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Matthew

CPA, CFE | Shareholder

Matt is one of several Clark Nuber professionals who are musically inclined. But he’s not just a musician, he’s a music fanatic. When he’s not making music, he’s making spreadsheets that rank his favorite albums and songs. Spreadsheets – it must be an accountant thing.

In December 2019, the unrelated business income tax on transportation benefits organizations provide to employees was retroactively repealed. Since then, not-for-profits have eagerly awaited IRS guidance on how to obtain refunds for amounts already paid toward this tax. This week, the IRS indicated organizations should file an amended Form 990-T for each year the tax applied. The IRS also provided instructions on how to complete those amended returns. If the not-for-profit has yet to file its most recent Form 990-T, it will need to file the return to request a refund of any previously applied tax or estimated tax payments.

The IRS published a list of steps organizations should follow when completing the amended returns, including:

  • Write “Amended Return – Section 512(a)(7) Repeal” across the top of page 1 of the return.
  • Remove the transportation benefit amount from the return (for 2017 returns, found on Part I, line 12; for 2018 returns, found on Part III, line 34)
  • Report the tax liability from the originally filed Form 990-T on the “other” sub-line in the payment section (for 2017 returns, Part IV, line 45g; for 2018 returns, Part V, line 50g)

You can find more information posted on the IRS website.

© 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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Articles and Publications

U.S. Department of Labor Issues New Overtime Rules

Initially enacted in 1938, the Fair Labor Standards Act (FLSA) requires employers to provide their employees with a minimum wage and overtime pay. Unless certain exemptions are met, employees are eligible for overtime pay for any hour worked over 40 in a workweek. The overtime pay rate must not be less than one and one-half times the employee’s regular working rate. Under the FLSA, an employee qualifies as exempt from the payment of overtime if they meet a “minimum salary threshold” test and perform certain specified executive, administrative, or professional duties. On September 24, 2019, the Department of Labor (DOL) announced its final rules updating the salary threshold for the “white collar” exemptions. The new rule increases the exempt minimum salary threshold to $684 per week ($35,568/year) and goes into effect on January 1, 2020. The previous threshold was $455 per week ($23,660/year). The DOL estimates the rule change will allow an additional 1.2 million workers to become eligible for overtime pay under the FLSA.

Does the FLSA Apply to Not-For-Profits?

There is no specific exemption for not-for-profit organizations (NFPs) under the FLSA; however, in limited cases, some organizations and workers may not be covered. The FLSA rules generally only apply to enterprises with sales or revenues greater than $500,000 or to individual workers who engage in interstate commerce. Enterprise coverage applies to revenues obtained from business-like activities such as tuition, medical fees, gift shop sales, and ticket sales. It does not apply to charitable activities such as collecting donations, membership dues, and the proceeds from special events. Individual coverage extends to workers who engage in interstate commerce, which could include traveling out of state, interstate email and phone calls, handling mail, supplies and inventory, and recordkeeping responsibilities. In today’s global economy, it may be difficult for any NFP to be exempt from the FLSA as it relates to interstate commerce. The DOL has issued Fact Sheet #14 and Fact Sheet #14a which further explain these requirements.

Rise and Fall of the 2016 FLSA Rule Changes

Do you feel like you have been down this road before? In 2016 under the Obama administration, the DOL doubled the minimum salary threshold to $47,476 per year. At the time, many organizations scrambled to review employee exempt vs. non-exempt classifications and implemented any required changes. In some cases, this resulted in reclassifying salaried employees to hourly employees. In November 2016, just a few days before the law was to take effect, a federal judge blocked the increases. Most organizations did not reclassify employees back to a salaried exempt position. While the new rules raise the salary thresholds again, they are significantly lower than the 2016 regulations, and therefore the change is not anticipated to receive the same legal challenges.

Key Takeaways from Final Overtime Rules

  • The minimum salary threshold will be $684 a week, $35,568 per year.
  • There is no automatic exemption for not-for-profits.
  • There are no changes to the “duties test,” which require an employee’s job duties to primarily involve executive, administrative, or professional responsibilities as defined by the regulations.
  • The new rules also raise the total annual compensation requirement for “highly compensated” employees from $100,000 to $107,432 per year. This is a special rule that exempts “highly compensated” employees who perform office or non-manual work from overtime pay under a less stringent job duties test.
  • Employers may use nondiscretionary bonuses and incentive payments (including commissions) paid at least annually to satisfy up to 10 percent of the standard salary .
  • Expect thresholds to be updated on a more regular basis going forward.
  • Effective January 1, 2020.
The crucial next step is for employers to analyze the status of employees who earn below the new minimum salary threshold previously classified as exempt. Employers will need to either raise salaries for ​exempt employees or reclassify these employees as non-exempt and eligible for overtime. If you have questions on how the FLSA may affect your company and employees, contact a Clark Nuber professional. © Clark Nuber PS, 2019. All Rights Reserved

Qualified Opportunity Zone Information and Year-End 2019 Reminders

Qualified Opportunity Zone (QOZ) investing has been a hot topic in the financial press this year. As 2019 draws to a close, we’ve rounded up the facts and the lessons learned from QOZs and explained them below. Important deadlines are fast approaching, so if you’re planning to invest, it’s best to act on it soon. Remember that December 31, 2019 is the final date you can invest in a QOZ and see the maximum potential tax benefit.

What is an Opportunity Zone (OZ)?

An OZ is a designated economically distressed area identified by the State where the area is located and that is approved by the Treasury. In the state of Washington, 15.8% of commercial assets are located in OZs, with 139 zones at last count.

What is a Qualified Opportunity Fund (QOF)?

A QOF is an investment vehicle, organized as a Corporation or Partnership, that invests at least 90% of its assets in Qualified Opportunity Zone Property. Qualified Opportunity Zone Property (QOZP) means property which is:
  • Qualified opportunity zone stock,
  • Qualified opportunity zone partnership interest, or
  • Qualified opportunity zone business property.

Who can invest in a QOF?

Any investor can invest in a QOF. However, it’s best for real estate professionals, entrepreneurs, and people who have a strong local knowledge of the specific investment zone. Many funds are available only to accredited investors (net worth in excess of $1.0m or annual income over $300,000 (MFJ). It is important to note that the tax benefits are only available to investors who have invested eligible capital gains. If your investment is part eligible capital gains and part non-eligible, your investments will be tracked separately. The increase in basis to fair market value after ten years will only apply to your eligible investment.

Tax Advantages

There are a number of tax advantages to investing in OZs, these include: Deferral of capital gains:
  • Taxpayers may defer tax on eligible capital gains by making an investment in a Qualified Opportunity Fund (QOF). The deferred capital gain is recognized on December 31, 2026, or earlier if the investment is sold.
Reduction of capital gains:
  • If a taxpayer holds its QOF investment for at least five years, the taxpayer may exclude 10% of the original deferred capital gain.
  • If a taxpayer holds its QOF investment for at least seven years, the taxpayer may exclude an additional 5% of the original deferred capital gain. To meet the seven year holding period requirement, the funds must be invested no later than 12/31/2019.
Elimination of all or a substantial amount of gain on appreciation of the QOF investment:
  • If the taxpayer holds the QOF investment for at least ten years, the taxpayer may elect to increase its basis in the QOF to the fair market value upon sale.

Deferral

Individuals, corporations, partnerships, and trusts can elect to defer eligible capital gains by investing such gains into a QOF. The gain must be from a sale or exchange with an unrelated person. The investment into the QOF generally must be made within a 180-day period beginning on the date of such sale. For gains flowing from a partnership or S-Corporation interest, the date of such sale can be the partnership or S-Corporation year end. There is a special rule for IRC Section 1231 gains (gains from sale of business property). The deferral of Section 1231 gain is only available to a taxpayer for investments made within the 180-day period following year end. Thus, if a taxpayer has Section 1231 gain from a sale that occurred on March 31, 2019, the date for the 180-day period to invest begins on December 31, 2019. Investments made within 180 days of March 31st, will not qualify for deferral of the March 31st gain. As noted above, the deferral of recognition of the gain is through December 31, 2026. However, if the investment is sold, the original deferred gain will be recognized at the date of sale of the QOF.

How do you Invest in QOZ and What are the Pros and Cons?

There are a couple ways you can begin investing in QOZs, each with their own pros and cons: Directly (set up your own fund):
  • Limited diversification,
  • Potentially risky,
  • Low or no fees,
  • Success depends on investor’s knowledge of the QOZ, and
  • Only an option for wealthy investors.
Fund:
  • Relatively easy,
  • Can be diversified,
  • Potential high fees, and
  • Fund manager expertise drives the potential success of the investment.

Is a QOZ Investment Safe?

Investors need to do their due diligence when investing in QOZs. Tax benefits should be considered as an added incentive to invest in an otherwise sound deal. If you have further questions about investing in Qualified Opportunity Zones, contact a Clark Nuber real estate professional. © Clark Nuber PS, 2019. All Rights Reserved

New Anti-Fraud Technology Study Released

As fraud schemes grow more sophisticated, the methods to combating them must evolve to meet the challenges. The Association of Certified Fraud Examiners recently released the results of a study they conducted on how organizations are using technology as part of their anti-fraud initiatives. The report is based on a survey which polled a wide variety of entity types and industries from across the globe.

How are Organizations Using Data Analysis to Combat Fraud?

Of the 2,255 respondents, 64% are using data analytics for exception reporting and anomaly detection, 54% have set up automated red flag warnings and business rule violation warnings, and 35% are using data visualization for fraud detection. To perform these tests, organizations are using a variety of tools including Excel, ACL, in-house software, Idea, or SAP for the exception reporting and Tableau or Power BI for data visualization.

Which Areas are Being Tested?

As you can see from Figure 1 below, purchasing and disbursements are the most common areas analyzed for potentially fraudulent activity. Figure 1 - Risk Area The data used to test for fraud can come from a variety of sources. Nearly 3/4ths of the respondents are using internal structured data (traditional databases) to conduct these analyses, whereas only 30% are using unstructured data such as emails or voicemails. Only 26% are using data from connected devices such as phones. Other sources used include public records (43%), law enforcement (32%), and social media (29%).

What Challenges are Organizations Facing Implementing the Data Analytics?

Organizations reported that the largest hurdle for implementing data analytics was budgetary constraints. This was followed by skill limitations, poor data quality, lack of perceived ROI, legal and regulatory concerns, and excessive false positives from tests performed. With budgetary constraints being the largest obstacle, respondents were asked how they anticipated funding to change in the next two years. About 3/4ths of respondents expected little to no increase, and only 17% expected significant increases.

In Conclusion

The primary goal of this study is to help you understand what anti-fraud technologies your peers are using and to assist you in adopting these technologies in the future. However, the ultimate goal is to help you bolster your fraud prevention techniques and outmaneuver the fraudsters. If you have any questions on how to get started in adopting anti-fraud technology for fraud prevention, contact a Clark Nuber professional. © Clark Nuber PS, 2019. All Rights Reserved

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