferences, consider whether you will refund those prepaid amounts, offer credit, or plan to reschedule the event. If you’re a not-for-profit, you might also approach the payor and ask if they’d be willing to consider the payment a contribution, in lieu of a refund.

IT Policies and Procedures

With regard to your IT systems, while employees are working remotely you should consider:
  • Multi-factor authentication for all external access (especially email) no matter the situation. It may be easier for organizations to implement this now since they can use the change in work environments as a trigger.
  • If you are in the healthcare sector, remember that HIPAA requirements still apply, so you need to ensure the security of that information on employee home computers as well.
  • Data and remote access policies are another item of concern as more people work from home, especially if they are using a personal computer to access company resources. It’s important to address these questions:
    • If employees don't have laptops, do you allow employees to work from their own computer?
    • What is the policy for accessing company data/resources (e.g. cloud services) from a personal computer?
    • Are there policies around (not) storing company data on personal computers?

Federal Taxes

One final consideration is federal tax requirements.
  • Tax forms are required to be signed by specific individuals in your organization. Take that into consideration early and have a plan to get needed approvals.
  • Currently, the federal government is considering legislation to:
    • Extend due dates for tax returns for individuals. The concern is that, with IRS and paid preparer staffing limitations, individuals may be challenged in meeting the filing deadline. That leaves us wondering about not-for-profits on final extension with a May 15th deadline. Will they also be extended? And what about estimated tax payments on unrelated business income? (Federal tax deadlines have been addressed since this was first published, find more information here.)
    • Reduce payroll taxes (Social Security and Medicare)
    • Provide industry loans to sectors hit hardest by the outbreak. Not-for-profit groups are lobbying hard to get themselves included in this legislation.
Things are moving quickly in D.C., we will keep you posted on updates to the developing situation.

Conclusion

If you have any questions regarding the recommendations, please contact the appropriate advisor. We are in uncharted waters now, so please call us if you have questions.
© Clark Nuber PS, 2020. All Rights Reserved

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