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Shelly

CPA | Principal

There’s nothing Shelly enjoys more than planning surprise trips, watching basketball games, and laughing with her daughter.

As an auditor, I’ve seen my fair share of fraud attempts. But personally, I had not experienced such an attempt against an organization I was volunteering with – until now. I have the dubious distinction of being among the hundreds of thousands who have received a social engineering phishing email (i.e., solicitation of information by posing as a trustworthy person).

Here’s the scenario: I’m the board treasurer for the local chapter of an association. The fraudsters likely found the board listing online and set up an AOL account (board.pres@aol.com) under the board president’s name. They then used that email address to send me the following email:

Subject: General Expenditures

Victoria,
Am currently out of town. What is our current balance? We have some disbursement to complete immediately.

The fraudsters then signed the message with the president’s full name.

There were several immediate red flags here. They wouldn’t know from the board listing, but our board president doesn’t sign emails with a full name. There was also uncharacteristic poor grammar (“some disbursement”). Additionally, we have a management company that handles our finances, so most inquiries would go there and not directly to me.

Here’s the simple internal control I used (and which is a great first line of defense): I contacted the real board president to confirm the authenticity of the email. (I sent an email to a known, verified email address; I did not respond to the AOL one.)  I immediately received confirmation that the disbursement message was fake. I could have also verified with a personal phone call. The key is to get independent, verified confirmation from the purported source.

It’s a good guess the fraudsters use this “board.pres” email address for many other boards and just change the name on the account when sending out their phishing emails.

Fraudsters cast a wide net – it takes only one fish to make it worth their time. The United States Computer Emergency Readiness Team has a webpage dedicated to social engineering/phishing. It has many helpful tips and is worth bookmarking for the future.

© Clark Nuber PS and Focus on Fraud, 2018. 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.

Keep Reading

Articles and Publications

New Entertainment & Club Dues Rules Under Tax Reform

Prior to TCJA, meals and entertainment were 50% deductible if not lavish or extravagant and there was a business purpose. Among the 50% deductible items category were event tickets, golf outings, per diem meals, client lunches, and more.

Rules for Entertainment

Starting in 2018, entertainment expenses are no longer deductible:
  • The 50% deduction to bring clients to the Huskies, Mariners, or other sporting events is now lost.
  • The 80% charitable deduction related to seat-related gifts to college sporting events is also disallowed. Skybox fees remain non-deductible.
  • The IRS recently clarified that separately stated meals at entertainment facilities will still be 50% deductible with a business purpose.
Meals and entertainment expenses for employee parties, employee snacks, and golf outing sponsored advertisements remain 100% deductible. However, meals provided for the convenience of the employer are reduced from 100% deductible to 50% deductible.  Other meals including client meals, employee meals, travel meals and per diem meals remain 50% deductible unless separately billed to a client.

Rules for Club Dues

Club dues can be another topic of confusion as to what is and what is not deductible.  Under the new rules, any membership dues paid to a club for business, leisure, recreation, country club or other social purposes are 100% non-deductible, unless they are included as compensation on an employee’s Form W-2. While club dues are specifically disallowed, the meals at these locations remain 50% deductible, as long as there is a business purpose. There is an exception that allows a 50% deduction for dues paid to professional, civic and public service type organizations, as well as business leagues, chambers of commerce and boards of trade. With these new tax law changes, you might want to rethink your entertainment and club dues expenses and how they are accounted.  Please consult your Clark Nuber professional or Rene Schaefer for additional guidance and questions. Co-author Joseph McGahan is a senior associate in Clark Nuber’s Tax Services Group. © Clark Nuber PS, 2019. All Rights Reserved

What Employers Need to Know About Transportation Benefits Heading Into 2019

Changes impact taxable and tax-exempt employers. Many of the questions were related to the costs of providing qualified transportation benefits. Of particular note:
  • For-profit taxpayers lost the deduction for providing these benefits.
  • The corresponding law for tax-exempt organizations created unrelated taxable income equal to the cost of providing excluded benefits.
The TCJA was passed mid-December 2017 and went into effect January 1, 2018, which gave little warning to businesses or tax-exempt organizations to allow for planning.  The amount of qualified transportation benefits excluded from employee benefits is indexed annually. The excluded amount is based upon the fair value of benefits provided.  The employer excluded deduction and unrelated business income addition are both based on the cost of providing the excluded employee benefits. Some of the questions answered by Notice 2018-99 and the earlier Publication 15B, include:
  • If the employer provides qualified transportation benefits to employees through a qualified salary reduction plan, is the salary deductible to the employer? Do benefits create UBI to the tax-exempt employer?
  • What is the indexed amount employees may exclude from taxable income in 2019?
  • What is the consequence of an employer providing qualified transportation benefits to employees where the cost exceeds the annual indexed amount allowed to be excluded from employee compensation?
  • How should employers determine the cost of providing parking in lots owned by the employer when parking is free to customers, the public and employees?
  • How should the employer determine the cost of providing parking in lots included in the lease of a building and which includes parking for customers, and employees?
  • Given the uncertainty in implementing the new law, will the IRS provide relief of penalties for making estimated tax deposits?
Publication 15B, issued earlier in 2018, clarified it makes no difference if an employer provides qualified transportation benefits directly or by allowing employees to use a qualified salary reduction plan to pay for benefits. The benefit would be non-deductible to a taxpaying employer.  Because these costs would be non-deductible to a taxable employer, the same costs create unrelated business income to a tax-exempt employer. The question of determining the costs paid or incurred in providing qualifying transportation benefits is complicated and nuanced.  IRS Notice 2018-99, although helpful, also specifically states Treasury will provide additional clarifying Regulations superseding the Notice. Until Treasury issues such guidance, taxpayers may rely on this Notice.
  • The 2018 indexed value of transportation benefits which may be excluded from employee income is $260. The amount increases to $265 in 2019.  Notice 2018-99 confirms the qualified transportation benefits exceeding the indexed monthly amounts must be included in taxable income of the employee. The taxable amounts are deductible expenses for taxable employers and do not create unrelated business income for tax-exempt employers.
  • The Notice provides examples of costs of providing parking benefits that create unrelated business income for tax-exempt employers owning or leasing all or a portion of a parking facility utilized by employees. Depreciation is specifically an excluded expense for this purpose.
  • Notice 2018-99 also allows employers to use any reasonable method to allocate the costs associated with owning or leasing a parking lot used all or in part by employees. The Notice specifically states using the value of parking provided is not a reasonable method for determining cost. The cost is the amount paid or incurred by the employer and a separate calculation of the for determining tax on the employer, regardless of the value of benefits provided to employees.
  • Some relief is provided to employers with public lots in which certain spaces are reserved for employees. They may remove the employee designation by March 31, 2019 and have the removal effective retroactively to December 31, 2017, the day before implementing the new law.
  • A four-step process is laid out in the Notice for determining the shared lot spaces used by employers and the associated costs which should be allocated to qualified employee transportation benefits.
Two final notes to remember are:
  1. To the extent a tax-exempt employer has unrelated business income, the exempt employer must allocate a certain amount of its parking benefits which will be non-deductible in computing unrelated business taxable income. The expenses will be non-deductible, but they will not generate additional unrelated business income.
  2. Tax-exempt employers are allowed the $1,000 specific deduction against unrelated business income generated by qualified transportation benefits. Therefore, if the total taxable amount is less than $1,000, no Form 990-T must be filed.
The IRS also issued an additional penalty relief notice for exempt employers.  Notice 2018-100 applies to exempt organizations required to file Form 990-T for the first time because of the new tax on transportation benefits.  If this is an initial Form 990-T, the Form is timely filed, and tax due is paid with the return, there will be no penalties assessed for failure to make estimated tax payments during 2018. If you have questions regarding the taxability of qualified transportation benefits or need assistance with calculating unrelated business income from qualified transportation benefits, please contact your tax team at Clark Nuber. © Clark Nuber PS, 2018. All Rights Reserved

When is a Grant Subject to B&O Tax in Washington? New FASB Guidance May be Helpful in Determining

Grants and the B&O Tax

As noted in a previous article, there is no general nonprofit exemption from the State’s B&O tax. The B&O tax is a broad tax imposed for the privilege of engaging in business activities. For this purpose, “business activities” are broadly defined to include almost any activity, whether or not it is conducted for profit. That is not to say there are no exemptions or deductions that apply to nonprofit organizations, but oftentimes, strict requirements must be met to qualify. Grants are no exception. It may come as a surprise to many that there is no general B&O tax exemption for grants. A deduction is allowed, however, for donations or contributions received. Therefore, to be deductible, a grant must be considered a donation or contribution. According to the Department of Revenue, an amount will qualify as a donation or contribution if it is received with no strings attached. This means that the payment must not be received in exchange for any significant goods, services, or benefits. But what does this mean in the context of a grant? The Department recognizes that it is common for a person who is making a contribution to impose restrictions on how funds are used – usually requiring some form of accountability as a condition of their contribution. Guidance from the Department explains that, if the contribution conditions don’t result in a direct benefit to the donor, the contribution will be deductible. Public acknowledgement of a contribution is not considered to confer a significant direct benefit on the donor. Normally, some public benefit or social good resulting from the contribution is not sufficient to render it taxable. However, care should be taken when the grant agreement requires the grantee to discharge a specific statutory duty of a government agency. The Department of Revenue has determined that, in some cases, an agreement to fulfill a duty of a government agency is a taxable contract for services.

New FASB Guidance

The new FASB guidance clarifies how an organization determines whether a provider of funding and the organization are engaged in an exchange transaction. Funding providers can include government agencies, foundations, individuals, and others. The principal focus is on whether the funding provider is receiving direct commensurate value in return from the organization based on the following:
  • The funding provider, even if it’s a governmental agency, is not synonymous with the general public. A benefit received by the public because of the arrangement is not the same as value received by the funding provider.
  • Execution of a funding provider’s mission, or the positive sentiment from acting as a donor, does not constitute commensurate value for purposes of determining whether the transaction is a contribution or exchange.
Consistent with current GAAP, in a transaction where the funding provider is not itself receiving commensurate value, the organization must determine whether the transfer is a payment by a third-party payer on behalf of an existing exchange transaction between the organization and an identified customer. In this case, other guidance may apply. This idea of commensurate value in exchange for funding found in the new guidance sounds very similar to the B&O tax idea of significant goods or services. While there may be meaningful differences between the two concepts, thinking about them in a similar fashion may be helpful in determining when funding might be subject to B&O tax. For B&O tax purposes, the bottom line is that a grant that is also a donation or contribution will be deductible. It is not always clear, however, whether a significant good, service, or benefit is involved. In making this determination, considering the GAAP treatment as a contribution or exchange transaction may be helpful. Given the complexity of making this determination, nonprofit grant recipients are encouraged to contact a tax advisor for assistance in evaluating grants when there is a question about the tax implications. © Clark Nuber PS, 2018. All Rights Reserved

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