Disclosures: March/April 2020

THE OFFICIAL MAGAZINE OF THE VIRGINIA SOCIETY OF CPAs

MARCH/APRIL 2020

VSCPA.COM/DISCLOSURES

CAREER crossroads: Understanding nonprofits before you switch jobs.

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Changes to nonprofit tax regs Tactical responses to ACA

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CONTENTS

Features 16 22 26

Career crossroads Understanding nonprofits before you switch jobs.

Taxing nonprofits Tactical responses to the ACA

Columns 14

FIND US...

WEBSITE vscpa.com

Young Professionals 4 ways to unplug

CONNECT connect.vscpa.com TWITTER @VSCPANews

Departments 4

From the CEO

6

Letter to the Editor

8

Line Items

10

Tech Talk

12

Advocacy

30

VSCPA News

33

Classifieds

34

Spotlight

LINKEDIN tinyurl.com/ LinkedInVSCPA FACEBOOK facebook.com/VSCPA INSTAGRAM instagram.com/VSCPA PODCAST vscpa.com/ LeadingForward

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FROM THE CEO

4309 Cox Road Glen Allen, VA 23060 (800) 733-8272 vscpa.com

disclosures vscpa.com/disclosures disclosures@vscpa.com MARCH/APRIL 2020 Volume 33, No. 2 Managing Editor Jill Edmonds disclosures@vscpa.com Editorial Task Force Olaf Barthelmai, CPA Abby Brooks, CPA Cheri David, CPA Melisa Galasso, CPA Genevieve Hancock, CPA Karen Helderman, CPA Harold Martin Jr., CPA David Peters, CPA Mark Plostock, CPA Zach Shoaf, CPA Barbara Sukramani, CPA Disclosures is published six times a year by the Virginia Society of Certified Public Accountants (VSCPA). The magazine’s mission is to communicate information of value to VSCPA members, including professional issues and VSCPA initiatives.

The materials and information in Disclosures are offered as material only and not as practice, financial, accounting, legal or other professional advice.

Statements of fact and opinion are made by the authors alone and do not imply an opinion on the part of VSCPA officers, members or editorial staff. Publication of an advertisement in Disclosures does not constitute a VSCPA endorsement of the product or service. Copyright © 2020 Virginia Society of CPAs.

VSCPA Preferred Providers

Eliminating tax season headaches Every winter,

leaders and staff at the VSCPA get together and discuss our top legislative items going into the upcoming Virginia General Assembly. What issues will most affect our members? What about Virginia businesses and taxpayers? We decide which issues we’ll advocate for and which we will monitor.

If you guessed that tax conformity is always at the top, you would be right.

The Commonwealth has conformed to federal income tax law since 1972. For the next 30 years, CPAs didn’t have to give conformity another thought; the state conformed to the federal tax code automatically. But in 2003, that all changed. Lawmakers decided to move to a fixed-date conformity model so it could decouple from federal tax provisions that had a negative effect on Virginia’s revenue.

And so began our yearly advocacy effort to push emergency legislation through the General Assembly to make sure CPAs and taxpayers could complete income tax returns as quickly and easily as possible.

Sometimes, the legislature really understood the urgency and passed conformity quickly. Other times, like in 2010 (when standalone conformity was not even passed), lawmakers dragged their feet — and taxpayers and tax preparers bore the cost.

Last year, we had a strong advocacy effort for legislators to tackle conformity separately from a larger conversation about tax policy changes in relation to the Tax Cuts and Job Act (TCJA). Ultimately, Gov. Northam signed legislation separately from any other tax bill. But that got us thinking — maybe it’s time for a return to the rolling conformity model. Members have desired a return to rolling conformity for years.

Late last year, we released “Rolling Tax Conformity — A Better Option for

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Virginia,” a VSCPA white paper detailing why rolling conformity would give Virginia taxpayers a better ability to plan for and prepare their taxes, as well as allow for more timely updates to tax prep software.

Through a robust advocacy campaign, we educated legislators and staff on the positive impact of rolling conformity. In addition, we had an advocate in Virginia Sec. of Finance Aubrey Layne, CPA, a VSCPA member.

This session our rolling tax conformity bill (HB 734) overwhelmingly passed the House and went to the Senate for consideration. Instead of passing, the Senate decided to send it for further study. But don’t worry. We think rolling conformity is important enough to try again next year, and with your help contacting your legislators, we are hopeful!

Stay tuned to VSCPA communications for info on more bills coming out of the General Assembly and all our efforts to protect you and the designation you worked so hard to achieve. n Stephanie Peters, CAE, has served as VSCPA’s president and CEO since 2007. speters@vscpa.com @StephPeters

LETTER TO THE EDITOR

America’s worth? Facts are hard to ignore.

Dominic Savini’s

article, “America’s Worth, Another Opinion” (January/February 2020 issue of Disclosures) was a response to my article “What’s America Really Worth” (September/ October 2019 issue). While I appreciate different viewpoints, I couldn’t disagree more with many of the article’s conclusions.

The author states that “the U.S. controls its money supply … and its ability to tax”… and that since it “can print and tax money at will … these powers give the government a call on the underlying wealth of the U.S. and its citizens and could arguably be reflected as assets equal to our liabilities and/or obligations on our federal balance sheet.”

First, the U.S. does NOT control its money supply, the U.S. Federal Reserve does. U.S. financials clearly state that the Fed is independent, and therefore, not included in the statements.

However, the money supply is exploding, again. The Fed printed trillions of dollars to help dig us out of the last financial crisis, increasing the size of its balance sheet from less than $1 trillion to roughly $4.5 trillion. It had reduced the size of its balance sheet to less than $4 trillion. However, since my article was published a few months ago, the Fed has printed over $400 billion in new money (by “purchasing” short-term treasuries), and indicates that it will continue printing $50+ billion a month until at least the second quarter. Now, the Fed claims the balance sheet re-expansion is not the same as quantitative easing, but the net result is the same and their balance sheet is exploding, AGAIN. Second, the government may theoretically tax money at will, but it has a proven track record of doing the exact opposite. Tax cuts in 2001 and 2017 were supposed to pay for themselves, but in fact they reduced revenues at the same time the government increased spending. In 2018, the Tax Cuts and Jobs Act doubled the estate tax exemption to $11.2 million ($22.4 million for a married couple), which eliminated the estate tax for nearly all taxpayers. In fact, only 1,800 estates paid tax in 2018, meaning that 99.94 percent of estates paid no taxes. This further refutes any attempt to equate the net worth of Americans with the ability of the government to pay its bills.

Third, he also claims that the “roughly two-thirds of all federal budget outlays” spent on Social Security and Medicare “are also expenditures that circulate and stimulate the economy, therefore, on balance and from an economic point of view, such expenditures can be viewed as an ‘asset’ to the nation.”

To prove or disprove a theory, let’s test how the theory works in extremes. So, if Social Security and Medicare expenditures can

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be viewed as an asset to the nation, why not double or triple those payments? It’s safe to say that contrary to creating more assets, this would result in deficits far greater than exist today and likely collapse the value of the U.S. dollar.

Furthermore, the author states that “some of these benefits include better health and longevity for seniors.” We all hope to live longer, but the government’s on the hook for paying benefits as long as we live, so longevity actually increases the cost to the government.

The author misinterprets my use of comparing the government’s negative net worth to the positive net worth of all Americans on an accrual basis. These comparisons were made to show the gravity of our predicament. To reduce its deficit, the government needs to increase its revenues and/or reduce expenses. To wipe out the government’s accrued liabilities through taxes, you’d have to tax over 90 percent of the total value of all assets in America. As everyone knows, you can’t get blood out of rock, and you can’t impose a 90 percent tax on all assets in America. While cutting spending on Social Security and Medicare would save money for the government, no politician talks seriously about this because it would likely cause a revolt to an extent unseen since the Boston Tea Party. Therefore, the government cannot simply tax (enough) at will to come close to solving our fiscal problems.

No financial advisor would tell a client that runs large annual deficits to finance itself with very short-term debt, but that is what our government does. Interest rate risk is real, and any increase will impact the financials quickly.

The seminal book on this is “This Time Is Different — Eight Centuries of Financial Folly” by Carmen Reinhart and Kenneth Rogoff. As in the book, we are now being told that deficits don’t matter, and that stocks will continue to rise to unprecedented PE ratios, not because earnings are going up, but because interest rates are so low. In essence, TINA (There Is No Alternative) is in effect. So now that we are 11 years into a financial recovery, AND running record budget deficits (instead of the surpluses you’d expect), and no one is even trying to do anything about it, we’re truly faced with the “This Time Is Different” syndrome. As Reinhart and Rogoff make so clear with hundreds of examples of countries who thought the same thing, history shows that “it almost never is.” n

Tom Visotsky, CPA, is a VSCPA past president and recently retired. visotsky@comcast.net.

Experiencing

March Madness?

Make This Your FINAL SEASON! Delivering Results - One Practice At a time Wade Holmes 888-847-1040 x2 Wade@APS.net

www.APS.net

LINE ITEMS

The key to thriving in uncertainty So much of the current business climate is uncertain.

Technological advances, changes in staffing needs, impending regulatory alterations, volatile political climates … It’s enough to keep even the most levelheaded CPA up at night. So how can your organization thrive during uncertain times? It’s not about what you do, according to business growth expert Meridith Elliott Powell. It’s how you do it.

“What has made you successful to this point will not make you successful moving forward,” Powell said at the VSCPA KnowledgeNOW conference last fall in Fairfax.

This means constantly looking at rules and procedures and making changes.

Powell recommends a quarterly review of your marketplace to assess competition and identify incoming trends and threats. Discuss that change with your team.

“Your greatest competitive advantage is those who work with you and for you,” she said. Use those meetings to figure out your value and brand promise and then create your buzz.

“Value is about creating an experience that exceeds expectations.” Powell challenges CPAs to realize it’s not about the products and services you sell: It’s your brand promise you’re selling.

This year’s KnowledgeNOW on Oct. 26–27, 2020, at the Hyatt Regency Fairfax, will be packed with innovative speakers and content. Don’t miss it — last year’s sold out! Reserve your spot today at vscpa.com/KnowledgeNOW.

TICKER 3 The number of Virginia universities that ranked in the top 10 for best online programs by U.S. News and World Report: U.Va., Virginia Tech and VCU.

15 Virginia’s health ranking among all states in 2019, a five-spot improvement over 2018.

6 Virginia’s ranking among states for highest out-of-pocket costs for employer-provided health insurance.

191 The average number of different username and password combinations managed by the average consumer.

$885,400 The amount currently needed to retire in Virginia. (Hawaii is the most expensive; Mississippi, the cheapest).

17.6 PERCENT

Are you

with us?

Breaking tax-related news from the Virginia General Assembly, professional articles and features, member pics and more … They’re all available on the VSCPA’s official LinkedIn page. Next time you’re in your LinkedIn account, make sure you’re following our page! Feel free to comment on posts and engage with us anytime.

Linkedin.com/company/vscpa 8

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The amount of board seats held by women in the United States, a 5.4 percent increase from 2014, according to Deloitte.

4.4 PERCENT The percentage of U.S. board chairs who are female.

LINE ITEMS

GREAT IDEAS FROM YOUR PEERS...

Your team needs recess!

Growth times five What's growing, growing, growing?

If you guessed Virginia’s economy, you’d be right. According to the 2019 State of the Commonwealth report released in December from Old Dominion University’s Strome College of Business, Virginia has seen economic growth for five straight years. The main driver: Federal government spending.

After lingering behind the Gross Domestic Product of the United States for years, Virginia finally finished ahead of the country last year. Private industries are increasingly contributing to the state’s growth, the report says, demonstrating that its economy is diversifying. The VSCPA’s 2020 Virginia Economic Expectations Survey found that Virginia CPAs are optimistic on economic prospects for the Commonwealth and the nation in 2020.

“It is hard not to notice how much everyone is digitally connected. We felt

But there are concerns. The unemployment rate in the state remains low, especially in major metropolitan areas. While that’s positive, low unemployment could stifle sustained growth because companies can't find labor. Additionally, uncertainty could hamper the state’s continued growth, with contentious issues on the table like impeachment, international trade and immigration.

that face time among coworkers was

The full report is available for download at odu.edu. Check it out for an in-depth look at Virginia’s economy, including challenges facing the state’s retirement system and what the fiscal impact could be if Virginia decriminalized marijuana.

their coworkers. As a result, we found

Comments wanted on CPA Exam The CPA Evolution initiative is exploring changes to the licensure structure in the future, which includes the CPA Exam and experience and education requirements.

Now you can read the Exposure Draft that outlines the planned updates, including content to be added, changed or deleted, and offer your comments by April 30, 2020. The updated Exam is scheduled to launch in July 2021. You can find everything you need about the practice analysis and how to comment at aicpa. org/becomeacpa/cpaexam/cpa-exam-practice-analysis-2019.html. There’s even a recorded January webcast you can watch for more information.

decreasing, especially during tax season when there are numerous reasons to stay at your desk and work hard.

We implemented ‘recess,’ in which everyone takes a break to connect with that this built a sense of community as people got together to take a walk, play office basketball or just catch up.

This time away from computers and cell phones is a great mental reset during a stressful time.”

Doug Urquhart, CPA, member since 1993 Managing Partner Meadows Urquhart Acree & Cook, LLP

What’s your great idea? Send it in and you could be featured here! Email disclosures@vscpa.com.

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TECH TALK

A 3-year tech outlook

WATCHING AI REGULATIONS

What do CPAs and finance professionals see as the biggest

tech trends over the next three years affecting the profession?

The Maryland Association of CPAs, along with the Business Learning Institute and futurist Daniel Burrus, asked 3,000 pros what they foresee. Here are their top 10 based on Burrus’ “Top 20 Technology-Driven Hard Trends Shaping 2018 and Beyond”: 1. Big Data analytics 2. Artificial intelligence and cognitive computing in audit/tax 3. Advanced cloud computing 4. Virtualization and automation of processes and services 5. Mobile apps for business processes

the White House’s Office of Science and

Technology Policy released a list of 10 principles that federal

6. Adaptive and predictive cybersecurity

agencies should consider when drafting regulations for

7. Mobile banking and payments

artificial intelligence (AI). Regulation in the AI world is new

8. Smarter smartphones and tablets 9. Blockchains and cryptocurrency 10. Virtualization of desktop and storage “This year’s list saw some major changes as Big Data analytics rose to the top of the list, replacing artificial intelligence and cognitive computing,” said MACPA Executive Director Tom Hood.

“Advanced cloud computing and mobile applications rose a few slots, indicating the increasing number of cloud applications and adoption by the accounting and finance profession.”

WHAT’S THAT MEAN?

Data democratization The process of making data accessible across an enterprise, via data management, distribution and consumption. This requires companies to treat data as a business asset and make data analytics part of the overall business culture.

10

In January,

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as governments around the world develop ideas on how to reign in the ethics surrounding its use. Last year, the United States joined 40 countries to agree on a common set of international AI principles.

The 10 principles from the Office of Science and Technology Policy address public trust and participation, scientific integrity and quality, risk, benefits and costs, flexibility, fairness and more. The full draft is available for review at

tinyurl.com/AIDraftGuidance.

Phishing targets LinkedIn Criminals who use phishing emails to perpetrate scams are mimicking social media sites. In phishing tests, LinkedIn appeared in 56 percent of subject lines. LinkedIn can be a valuable tool for professional connections (see page 8 for how to link in with the VSCPA!), but watch your emails closely for “fishy” emails. Read more at cfodailynews.com/articles/ phishingemailscam.

FUEL THE FIGHT! help US PROTECT THE

PROFESSION One of the most important things we do is act as your voice at the Virginia General Assembly. Sometimes this work doesn’t make the headlines — and many times our advocacy is preventing issues from reaching the chamber floor — but it is critical work to protect the profession.

We can’t do this without your support. Getting in front of legislators and navigating the General Assembly costs money and time; your contributions to the VSCPA Political Action Committee (VSCPA PAC) allows the VSCPA advocacy team to work on your behalf. Give today to fuel the fight! Contribute online today.

Visit vscpa.com/PAC

ADVOCACY

All eyes on the General Assembly Tax conformity was again the most pressing issue facing the VSCPA this legislative session, and signed into law Feb. 17, 2020.

Tax conformity was No. 1 this year! SB 582 for fixed-date conformity was the first bill signed into law by Gov. Ralph Northam during this legislative session.

FIXED-DATE CONFORMITY SB 582 and its House companion (HB 1413) advance Virginia’s date of conformity to Dec. 31, 2019, and conform to the Further Consolidated Appropriations Act of 2020 (the federal extenders bill) with the exception of the temporary reduction in the medical expense deduction threshold, from which Virginia will deconform.

Virginia will conform with disaster relief, as well as the repeal of the unrelated business tax (UBIT) on certain fringe benefits. The bills also conform to the Virginia Beach Strong Act, which allows cash contributions made on or after May 31, 2019, for the benefit of the families of the dead or wounded victims of the Virginia Beach mass shooting, to be treated as tax deductible contributions.

ROLLING TAX CONFORMITY Our rolling tax conformity bill (HB 734) overwhelmingly passed out of the House went to the Senate for consideration. The Senate

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chose not to take up the measure, instead referring it for further study. We would like to thank all the members who took time to contact their legislators or send emails to help the conformity effort. By urging your legislators to consider this important legislation, you are actively helping to lift tax conformity burdens in future years. We plan on continuing to advocate for rolling conformity next year. See the message from CEO Stephanie Peters on page 4 for more on the issue.

Conformity isn’t the only legislation our advocacy team is working on and tracking. Several other bills important to the profession are moving through the General Assembly and have created opportunities for members to be directly engaged in our efforts: HB 1417: We support this legislation to enable Virginia to align with the new U.S. Internal Revenue Service (IRS) partnership audit regime and streamline administration. The bill establishes more uniform standards for reporting federal audit adjustments to the Commonwealth for effected taxpayers. This legislation will preserve revenues by enabling Virginia to collect its share of liabilities flowing from an IRS partnership audit and not face substantial legal and administrative concerns. The bill provides

ADVOCACY

uniformity and incorporates the changes needed to conform to the regime, as well as establishes more uniform standards for reporting federal audit adjustments for all taxpayers. It also addresses the significant changes made to federal audit procedures by the regime that impact state-specific issues, such as residency and apportionment.

HB 689: We support this to clarify wage statement requirements and address concerns raised by employers regarding salaried employees who are not paid on an hourly basis. This emergency legislation limits the scope of the requirement enacted in 2019 that requires periodic wage payment statements to show the number of hours worked during the pay period. The amendment provides that the statement is required to show the number of hours worked if the employee is either (i) paid on the basis of the number of hours worked or (ii) paid on the basis of a salary that is less than the standard salary level adopted by the U.S. Department of Labor establishing an exemption from the overtime premium pay requirements of the federal Fair Labor Standards Act.

HB 680 and 685: The VSCPA joined with a coalition of other interested parties to defeat HB 680 and 685 that presented significant privacy and data security risks for both contractors and state government agencies. The bills would have required government contractors to purchase and install monitoring software on computers used to perform state work. The software would capture everything including sensitive data such as passwords, personal health information and other personally identifiable information with no mechanism for redaction before being recorded or stored. Furthermore, the legislation would effectively mandate the installation of third-party spyware on stateowned and personal/privately owned devices for the sole purpose of reclassifying sensitive data for time-keeping purposes.

VSCPA members, leaders and staff has also been actively involved in bills on financial literacy, regulatory reform and licensure. Keep on top of all the legislation we are tracking on our advocacy page www.votervoice.net/VSCPA/Bills. Questions? Contact VSCPA Public Affairs Director Tim Barry at tbarry@vscpa.com. n

+++++++++ +++++++++++++

IT’S TIME TO RENEW RENEW YOUR VSCPA MEMBERSHIP BEFORE MAY 31, 2020 VSCPA.COM/RENEW

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YOUNG PROS

4 WAYS TO unplug Yes, you can take time off while staying on top of work responsibilities. Here’s how.

Have you tried turning it off and on again? No, not

1

Unlike machines, humans do not have hard drives that will keep us running nonstop. We all need sufficient time to unwind, recharge our batteries and unplug ourselves from the daily obstacles and hurdles of our careers. It has been proven that taking time off regularly restores creativity and productivity, increasing one’s overall happiness and the ability to keep positive levels of productivity. Here are a few ways to unwind and to maximize work-life balance without falling behind on your responsibilities:

Find an activity that you love and give it your undivided attention. As an added incentive, challenge yourself physically. Whether it be playing pick-up basketball at the local gym, going on a hike or taking a hot yoga class, be active and get the blood pumping.

Take a spin cycle class, go visit the local ice-skating rink, gather up some friends and visit the driving range — couple your time away from the keyboard with physical activity to work up a sweat. Exercise triggers the release of endorphins, hormones that will cause your pulse to speed up and give you a pleasant feeling — similar to being in love. But speaking from experience, if exercise is not appealing, chocolate is known to release endorphins as well.

your smartphone: your mental and physical wellbeing.

Peter Kwon, CPA

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Explore interests that allow you to disengage temporarily from your career.

YOUNG PROS

2

Prioritize appropriately.

Leave lower-priority emails that you receive after normal hours for your future self to address in the morning. As a courtesy, respond to the sender and let them know when you expect to look into the issue. Addressing every single email you receive when you are out of the office perpetuates a toxic work culture in which colleagues feel pressured to have to reciprocate by responding right away in return. Instead, sort out the non-urgent emails not requiring immediate action by flagging them within your email software and aim to respond during normal work hours. Trust me, your present self will thank you. Go ahead and fire up that Disney+ account for another Star Wars episode. Baby Yoda and the entire galaxy is waiting for you, my young Padawan. Burnout can become a major issue when you try to accomplish too much and can affect every aspect of your life, including your health. Taking steps to ensure that you are being effective in your position without overwhelming yourself is one of the key paths to ensure that you are setting yourself up for success.

3

Utilize technology to your benefit.

If you have yet to create an Outlook calendar meeting with yourself, try it at least once within the new year. Using technology to keep track of your daily tasks is beneficial because it provides a more regimented way to monitor your busy schedule. In addition, this method of maintaining your calendar fosters more effective communication with members of your team so that they can be aware of your work status. It is also helpful to update automatic responses for both internal and external recipients when you are out of the office on leave, and to continue to proactively disseminate your schedule and work hours with the rest of your team. In addition, be sure to arrange for a trustworthy colleague to be your point of contact if any emergencies do arise when you are out of the office.

4

Have a plan.

Failing to plan is planning to fail. Set your alarm with precision in the morning and take a minute to jot down your intentions for the day. This should include time spent throughout the day for self-care, commuting and eating nutritious meals. A healthy diet leads to a nourished body and mind, which will allow you to optimize your energy throughout the day. And be sure to use your commute efficiently. On my drive into the office, I like to catch up on current events and listen to podcasts that I would otherwise enjoy in my spare time. I like to jump on conference calls and catch up with friends and family in an effort to be productive on my commute, hands free. One last underrated secret to being productive and to maximize work-life balance is to get a good night’s sleep. Instead of counting sheep at night, try to list things

NEW LEADERSHIP PROGRAMS The VSCPA is working with industry leaders to bring you these exciting new leadership programs for your new staff and future partners. More information coming soon!

• Oct. 26–28, 2020: New Partner Development Program with Thomson Consulting

• Nov. 30–Dec. 2, 2020: Revamped Leadership Academy with InnerWill

that you are grateful for or recap valuable takeaways from the day.

Try to end the day on a positive note so that when that alarm goes off in the morning, you are ready to reach your full potential with a smile on your face.

The benefits of unplugging and taking time off include staying engaged and satisfied at work. Employees with great work-life balance tend to be more productive, enthusiastic and refreshed, which is often extremely contagious to fellow coworkers. Time off is one of the most valuable benefits an employee receives, and this leads to not only talent retention but also talent attraction. A company’s culture around work-life balance and vacation from upper management downward is the key to their employees’ engagement and commitment to the firm.

By exploring interests that you may feel passionate about, prioritizing appropriately, utilizing technology and having a specific and measurable plan, you will be able to unwind and maximize work-life balance without falling behind on your position responsibilities. n

Peter Kwon, CPA, is a senior tax associate at BDO, USA LLP, in the Core Tax Services group in the Greater Washington, D.C., office. He is a member of the VSCPA Young Professionals Advisory Council. In his free time, he is traveling, scuba diving, snowboarding, skydiving or cheering for his Washington sports teams at a nearby bar. pk1992@vt.edu linkedin.com/in/peter-kwon-cpa-67605161

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NONPROFITS

CAREER crossroads: Understanding nonprofits before you switch jobs.

If you are interested in making a career change from the for-profit to nonprofit sector, make sure you know the facts about nonprofits and what their finance functions entail.

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NONPROFITS

Professionals in nearly every industry will

sometimes reach a point where they begin looking for deeper meaning in their work. For many, including CPAs, a transition to the nonprofit sector, to a missionfocused organization, provides a sense of purpose and an opportunity to give back.

Michael F. Cade, CPA, CGMA

Opting for a career in the nonprofit sector is a bold choice for those who have already worked in forprofit entities. The differences are considerable, and making the change means preparing for unfamiliar challenges that run the gamut from operating priorities to corporate culture. However, the sector has many interesting opportunities for those looking to find work with “greater purpose.”

This feature describes what to expect when transitioning from a for-profit company to a nonprofit so that you can make an informed decision. It will explore some nonprofit myths, review a series of financial topics specific to the sector, and provide steps to consider when making a move.

MYTH BUSTING Weighing the pros and cons of a move to the nonprofit sector first requires the separation of myth from reality.

There are many broadly accepted “facts” about the sector that are untrue.

Myth: Nonprofits are simple. It is commonly held that for-profit businesses are far more complex and harder to manage than nonprofit organizations. While some for-profits have to deal with U.S. Securities and Exchange Commission requirements or must strictly adhere to certain regulations, nonprofit organizations also have regulatory and operational complications.

From an operations perspective, for-profits and nonprofits have their share of complexity, but nonprofits have the extra burdens of fund-raising and often providing services in challenging or unsafe environments. Many nonprofits also have dual management responsibilities over staff and volunteers.

Nonprofits are not simple, so if you are looking to move to the sector to lighten your workload, you will be unpleasantly surprised.

Myth: Most nonprofits have few or no employees.

While nonprofits can have mostly volunteer

workforces, once an organization reaches a certain size it transitions to a mix of staff and volunteers. Some have no volunteers, aside from board members, and some have paid board members similar to for-profit organizations.

The nonprofit sector employs about 10 percent of the workforce in the United States. Some larger organizations can provide a long-term career path for finance professionals, but you must do your research since some have small finance functions.

Myth: Nonprofits should not make money. Inside and outside of the sector, this is one of the most damaging myths about nonprofit organizations. It is so widely accepted, and deeply ingrained in some nonprofits and their funders, that it causes many systemic problems.

Nonprofits are operating entities. To continue to deliver on their missions, they must have financial resources beyond current expenses. These organizations face the same challenges as for-profits in that they deal with business cycles, funding limitations and economygoverned performance levels. Regarding the effects of the economy, nonprofits may have it even tougher because the need for their services often increases as the economy slows down and as clients’ or funders’ ability to pay declines.

Nonprofits need to make money to establish reserves; they must generate net positive margins on some portion of their services. Doing this enables them to proactively prepare for changes in their client communities and to weather tough times when they are needed most.

NONPROFIT FACTS Before making any career move, you need to dig deep into what you can expect when it comes to working in a typical nonprofit. To help, here are several topics you should prepare yourself to deal with as a CPA and financial leader within a nonprofit.

Limited budgets — Nonprofit organizations are notorious for spending as little as possible and budgeting to spend even less. As a CPA, you will be responsible for producing a budget with at least a zero or a slightly positive bottom line when the organization’s program budgets often are neutral u

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NONPROFITS

THE POWER OF ASSOCIATIONS The Northern Virginia and Washington, D.C., metro area is a hotspot for associations in America, and many of these organizations employ and hire CPAs to run their finance departments.

Here are some quick facts

66,985: The number of trade and professional associations recognized by the IRS

$142 billion: The amount of revenue generated by trade and professional associations

1.3 million: The number of jobs generated by the industry These statistics are included in “The Power of Associations: An Objective Snapshot of the U.S. Association Community,” released in 2015 by ASAE, The Center for Association Leadership.

Find out more about associations at thepowerofa.org. Also, check out the VSCPA’s Career Center at careercenter. vscpa.com for job opportunities!

or negative. Your job will be to help the organization understand its cost structure and identify a nominal or sustainable cost level to ensure that the organization will be able to deliver on its mission.

Your budget responsibilities will require that you gain a thorough understanding of the nonprofit’s operations and capital requirements. In addition, you will need to understand its funding sources as well as its development costs and performance.

Liquidity: The cash-flow cliff — Nonprofits are dissimilar from most for-profit businesses because the service provided to the client is often partially or fully paid by someone else, such as a

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government agency, foundation, members or donors. This disconnect between service provision and payment can result in cash-flow issues. Services are required immediately, but funders pay slowly and sometimes unreliably. Consider this: a portion of funds for many nonprofits comes from state government; if the state does not pass its budget on time, disbursements are delayed.

As a CPA working in the sector, your responsibilities will include learning about your organization’s liquidity and working with management to identify ways to back the nonprofit away from the cash-flow cliff.

In addition, you should be reading up on recent Federal Accounting Standards Board changes regarding nonprofit financial statement liquidity disclosures.

Tempering soft hearts — As a lead financial professional, a CPA working in the nonprofit sector must encourage fiscal responsibility in organizations that focus on mission delivery above all else. This means finding ways to educate leaders and colleagues on the consequences of trying to do too much or overextending through projects that simply deplete resources.

The CPA must be part of the leadership structure — a respected and trusted resource for sound decision-making. The challenge is finding ways to say “yes” to marginal projects, and even the occasional negative margin program, if there is good reason. To do this, you will need to have a sound knowledge of the organization’s operations and funding sources, as well as a tight handle on the current budget so you can find trade-offs or opportunities to offset short-term negative impacts. Finding the path to “yes” won’t always be possible, but if you are someone who is willing to roll up your sleeves and work toward a solution you can be invaluable in the sector.

Margins and reserves — Building reserves or retained earnings in a nonprofit

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is challenging, but necessary. There are ways to improve financial performance in both program and back-office costs. As a nonprofit CPA, you must become an expert on cost efficiency and effectiveness: • Encourage sound procurement practices and look for technological solutions or outsourcing for repetitive tasks.

• Gain an understanding of program finances and identify ways to ensure programs run efficiently.

• Develop multilevel margin and portfolio performance reporting that provides actionable information for program leaders, management and the board.

With leadership, develop a tactical approach to managing margins and fundraising to build reserves over time. This will not happen quickly, so they need to happen continually to produce results. For these changes to work, cost efficiency and effectiveness need to be ingrained in the organization’s culture, so you will need to craft and execute a plan to make that happen.

Overhead cost limitations — A large number of funders believe that “good” nonprofits have low overhead or general and administrative costs. This is reinforced by some nonprofits reporting on how many cents of every dollar is spent on programs versus how many are spent on general and administrative costs. This has driven many to severely underspend on administrative and support costs.

As a CPA in the nonprofit sector, you need to educate organizations and funders on the damage that ignoring support infrastructure and operations will cause over time. Falling behind on systems, not being able to hire or retain the best people and not supporting new or larger programs all result from underspending on administrative and support costs.

The U.S. Internal Revenue Service (IRS)

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is still a factor — Federal tax-exempt, nonprofit organizations do not stop filing tax returns, and in some cases they actually do pay taxes. As a CPA in the sector, you must master tax considerations for your organization. From understanding the reporting requirements to being able to interpret activities within the organization that can cause tax liability, you will be called on to provide critical advice to management.

You will need to prepare or oversee the preparation of the company’s nonprofit tax return (Form 990). This complex form includes financial data as well as information about the organization’s operating and management procedures, information about funding and functional

expenses. And it is a public document: the IRS provides Form 990s to data collectors.

This means that your organization’s information may be scrutinized by regulators, the press, funders or individuals.

Part of preparing Form 990 is identifying income unrelated to the core mission that may be generated by the nonprofit. This income is taxed via the Unrelated Business Income Tax. It is a complicated area of taxation. As a nonprofit CPA, you should be able to identify potential tax issues for current and future business operations and opportunities.

Old tech (no tech) — Nonprofit organizations often forego investments in technology due to tight budgets or

program priorities. It is possible that you will find seriously outdated systems in the organization you may be considering.

It is also common that small to midsize nonprofits will have no internal IT resources, as some tend to outsource or depend on volunteer support. You may need to champion investments in financial and nonfinancial systems. To do this, you should educate yourself on software services that support the sector.

Bringing knowledge about technology and associated risks such as cybersecurity is a significant value-add that you can provide. Take the time to keep current on technological developments through webinars, demonstrations and professional organizations. u

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Limited financial acumen on the board and among management — For-profit boards consist primarily of business leaders, such as CEOs, wellversed in financial fundamentals and concepts. Nonprofit boards have a different makeup, tending to include community representatives, program experts, fundraisers and people who care deeply about the mission. As a result, nonprofit boards often do not have a large proportion of members with financial backgrounds or exposure to financial matters gained from leading a business.

Nonprofit senior managers also tend to have little financial training aside from program-level performance metrics or budget oversight.

In many nonprofit organizations, a CPA will be the most knowledgeable financial resource. You may need to assume the role of financial adviser to management and possibly the board. To build accountability for results, the CPA must also become the nonprofit’s financial educator to help management and board members understand complex financial topics.

MAKING THE MOVE You have now learned more about some of the challenges you may face. You are more confident than ever that you have what it takes to transition to a mission-focused organization, and you are ready to tackle some of the issues reviewed here. Where do you go next?

Deciding your priority — There are more than 1.5 million nonprofit charity or 501(c)3 organizations registered in the United States. They vary in size, focus and sophistication; each has its own particular benefits, challenges and culture.

An important early step is determining your own set of priorities for the type of organization you want to work for.

You may want to focus on the size of the organization to ensure that you will have an internal career path; perhaps you have a specific segment that you are most interested in, such as performing

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arts or education. Other considerations include geographic area, broad or narrow community focus, financial condition and the level of controversy the organization tends to generate.

Research and engage with the sector — Once you have a general idea of the type of nonprofit that you want to work for, you will need to do your homework to focus your search. There are plenty of resources available to research organizations, from internet nonprofit data accumulators such as GuideStar to local organizations such as the Chamber of Commerce. Most organizations have social media sites that provide detailed information about their mission and services. There are also a number of service organizations that support the nonprofit sector, such as the Society for Nonprofits and the La Salle Nonprofit Center, as well as publications such as The Chronicle of Philanthropy and Nonprofit Quarterly.

In addition to research, take the opportunity to get engaged in conversations about issues impacting the sector. Speak at conferences or contribute to comments on articles and blog posts to gain a deeper understanding of all sides on topics impacting the sector. Listen for themes and trends so you can continue to build your knowledge base and be prepared to add value to the organizations you choose.

Volunteer — If you are considering a transition to the nonprofit sector, it is safe to assume that you have already done some volunteering in the past. As you work toward taking on a role in the sector, you should use your volunteering as a tool for gathering cultural and operational insight about the organizations you are considering. Engage in projects that have a broader impact so you interact with staff members in various parts of the organization.

Even after you are working in the sector, continue to find organizations that interest you and volunteer. This will help keep

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your perspective broad, uncover some best practices that you can bring back to your organization or lead to other career opportunities or board participation.

Networking — As with any transition into a new or unfamiliar industry, successfully building a network of contacts and colleagues within the sector will help you find and secure a position with the type of organization you desire. Transition networking is a long process, so begin as soon as you decide you might make a move. Expect to put a good amount of effort into helping others before you expect returns.

The first step in nonprofit networking is exploring your existing network of contacts, colleagues, friends and classmates. Look for contacts with experiences within the sector or who actively volunteer, especially in segments that are interesting to you. Get the word out to your network that you are considering a move, and ask for their thoughts, suggestions or guidance. Also, keep in mind that although people working in the sector are incredibly busy, they are also likely to want to help someone looking to join.

BUILDING A NONPROFIT CAREER Once you have established yourself in an organization and gotten past the initial challenges of any new position, you should turn your focus to building a career plan within the nonprofit sector. Relatively few organizations are large enough to provide a long-term career path in the finance function. There are typically only a few layers between clerk and finance leader, so you may need to move to other organizations to take on progressively challenging roles.

Become a value accumulator — Within the finance function, there are four broad levels of activity associated with adding value. The lowest value-add is transaction processing, followed by analysis and then advisory, which further interprets

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information from the analysis stage.

The final level of value-add is strategic planning and execution. Moving from level one to level three requires expanding your education and experience. Making the jump to the fourth level requires broad perspective and leadership skills; in this case, that means gaining a real understanding of operations and other nonfinance functions.

In the nonprofit sector, limited staffing often results in mid- and senior-level leaders taking on responsibilities outside of the normal functional lanes. So, as you look to develop your career, take advantage of assignments or projects that broaden your experiences outside of finance. Develop your leadership style by looking for projects that engage all parts of the organization; bring your financial

expertise, but be sure to listen and look for solutions regardless of functional area.

Find your voice — As your career develops, be the “can-do” resource that is willing to balance short-term needs with long-term thinking. Nonprofits can rarely survive finance folks with a simplistic “no” attitude. As discussed earlier, these organizations think with their hearts; your value will diminish if the only option you present is what is best for the bottom line today. Your job is to ensure financial stability, but sometimes that means doing something negative in the short term to open good opportunities in the long term.

There are also times in a nonprofit when a critical short-term need arises and must be addressed, so you need to find and walk the line. Don’t be a member of the budget police; be creative and look for solutions.

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by your employee benefit broker? If you are – DON’T SETTLE!

The VSCPA Insurance Center and Employee Benefits of Virginia can help.

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Don’t burn out — One serious concern is overworked staff. This can be common in the nonprofit sector because there are often much bigger needs than resources, a situation that can continue for a considerable time. Since many of the staff are driven by the mission, they try to make up for the lack of resources by taking huge volumes of work onto themselves.

Sometimes this continues until the person literally cannot work any longer. Be mindful of your own limitations. Look for ways to avoid overwhelming workloads for yourself and your staff. Observe and interact with peers and colleagues to make sure they are not getting burned out, and intervene when necessary.

BOTTOM LINE If you are considering transitioning from the for-profit sector to the nonprofit sector, kudos! The sector needs skilled financial professionals who are ready to roll up their sleeves and aid in the successful delivery of countless missions. Nonprofits are not easy, but there is great personal satisfaction in working for the good of others.

Before you make your decision, get to know the sector, warts and all. When you do decide to make the move, you will be embarking on a career, not a short-term visit. And you will need to develop your new career by continuing to gain relevant education and experiences, broadening your perspectives and growing your personal value-add. The nonprofit sector really is a two-way street. You will get back from it what you put into it, but the added bonus is that you are doing good for others along the way. n Michael F. Cade, CPA, CGMA, is a strategy consultant and executive coach for MFCCoach LLC in Morrisville, and a member of the Pennsylvania CPA Journal Editorial Board. mfcade@nfpbeyondthenumbers.com @mfccoach Reprinted with permission from the Pennsylvania CPA Journal, a publication of the Pennsylvania Institute of Certified Public Accountants.

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taxing

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How the Tax Cuts and Jobs Act and other bills affect tax-exempt organizations, including a gift to the nonprofit world at the end of 2019 that repealed an unpopular parking tax provision.

By Mary Torretta, JD and Michelle Weber, CPA

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It would have been interesting to be a fly on

the wall as Congress labored through drafting and revising the Tax Cuts and Jobs Act (TCJA) in fall 2017.

Not only was Congress concerned with figuring out a way to present a balanced piece of tax legislation, but they were also drafting tax rules that would affect all taxpayers, including organizations that do not historically pay large amounts of income taxes: the exempt sector.

Exempt organizations were braced for the worst after the potential changes to the law in the Tax Reform Act of 2014, proposed by Rep. David Camp (R-MI4, 1993–2014), then chair of the House Ways and Means Committee. Organizations were threatened with the possible repeal of the Johnson Amendment, which would have allowed religious organizations to get involved in politics. The amendment was not repealed in the TCJA. Exempt organizations had also braced for the elimination of tax-exempt bonds — but Congress eliminated only private activity bonds. In addition, there was a potential threat to further restrict donor-advised funds and private operating foundations (primarily museums, which are private foundations and not public charities). Congress did not make those changes either.

Well, what did Congress do? They surprised us! Let’s look at the changes to the income and excise tax rules that affect tax-exempt organizations for years 2018 and beyond.

INCOME TAXES One of the changes that affected nearly every exempt organization was the enactment of Internal Revenue Code (IRC) 512(a)(7). This new section made an amount equal to the cost of tax-exempt employers providing parking and transportation fringe benefits to their own employees subject to unrelated business income taxation (UBIT). That’s right — an expense on the books was subject to income taxation in a way typically reserved only for revenue streams, and the change was costly and unpopular.

But, luckily, this change is now in the past! Nonprofits received a gift in the government funding bill signed

by President Trump on Dec. 20, 2019. The $428 billion tax package retroactively repealed the inclusion

of transportation fringe benefits in determining unrelated business income and prospectively changed the tax rate paid on net investment income by private foundations.

A nonprofit organization that previously filed Form 990-T and paid tax under the parking tax provision should discuss with their tax advisor the mechanism by which to obtain a refund for amounts paid to date. Further, organizations that used net operating loss (NOL) to offset a parking tax liability should reevaluate their available NOL. An organization that has made estimated and extension payments associated with the parking tax may consider seeking a refund of the amounts.

Exempt organizations that are corporations are subject to the flat rate of 21 percent instead of the prior graduated rates on UBIT. However, a new code section further modifies the net tax an exempt organization may owe. In the TCJA, Congress also enacted IRC 512(a)(6), referred to now as a “siloing” provision.

This new section requires exempt organizations to calculate the tax effect of each taxable revenue stream (and the correlating expenses) separately, disallowing losses from one revenue stream to offset gains earned by another taxable revenue stream. This requirement to “silo” is likely to cause tax-exempt organizations to be in a worse net tax situation than for-profit taxpayers, who are still able to net revenue streams when calculating resultant tax liability. With the elimination of the corporate alternative minimum tax, Congress limited the ways corporations can apply NOL deductions. Now, you can carry forward those losses indefinitely, but you can apply NOLs up to 80 percent of taxable income. Also, in conjunction with IRC 512(a)(6), organizations may only apply post2017 NOLs against the revenue stream that generated the activity. Old NOLs are grandfathered and can be applied against all silos. The IRS issued guidance in Notice 2018-67 with regard to the siloing and suggested approaches to implementing the rules of this new code section.

EXCISE TAXES In addition to income taxes, Congress also enacted some new excise taxes via the TCJA. Codified in IRC 4960, Congress now imposes an excise tax on u

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REVISED FORM 1023 NOW AVAILABLE As part of an ongoing effort to improve service for the tax-exempt community, the U.S. Internal Revenue Service (IRS) revised Form 1023 to allow electronic filing for the first time.

Beginning Jan. 31, 2020, applications for recognition of exemption on Form 1023 must be submitted electronically online at www.pay.gov. The IRS will provide a 90-day grace period during which it will continue to accept paper versions of Form 1023 (Rev. 12-2017).

The IRS expects the electronic Form 1023 benefits to mirror those realized when Form 1023-EZ went online in 2014. IRS statistics show the 1023-EZ improved application processing time for both the Form 1023 and 1023-EZ while maintaining similar approval and rejection rates between the two forms.

This article was updated from a previous version published by the Wisconsin Institute of CPAs in On Balance magazine. It was revised with new information and is used with WICPA permission.

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“excess” employee compensation paid by an applicable tax-exempt organization.

Now, if an exempt organization compensates an officer or employee more than $1 million in a year, the organization may be liable for this excise tax. In addition, even if compensation is not above the $1 million threshold, an exempt organization may be liable for the excise tax if it pays an officer or employee an excess parachute payment. This excess payment is broadly defined as a payout of more than three times the base amount (a five-year average of compensation) in any given year. There are limits as to what constitutes covered employees, but now organizations need to start keeping lists of such employees. The IRS has issued interim guidance under Section 4960 in IRS Notice 2019-09.

The TCJA also imposed an excise tax on the investment income of some private institutions of higher learning in IRC 4968. If an institution has an endowment worth at least $500,000 per student and has at least 500 tuition-paying students, the college or university is subject to an excise tax equal to 1.4 percent of the investment income. Although relatively few organizations were affected, it put organizations with significant endowments on notice that Congress considers these endowments as money meant to be spent on students, not to serve only as a continual passive revenue stream. Again, the IRS issued guidance via Notice 201855 regarding the Section 4968 excise tax.

The government funding bill signed in December addresses private foundation excise tax rules. Under IRC Section 4940, private foundation excise tax rules currently provide for a 1 or 2 percent tax rate on net investment income, depending on the distribution activities of the private foundation. The tax package modifies this provision by replacing the rate calculation with a single 1.39 percent rate. This provision is effective for tax years beginning after Dec. 20, 2019.

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Private foundations should update their work papers for payment calculations for tax years beginning after Dec. 20, 2019, to ensure the new rate is used for proper calculation of tax due.

FAR-REACHING EFFECTS Certain exempt organizations are also seeing the impact of the TCJA in ways that were not directly intended to impact them.

Changes to the ways in which international income is subject to tax — and additional reporting related to those activities — is having an impact on organizations with direct and indirect foreign alternative investments. Similarly, some exempt organizations are also navigating the recent changes to the rules related to Section 163(j), which relates to the ability to deduct business interest expense. Lastly, it’s important to recognize that the federal tax law changes discussed above have ripple-effect impact on the tax position and reporting by the state jurisdictions.

CONCLUSION During this time of drastic tax change, it is very important for tax specialists and organizations to stay close and up to date on the continuing developments, specifically the stream of technical guidance that the IRS is pushing out to the industry as they help us interpret Congress’s actions. n

Mary Torretta, JD, is a principal in the national nonprofit tax practice of Grant Thornton LLP in Washington, D.C. mary.torretta@us.gt.com (703) 847-7659 Michelle Weber, CPA, is a partner in the national nonprofit tax practice of Grant Thornton LLP, in Milwaukee. michelle.weber@us.gt.com (414) 277-1536

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HEALTH CARE

TACTICAL responses TO THE ACA Sole practitioners and small groups can take aim at health care costs with some insurance options currently available in Virginia.

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HEALTH CARE

The Affordable Care Act (ACA) is at its 10-year

Brian Marks, CEBS

milestone; it was signed into law on March 23, 2010.

Its intent was to improve access to health insurance and health care while enhancing affordability. The focus of many of its reforms was individual market access; however, its impact has been far-reaching to all market segments of health insurance delivery. Though frequently called health care reform, the net effect of the law’s passage was to change health insurance, with little or no positive impact to reducing overall health care costs. Most notably, the reform of individual and small group underwriting created many unintended consequences, and subsequent winners and losers.

CURRENT POLITICAL CLIMATE OF THE ACA Since its passage and enactment, the ACA has been a center point of political debate. Each constituency argues it either went too far or not far enough. All in all, after many attempts to change the key and most impactful elements of the ACA, it still remains fundamentally intact.

The most notable recent change was the removal of the individual mandate tax. The individual mandate required all Americans to have health insurance coverage or pay a tax, and it was removed as part of the Tax Cuts and Jobs Act of 2017. The removal of this tax has thrown the entire ACA into the courts to question its constitutionality. The basis for the argument of unconstitutionality is that without the tax, the ACA violates the Constitution’s Commerce Clause.

At present, portions of the law have been deemed unconstitutional by a Texas District Court. On appeal, the 5th Circuit Court concurred and has returned the case to the lower court to determine which, if any, portions of the ACA could stand without the individual mandate tax. The net effect is the case will likely come before the Supreme Court again in the future. There was a request of the Supreme Court for an expedited review from the House of Representatives and a collection of Democratic Attorneys General that would have sped up the Court’s review. That request was denied by the Court.

On the legislative side, the often-delayed Cadillac Tax, which would have charged an excise tax of 40 percent on higher-cost plans, has been repealed along with the Health Insurers Tax (HIT), which added roughly 3 percent to the cost of fully insured plans. The HIT

has been on and off again in recent years and will be removed permanently in 2021. In addition, the relatively small Medical Device Tax was also repealed.

Lastly, the most recent legislation also revived the Patient Centered Outcomes Research Institute (PCORI) fees, which were set to expire in 2019.

IT IS WHAT IT IS. NOW WHAT? It is difficult to not be distracted by all the factors that impact the health insurance markets in the postACA era. There is a continual barrage of legislation, court cases and bold new proposals of variations of government options, including a single-payer system.

However, the continual “what next” leaves many paralyzed into inaction and/or generally confused a great deal of the time. It is my advice to deal with everything where it stands at the moment and do not attempt to predict the constant “what next.”

Some changes in recent years do bring some relief to certain individuals and smaller groups, which are the market segments most affected by the ACA’s provisions.

Here are some courses of action for those constituents.

SOLE PROPRIETORSHIPS AND VERY SMALL GROUPS In 2018, Virginia SB 672 expanded the definition of a small group in Virginia to include sole proprietors. The intent of the law was to provide sole proprietors, many whom could not receive an ACA subsidy, an option to the ACA’s individual market. I believe most would agree that absent a subsidy, these plans had higher rates and less attractive benefits than comparable small group plans. In addition, individual plans typically have smaller networks and more restrictive managed care principles, smaller prescription formularies, referral requirements, etc., than most small group plans. To be eligible to purchase a small group plan as a sole proprietor, certain criteria must be met: 1. They must be the sole, 100 percent owner 2. They can have no other employees, including permanent part-timers 3. They must have the appropriate tax documents from the preceding tax year. Carriers typically request a Schedule C. u

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Organizations will continue to look to their CPAs to help navigate an increasingly complex and ever-changing health care environment. CPAs can assist by assembling a solid advisory team to help their organizations or those of their clients.

If all the aforementioned criteria are met, then the entity can implement a small group policy with just the owner and their family covered.

LLCs SB 672 did much to help certain sole practitioners.

However, it still left ineligible for coverage many LLCs that had multiple partners, yet no employees.

The definition of an employee was again expanded in 2019 for small employers in the Virginia Code. The law now recognizes LLC owners as employees for the purpose of health insurance. Now an LLC with two or more owners, related or otherwise, and no other employees may purchase a small group plan.

These changes have greatly enhanced the health insurance options and solutions for many small businesses in Virginia. One thing to keep in mind, whether searching for options for your organization, or advising clients, is to seek expert help. I receive many calls where a business owner incorrectly assumes that they cannot obtain a plan if it is only needed for just one employee or the owner themselves. Many times, small group options are available, but the business owner has been advised incorrectly that these options were nonexistent. Group plans can be implemented in most instances — as long as the employees who will waive the plan are covered on other health insurance.

We have many clients with just one employee enrolled out of several.

SMALL GROUP SELF-INSURANCE The ACA negatively impacted rates for small groups with fewer than 50 employees and demographics more favorable than the normative average of the pool; that is, younger in age and/or lower in risk factors. To alleviate the negative impact of the ACA’s underwriting changes, of smaller variance in age spread of 3-to-1 for the rates of the youngest to oldest and no medical

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underwriting, many carriers began to self-insure smaller clients. This approach allows an insurer to base their rates on an organization’s demographics and medical risk factors. Employers with favorable demographics can take advantage of rates lower than fully insured ACA rates. I had several clients this year who have reduced their health insurance rates by 25 percent or more while maintaining benefit comparability utilizing this strategy.

Small group self-insurance is typically available for groups with 10–50 employees. However, there are exceptions above and below these parameters for a few carriers. Procedurally, it is fairly easy to obtain final rates for employers with more than 25 employees.

Most carriers will provide firm rates with a memberlevel census, which lists all employees and their dependents by zip code, and a risk form from the group noting known medical conditions. Of course, due to HIPAA Privacy Regulations most employers should know very little. Generally, organizations with fewer than 25 eligible employees will be required to complete individual medical questionnaires, which allow the carrier to assess the medical risk of a group.

This process is more disruptive than the simplified underwriting available to larger groups.

If you choose to evaluate this option and individual medical applications are required, I would suggest utilizing an online tool to capture the information or having the employees place their paper applications in a sealed envelope to be delivered to the employee benefit advisor directly. I believe it is unwise to have medical information on your employees in your organization, or have others know the medical conditions which may exist in a small organization.

It can generate many privacy issues surrounding someone knowing anything about the medical conditions of an employee and/or their family members. I would also suggest a universal medical form be used, if possible, so rates can be gathered

HEALTH CARE

from as many carriers as feasible. If your organization has less than 25 employees, you may still be able to obtain a quote from your existing carrier with no medical risk forms submitted. This is possible since the existing carrier has all information on the insured population in their claim system. Many times, carriers will proactively release a self-insured option when they determine a group is a good candidate. Our organization reminds the carrier to evaluate this at each renewal.

Small group self-insurance has all the same components as large group self-insurance; medical claims, administrative fees, specific stop-loss reinsurance for claims on an individual and aggregate reinsurance for protection of the entire group. Most carriers have simplified this a bit for small employers and essentially charge an employer a maximum rate. This rate includes all components: claims, administrative fees, reinsurances, claim run out, etc. The employer’s liability with small group self-insurance is limited to the maximum rates the carrier charges. If the claims are worse than a carrier projects, they do not recoup anything beyond the maximum rates charged. However, if the claims level is lower than the carrier projects, there may be some refund of payments to the employer. The level of refund can vary by carrier, and even within options of a carrier. My experience is most return 50 percent of the savings to a group that has lower claims than their projections.

Given the variability in claims for small clients, I advise them not to have any expectation of a refund. In my opinion, this approach should be viewed as a way to procure rates that are better than those available under the ACA. If you do evaluate small group self-insurance, there are things of which you should be aware and questions you should ask to be sure you understand the arrangement. Key questions include: 1. Is my liability capped? You want to ensure that the liability is indeed capped, and this is usually not an issue under standard arrangements with the major carriers like Aetna, Anthem, Cigna, Optima, UnitedHealthcare, etc.

However, there are options available from many thirdparty administrators in the market as well. These can be fine alternatives, but you need to be sure your liability is capped and there is no unexpected claim run out liability.

2. Who does the reporting? As a self-insured employer, you are responsible for U.S. Internal Revenue Service (IRS) Section 6055 ACA reporting. For small group selfinsured plans, this is a 1094-B transmittal to the IRS and a 1095-B to the employees. In addition to 6055 reporting, self-funded employers must remit their own PCORI fees.

You should be aware who is responsible for this reporting

under any self-insured arrangement since carriers can vary in their approach to this component.

3. What happens if I cancel the plan off of my renewal cycle? You should make certain this is allowable. It has been my experience that this is usually an option, but you want to make sure — particularly if you are considering a business sale.

DO WHAT YOU CAN TODAY The ACA has had a major impact on health insurance delivery since its inception 10 years ago. Its impact on individuals and organizations has varied based upon one’s own situation. As the implementation of the law continues to progress, I anticipate more changes and challenges. My advice has remained constant since the inception of the ACA: 1. Move forward with what you know to be the case today. Predicting the future is not possible.

2. Fully analyze your situation to maximize your positioning relative to the ACA and the insurance markets.

3. Do not go it alone. Get good advisory help from someone who understands the options.

Remaining informed on developments is key and staying on top of the various available solutions is imperative. Organizations will continue to look to their CPAs to help navigate this increasingly complex and ever-changing environment. CPAs can assist by assembling a solid advisory team to help their organizations or those of their clients. By being an integral part of the process the value you deliver to your clients or organizations can be greatly enhanced. n

Brain Marks, CEBS, is founder and president of Employee Benefits of Virginia in Glen Allen. He has more than 25 years of experience in employee benefits, 15 of which have been devoted to managing the employee benefits programs of the VSCPA. bmarks@ebova.com Employee Benefits of Virginia is a preferred provider of the VSCPA.

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VSCPA

How Virginia CPAs give back

April is Financial Literacy Month CST Group in Reston supported the Cornerstones Thanksgiving Food Drive last November by donating 11 boxes of food and 27 gift cards.

Glen Allen-based Keiter donated $11,000 to Richmond-area nonprofits as part of its year-long “A Bright Future Serving the Community” campaign. Organizations receiving donations were Lewis Ginter Botanical Garden, Juvenile Diabetes Research Foundation, Massey Cancer Center and Richmond Animal League.

In January, Glen Allen firm PIASCIK tabulated pro bono the judges’ results for the 2020 Miss Virginia USA, 2020 Miss Virginia Teen USA, 2020 Miss District of Columbia USA and 2020 Miss District of Columbia Teen USA pageants. Two team members spent a combined 48 hours ensuring scorecards and results for each category were correctly tabulated. (Top left, Ryan Losi, CPA, the two Virginia winners, and Jason Guy, CPA.) Thirty-five employees of the Virginia Auditor of Public Accounts (APA) served the community on Sept. 20, 2019, at three different locations around Richmond. They edged, mulched and planted flowers and produce at St. Joseph’s Villa, packaged meals and snacks at Feedmore and organized merchandise and cleaned at Habitat for Humanity ReStore. (Top right, the APA at Feedmore.)

OPEN VOLUNTEER OPPORTUNITIES

Financial Literacy Month is again upon us. We are proud that, at our urging, Gov. Ralph Northam has declared April to be Virginia Financial Literacy Month.

The VSCPA is focused on the fiscal health of Virginians 12 months a year, but this month we want to give special attention to our initiatives that promote sound money management.

We launched our award-winning financial literacy initiative in 2004 to connect CPAs with opportunities to reach out to the community and educate individuals and organizations on financial topics. Visit financialfitness.org to find financial literacy resources for the public,

Thanks to all the VSCPA members who have already signed up to volunteer! Visit the Volunteer Manager on Connect to see the full list of current opportunities at connect.vscpa.com/VolunteerOpportunities. We are currently looking to fill: CPAs in the Classroom Chapter leadership Speaking & community engagement Media ambassador

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nonprofits, educators and students.

Visit Volunteer Manager on Connect (see box at left) to be notified of nonprofit volunteer opportunities in your area!

VSCPA

Congrats to the following members NEW HIRES Jim Jarrett, CPA, has joined CST Group in Reston as a partner.

PROMOTIONS Jonathan Motichka, CPA, has been promoted to principal at Hottel & Willis, PC, in Winchester.

Melisa Galasso, CPA

Tabitha Poore, CPA, has been promoted to senior vice president/ controller at Benchmark Community Bank in Kenbridge.

APPOINTMENTS & AWARDS Melisa Galasso, CPA, owner of Galasso Learning Solutions in Charlotte, N.C., was named to the Not-for-Profit Advisory Committee of the Financial Accounting Standards Board (FASB).

Jim Jarrett, CPA

Anne Sheehan, CPA, principal at Goldklang Group CPAs, PC, in Reston, was appointed by Gov. Ralph Northam to the Common Interest Community Board.

ANNUAL MEETING AND 2020– 2021 BOARD OF DIRECTORS The VSCPA’s Annual Meeting will be held Thursday, May 14, 2020, at 12 p.m. at the Science Museum of Virginia — Dewey Gottwald Center. During the meeting, the Nominations Committee will present the following nominated members for election as 2020–2021 officers and directors: CHAIR Henry Davis III, CPA, Virginia Commonwealth University, Richmond CHAIR-ELECT Anne B. Hagen, CPA, CGMA, MBA, Masonic Home of Virginia, Henrico VICE CHAIRS George D. Forsythe, CPA, CGMA, WellsColeman, Richmond Nammy K. Lee, CPA, Ph.D., University of Virginia, Falls Church Jennifer S. Lehman, CPA, CGMA, Hantzmon Wiebel LLP, Charlottesville Gabriele Lingenfelter, CPA, MBA, Christopher Newport University, Newport News AT-LARGE DIRECTORS George G. Crowell, CPA, CITP, Harris, Hardy & Johnstone, PC, Richmond Hope F. Cupit, CPA, SERCAP, Roanoke

FIRM NEWS

Melisa F. Galasso, CPA, CGMA, Galasso Learning Solutions, Charlotte, N.C.

Brown Edwards has merged with Richmond-based Gregg & Bailey, PC, and also acquired Covenant Real Estate Services, LLC, which has offices in Roanoke and Lynchburg.

Daniel P. Hudgens, CPA, Deloitte & Touche, Richmond

Burdette Smith & Bish LLC has officially changed its name to BSB.

Jason H. Navon, CPA, Rossen Landscape, Sterling

RSM US LLC has acquired Washington, D.C.-based Tate & Tryon, PC.

Neena Shukla, CPA, CFA, CGMA, FCPA, PBMares, LLP, Fairfax

Sikich has acquired Alexandria firm Halt, Buzas & Powell, Ltd.

Charles M. Valadez, CPA, CITP, CGMA, MBL, TechnoServe Inc., Arlington

YHB has merged with Woodcock & Associates, PC, in Fredericksburg.

Christine B. Williamson, CPA, CohnReznick LLP, Tysons

LaToya D. Jordan, CPA, CGFM, Auditor of Public Accounts, Richmond John W. Reynolds, CPA, Block.one LLC, Blacksburg

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VSCPA

Staff news

THE VSCPA’S NEWEST VIRGINIA CPA LICENSEES

Pictured clockwise: ANNIVERSARIES March 1: Executive Assistant Julie Chamberlain, 4 years March 9: Senior Manager, Marketing Talley King, 9 years March 12: Learning & Member Services Director Richard Gordon, 8 years March 14: Finance Manager Catherine Meehan, 9 years March 14: Event Specialist Kate Eacho, 4 years April 1: Vice President, Advocacy Emily Walker, 17 years

DEPARTURES Membership Marketing Specialist Evan Taylor has left the VSCPA. We wish him luck!

IN MEMORIAM

Nicole Bennett, CPA, Amherst Nicholas Bilyeu, CPA, Clifton Levi Bucher, CPA, Clear Spring, Md. Claudine Charles, CPA, McLean Joseph Cortina, CPA, New Kent Marietta Medrana, CPA, Virginia Beach Natalie Evans, CPA, Norfolk Jennifer Ferrufino, CPA, Woodbridge Lauren Figg, CPA, Richmond Ryan Figg, CPA, Hampton Yelena Gureyeva, CPA, Midland Katelyn Haack, CPA, Virginia Beach Benjamin Headley, Tysons Nicole Jacoby, CPA, Newport News Taylor Kelley, CPA, Crozet William May III, CPA, Arlington Jordan Maynard, CPA, Virginia Beach Trista McGuire, CPA, Lexington, Ky. Oluwatoyin Ojumu, CPA, Washington, D.C.

Cory Paton, CPA, Ashton, Md. Nicole Peck, CPA, Richmond Samantha Powell, CPA, Henrico Matthew Rogers, CPA, Alexandria Charles Scharfen, CPA, McLean Prutha Talati, CPA, Glen Allen Emma Trabing, CPA, Virginia Beach Katelyn Valentine, CPA, Chesapeake List from Dec. 11, 2019 through Jan. 31, 2020.

Michael Doran, CPA, a VSCPA Life member from Colonial Heights. A sole practitioner, he was a graduate of Virginia Commonwealth University.

John Gillespie, CPA, a VSCPA Life member from Annandale.

David Updegrove, CPA, from Lincoln. He was a partner at Updegrove, McDaniel, McMullen & Chiccehitto, PLC, in Leesburg. He was named to the “Super CPA” list in Virginia Business magazine for several years.

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Correction In the “Spotlight” section on page 34 of the January/February 2020 issue of Disclosures magazine, highlighting member Benjamin Equitan Jr., the descriptions should have included: “Ben and Elmer offer securities and investment products and services through Waddell & Reed, Inc. (WRI), Member FINRA/SIPC. Ramiscal Equitan Advisor is a separate entity from WRI.” A corrected version is available at disclosures. vscpa.com. We regret the error.

CLASSIFIEDS

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Advertise:

Contact us at classifieds@vscpa.com or visit vscpa.com/Classifieds for rate information. Members receive a discount.

Experience benefits that reward you Because Virginia Society of Certified Public Accountants has partnered with Nationwide, you can save with exclusive discounts on Nationwide auto insurance. Add Accident Forgiveness and/or Vanishing Deductible, and you can save even more.

Contact me today to see how I can save you money on your insurance.

Ronnie Shriner shriner@nationwide.com 2571 Homeview Dr Richmond VA 23294 Ronnie Shriner Insurance Agency Inc Phone: (877) 683-3364 Nationwide may make a financial contribution to this organization in return for the opportunity to market products and services to its members or customers. Products Underwritten by Nationwide Mutual Insurance Company and Affiliated Companies. Nationwide Lloyds and Nationwide Property & Casualty Companies (in TX). Home Office: Columbus, OH 43215. Subject to underwriting guidelines, review, and approval. *Vanishing Deductible is an optional feature. Annual credits subject to eligibility requirements. Max. credit: $500. Details and availability vary by state. Products and discounts not available to all persons in all states. Nationwide, Nationwide Insurance, the Nationwide framemark, On Your Side and Vanishing Deductible are service marks of Nationwide Mutual Insurance Company. © 2016 Nationwide Mutual Insurance Company AFO-0915AO (03/16)

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SPOTLIGHT

VSCPA Member Mary Leigh McDaniel, CPA/PFS

Mary Leigh McDaniel, CPA/PFS,

is the managing partner of Updegrove, McDaniel, McMullen & Chiccehitto, PLC (UMMC), in Warrenton. She was recently re-elected to a second term on the Fauquier County Board of Supervisors and is currently serving as chair. In addition to various civic and nonprofit positions in Fauquier County, she was appointed by Gov. Tim Kaine to the Vint Hill Economic Development Authority.

I am passionate about… Transforming UMMC into a dynamic, innovative firm that is positioned to meet the challenges of our rapidly changing business climate.

I never leave home without… My phone and my gym bag. The phone because it is a requirement for our professional lives right now, the gym bag because working out is my stress reliever.

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People don’t know this but… I love to run and have completed 11 marathons.

If I were not a CPA, I would be… A landscape architect. My grandmother and mother were both accomplished gardeners, and my siblings and I inherited that gene.

My advice to fellow CPAs is… Be open to change, be willing to adapt and plan, plan, plan for the future. The old business model for accounting firms is becoming unsustainable, and we need to accommodate new ways of doing business. Successful firms will embrace technology, leverage their intellectual capital and empower their teams to make rapid transitions.

When I took the CPA Exam… At the time, the Exam was a two-and-a-half-day

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ordeal — no computers, no calculators; you were allowed only a pencil, paper and small snack. I was lucky enough to pass all parts the first time, but have had an aversion to trail mix (my snack of choice) ever since.

I became a CPA because… I was a single mother attending James Madison University and majoring in finance. My advisor asked me why I chose that major, and I explained I wanted a career that would provide financial stability for my family. He urged me to add accounting as a dual major and take the CPA Exam. He said, “Once you are a CPA, your future is assured — and it is becoming a profession that is welcoming for women.” (This was in 1982.) He was a visionary. I do not remember his name, but he changed my life with that advice. n

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