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NONPROFIT NEWSLETTER December 2012 NONPROFIT HOT TOPICS ____________________________________________________________ The Impact of the Fiscal Cliff on the Nonprofit Sector and the Future of the Tax Deduction for Charitable Donations ____________________________________________________________

Notice 2012-52: Charitable Contributions to Domestic Disregarded Entities

From Our Partners

ASKING GREAT QUESTIONS


Contents December 2012

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FROM OUR PARTNERS 2 A SK I NG G R E AT QUE S T IO N S Asking questions is a human trait baked into our DNA. Aren’t we all curious from birth? Of course we are. Most kids have probably asked a million questions by age 10. If we’re lucky, as we grow older we never lose that curiosity and we continue to love asking questions all our lives.

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NONPROFIT HOT TOPICS 4 T HE IMPAC T OF T HE F IS C A L C L IF F O N T HE N O N P ROF I T SE C T OR A N D T HE F U T UR E OF T HE TA X D E DUC T IO N F OR C H A R I TA BL E D O N AT IO N S Despite the holiday season, the end of 2012 is bringing new anxieties to Nonprofit Organizations. As the “fiscal cliff” looms this coming January, Nonprofits are wary of not only cuts to direct Federal funding for programs, but also the potential impact of changed tax realities impacting the willingness of the public to give.

6 N O T IC E 2012- 5 2: C H A R I TA BL E C O N T R IBU T IO N S T O D OME S T IC D ISR E G A R D E D E N T I T IE S This notice provides guidance on the deductibility of contributions to domestic singlemember limited liability companies (“SMLLC”) that is considered to be disregarded for federal tax purposes that are wholly owned and controlled by an exempt organization described in § 170(c)(2).

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December 2012


F R O M O U R PA R T N E R S

ASKING GREAT QUESTIONS BY LEWIS SHARPSTONE | PARTNER lsharpstone@singerlewak.com

Asking questions is a human trait baked into our DNA. Aren’t we all curious from birth? Of course we are. Most kids have probably asked a million questions by age 10. If we’re lucky, as we grow older, we never lose that curiosity and we continue to love asking questions all our lives. Someone once told me that if you’re participating in a meeting, asking the right question is often more important than knowing what to say. I think there’s a lot of truth to this. In more than 20 years at SingerLewak, some of my most memorable moments were from questions clients had asked in meetings. One time, I was conducting an audit exit conference with an Audit Committee, and at the end when I asked for questions, someone who had been pretty quiet for the presentation asked the following: “What, in your experience, is the number one thing a Nonprofit can do to prevent fraud, and are we doing it?”. A great question which lead to a great discussion. (Please do e-mail me if you want to know how I answered it!) Another time, also at an audit

When I’m giving a presentation, if someone starts a question with, “I know I’m not an accountant but...”, I can be sure I’m about to be “hit” with a great question.

exit conference, I was going through the balance sheet and a nice Board Member stopped me and asked, “Did you say that the balance sheet lists out our assets and our liabilities?.” “Yes,” I answered. He went on, “...so last month I asked the Executive Director what was this organization’s most important asset, and he replied it was our workforce. Where is that on our balance sheet?” I replied that accounting doesn’t “recognize” the workforce as an asset. He turned to the Executive Director and asked, “so how do we recognize our employees?” From there, a short but wonderful discussion ensued and the Board and management soon afterwards established an enhanced employee kudos and recognition program. Nonprofit now has amongst the lowest of staff turnover rates. It all stemmed from a great question.

I have one audit committee member of a client that asks me every year “so, Lewis, you’re our CPA but if you were in our shoes what would you be most worried about around here?” What a great question! I’m always ready for him!

Someone once told me that if you’re participating in a meeting, asking the right question is often more important than knowing what to say. As anyone who has ever taught or presented knows, as you teach, so you learn. How does that happen? It’s through the process of the students or seminar participants asking questions. Their questions make you think. When someone asks you a question, it makes you look at your own material in a different way, through their eyes.

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Dan Rockwell has a piece on the web entitled “The 10 Best Questions Ever”. He reminds us that asking a question, assuming it’s done in the correct spirit, honors the askee and builds relationships. Questions usually enhance opportunities and help reach higher levels. He reminds us of the golden rule when asking a question: Always follow a question with silence! He gives us three questions you can almost always ask at any meeting: • At the beginning of a meeting, if it’s not clear, ask “so why are we here?” • At the end of a meeting, if it’s not clear, ask, “so who does what, by when?”

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He reminds us that asking a question, assuming it’s done in the correct spirit, honors the askee and builds relationships. • Almost anytime an issue is being discussed, a great question to ask is “so how can I help?” In conclusion, I’m reminded of the mother of a dear friend of mine who always seemed to answer questions with another question. So I asked her why she did that. You know how she answered? “Do I really?”!

December 2012

I wish you all a happy, peaceful and successful 2013. Please enjoy SingerLewak’s December 2012 Nonprofit Newsletter.

LEWIS SHARPSTONE CAN BE REACHED AT LSHARPSTONE@SINGERLEWAK.COM OR 310.477.3924


NONPROFIT HOT TOPICS

THE IMPACT OF THE FISCAL CLIFF ON THE NONPROFIT SECTOR AND THE FUTURE OF THE TAX DEDUCTION FOR CHARITABLE DONATIONS BY MIKE BARLOEWEN | SENIOR MANAGER mbarloewen@singerlewak.com

Despite the holiday season, the end of 2012 is bringing new anxieties to Nonprofit Organizations. As the “fiscal cliff” looms this coming January, Nonprofits are wary of not only cuts to direct Federal funding for programs, but also the potential impact of changed tax realities impacting the willingness of the public to give. These anxieties are leaving visions of a New Year with fewer donations received, lower Federal and State funding and the possibility of being overwhelmed by the needs of an underserved public. The first threat comes from the automatic $54.6 billion acrossthe-board sequestration cuts scheduled to occur on January 2, 2013. If there is no deal to avert the fiscal cliff, these spending cuts to domestic programs are expected to both increase the public’s demand for services provided by Nonprofits and simultaneously reduce funds for governments to pay their contracts with Nonprofits. The arbitrary and

gage interest, state/local taxes paid, and charitable giving – is more than $26,000. Such a cap could eliminate or severely reduce any tax incentive for donations to charities.

across-the-board spending cuts of 8% to 10% affect virtually every domestic program. The second threat comes from Congress and the President’s potential averting of the fiscal cliff – whether permanently or with a short-term fix. First suggested during the presidential campaign by Governor Romney, policymakers are giving serious consideration to a “bi-partisan” proposal to cap all itemized deductions at a specific level, such as $17,000 or $25,000 per individual taxpayer. Considering that the national average for all deductions – healthcare, mort-

If there is no deal to avert the fiscal cliff, these spending cuts to domestic programs are expected to both increase the public’s demand for services provided by Nonprofits and simultaneously reduce funds for governments to pay their contracts with Nonprofits Nonprofits have been almost unanimously opposed to proposals to alter the charitable deduction and, according to the New York Times, resistant to

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the White House’s suggestion that they press Boehner and the Republicans on tax rates. Deductions for charitable contributions totaled more than $38 billion in 2010. While proposals to limit the tax break have been made before, included in President Obama’s budget proposals, this

The uncertainty surrounding the future of the tax benefits of charitable giving might lead to a short term increase in donations as tax payers rush to make contributions in 2012 ahead of any changes that may take effect

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renewed focus on the basic lineitem deduction has burst into the national spotlight in the current federal deficit talks. It has become a hot topic in the media, blogosphere and on social networking sites. Lobbying records show that since Obama first proposed to lower the deduction in 2009, more than 60 Nonprofit groups have spent at least $21 million lobbying Congress and the White House to preserve it. Although nonprofit officials characterize the effort as grass roots, at least 25 organizations have hired Washington area lobbying firms. The uncertainty surrounding the future of the tax benefits of charitable giving might lead to a short term increase in donations as tax payers rush to make contributions in 2012 ahead of any changes that may take effect.

December 2012

The question politicians are wrestling with, as we head closer and closer to the fiscal cliff, is whether the value to Nonprofits and the community outweighs the cost of the charitable tax deduction to the federal budget. Concerned Nonprofits should find a voice in this debate to ensure that its interests are being served. MIKE BARLOEWEN CAN BE REACHED AT MBARLOEWEN@SINGERLEWAK.COM OR 818.999.3924


NONPROFIT HOT TOPICS

NOTICE 2012-52: CHARITABLE CONTRIBUTIONS TO DOMESTIC DISREGARDED ENTITIES BY LIOR TEMKIN | PARTNER ltemkin@singerlewak.com

This notice provides guidance on the deductibility of contributions to domestic single-member limited liability companies (“SMLLC”) that is considered to be disregarded for federal tax purposes that are wholly owned and controlled by an exempt organization described in § 170(c)(2).

3. No part of the net earnings of which inures to the benefit of any private shareholder or individual; and 4. Which is not disqualified for tax exemption under § 501(c) (3) by reason of attempting to influence legislation or participating in a political campaign.

Section 170(a) allows as a deduction any charitable contribution, as defined in § 170(c). Section 170(c)(2) in part

If all requirements of § 170 listed above are met, the IRS will treat a contribution to a disregarded SMLLC that was created or organized in or under the law of the U.S. as a charitable contribution to a branch or division of the U.S. charity

defines the term “charitable contribution” as a contribution or gift to or for the use of a corporation, trust, or community chest, fund, or foundation-1. Created or organized in the U.S. or in any possession thereof, or under the law of the U.S., any State, the District of Columbia, or any possession of the U.S.; 2. Organized and operated exclusively for specified purposes, including religious, charitable, scientific, literary or educational purposes;

If all requirements of § 170 listed above are met, the IRS will treat a contribution to a disregarded SMLLC that was created or organized in or under the law of the U.S. as a charitable contribution to a branch or division of the U.S. charity. To prevent inquiries by the IRS, the charity is encouraged to acknowledge that the SMLLC which received the funds is wholly owned by the U.S. charity and treated by the U.S. charity as a disregarded entity. The effective date of this notice is for charitable contributions made on or after July 31, 2012. LIOR TEMKIN CAN BE REACHED AT LTEMKIN@SINGERLEWAK.COM OR 310.477.3924

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OUR FIRM SingerLewak is a leading regional accounting services firm in California with offices in Los Angeles, Orange County, Woodland Hills, Monterey Park, San Diego, Silicon Valley and San Francisco. Serving California since 1959, SingerLewak has established a reputation for excellence as professionals with expertise in the Accounting and Management Consulting industry. Providing the services of a large firm with a blended environment of practices, industry specializations and particular attention to hands-on service, SingerLewak continues to demonstrate leadership and industry growth year-over-year.

THE SKILLS YOU NEED. THE SERVICE YOU EXPECT. We are nationally recognized as active community and professional services partners, working among many sectors of the business world. Our core services deliver results whether it’s auditing, accounting, entrepreneurial business services, tax preparation, business management, SEC filings, transactions, enterprise risk management, forensic accounting, business valuation, litigation support, or consulting.

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Nonprofit Newsletter - December 2012