The media has already dedicated countless hours and column inches addressing the individual- and business-related tax provisions included in the new Tax Cuts and Jobs Act. Not nearly enough time has been dedicated to the impact tax reform will have on those on the not-for-profit end of the spectrum. Nonprofit organizations have their own set of tax guidelines to adhere to and Maribeth Wright, CPA, a thought leader on Rea’s nonprofit team, will discuss how tax reform might change the way you look at your books. In addition to taking on tax reform for nonprofits, GAAP expert James Moore, CPA, will be on hand to talk about the proposed changes to the generally accepted accounting principles and how they will impact your bottom line. Additionally, Christopher Axene, CPA, will be on hand to discuss the indirect impact the tax reform legislation could have on nonprofits seeking donations and contributions from for-profit entities moving forward.

2. Housekeeping
• Enter your questions in the chat box
• Watch your inbox for a webinar evaluation and a copy
of the webinar recording
• Tweet along with #ReaTaxReform

3. Additional Resources
• www.reacpa.com/taxreform
• Webinar recordings:
– High-level overview for businesses, pass-through entities,
international, individuals, estates, trusts & gifts
– Deep dive on business, pass-through entity and international
provisions
– Deep dive on individual, estate, trust & gift provisions

4. Agenda
• Provisions impacting not-for-profit organizations
(Maribeth Wright with Chris Axene)
• Proposed changes to GAAP (James Moore)

5. Maribeth Wright, CPA
Not-for-profit provisions

6. Christopher Axene, CPA
Business provisions that may affect your organization

7. James Moore, CPA
Proposed changes to GAAP

8. Lesley Mast, CPA, Macc – Taxation
Moderator

9. Let’s start the show!

10. Considerations for Not-for-Profit
Organizations

11. Unrelated Business Income Separately
Computed for Each Trade or Business Activity
• Current Law: A tax-exempt organization aggregates all
sources of unrelated business taxable income, subtracts
ordinary and necessary business expenses connected
with these activities, and calculates tax due on the net
amount.

12. Unrelated Business Income Separately
Computed for Each Trade or Business Activity
• Under the Act: Tax-exempt organizations with more
than one unrelated trade or business would be required
to compute the profit or loss of each unrelated trade or
business separately.
• Should any specific unrelated trade or business result in
a net loss, that loss would not be available to offset
the profitable status of any other unrelated trade or
business.

13. Unrelated Business Income Separately
Computed for Each Trade or Business Activity
• Left unclear: What the IRS will consider to be a
separate unrelated trade or business.
• For instance, if a tax exempt organization has several
sources of advertising income, does each publication
stand alone?

14. Unrelated Business Taxable Income Increased By
Amount of Certain Fringe Benefit Expenses for Which
Deduction is Disallowed
• Current law: A tax-exempt organization’s expenses
incurred in carrying out its exempt function are not
considered for income tax purposes.

15. Unrelated Business Taxable Income Increased By
Amount of Certain Fringe Benefit Expenses for Which
Deduction is Disallowed
• Under the Act: Certain employee fringe benefit
expenses, including transportation benefits, parking
benefits and on-premises athletic facilities, would be
considered disallowed deductions and would increase
a tax-exempt organization’s unrelated business taxable
income.

16. Corporate Tax Rate
• Current law: The maximum corporate income tax rate is
35% for taxable income over $10,000,000.
• Under the Act: The maximum corporate income tax rate
is 21%, and this rate would also apply to incorporated
tax-exempt organizations.

17. Net Operating Losses
• Current law: A net operating loss incurred in one year is
allowed to offset the taxable income of the previous two
years.
• Or, if no taxable income was generated in those years,
the current loss is allowed to be carried forward for up to
20 years to offset future taxable income.
• If sufficient, these net operating losses are allowed to
offset up to the full amount of taxable income in the
carryback or carryforward years.

18. Net Operating Losses
• Under the Act: A net operating loss may only offset up
to 80% of taxable income and may only be carried
forward, though the carryforward period is indefinite.

19. Tax on Excess Tax-Exempt Organization
Executive Compensation
• Current law: Compensation paid to the employees of a
tax-exempt organization is not subject to excess
remuneration rules as would be a similar for-profit
organization.

20. Tax on Excess Tax-Exempt Organization
Executive Compensation
• Under the Act: For tax-exempt organization employees
receiving compensation greater than $1 million during the
tax year from any combination of a tax-exempt organization
and/or its related organizations, the payee organizations
would be subject to an excise tax on that employee’s
compensation in proportion to their payments to the
employee.
• This rule applies to the five highest compensated
employees of the tax-exempt organization with compensation
greater than $1 million for the taxable year, as well as any
employee of the tax-exempt organization with compensation
greater than $1 million who was formerly classified within
the “five highest compensated employees” during any taxable
year beginning after December 31, 2016.

21. Local Lobbying Expenses
• Current law: Local lobbying expenses (for instance, a
local council) are eligible for deduction as ordinary and
necessary business expenses and are therefore not
included in a 501(c)(6) organization’s non-deductible
dues calculation or proxy tax calculation.
• Under the Act: This exception is removed and local
lobbying expenses would need to be considered along
with all other lobbying expenses when calculating these
items.

22. Professional Society Dues
• Current law: Professional society dues are generally
considered to be ordinary and necessary expenses for
taxable entities.
• Under the Act: The deduction for membership dues is
disallowed for any club organized for business, pleasure,
recreation or other social purposes. A strict reading of the Act
would indicate that dues paid to a professional society would
not be deductible.
• This change could have far reaching impacts to professional
societies and trade associations from membership
recruitment and retentions to the proxy tax on lobbying.

23. Questions?
Maribeth Wright, CPA
Principal, Cambridge office
maribeth.wright@reacpa.com
740.432.5658

24. Not For Profit GAAP Update
ASU 2016-14: Presentation of
Financial Statements of Not-for-Profit
Entities

25. ASU 2016-14: Not for Profit Reporting
• Issued August 18, 2016
• Effective date: for fiscal years beginning after December
15, 2017
– i.e. 2018 calendar years / 2019 fiscal years
– Retrospectively applied
• Update is centered around enhancing presentation and
disclosure for benefit of the readers of the financials
– Comparability across the industry

26. Main Components
1. Statement of Financial Position – net asset classes
2. Statement of Activities – net asset classes
3. Statement of Cash Flows
4. Enhanced disclosures:
a. Board designations – amount and purpose
b. Composition of net assets with donor restrictions – how
these affect usage of resources
c. Liquidity and availability of resources - Qualitative
d. Liquidity and availability of resources – Quantitative
e. Functional expense allocation – show natural/functional
f. Functional expense allocation – methods
g. Underwater endowments – enhanced disclosure

27. Main Components (continued)
5. Investment returns disclosures
6. Donor restrictions for acquisition of long-term assets

28. 1. & 2. Net Assets
• As presented on the Statement of Financial Position /
Statement of Activities
– Under current standards, 3 classifications:
• Unrestricted
• Temporarily restricted
• Permanently restricted
– Under ASU 2016-14
• With donor restrictions
• Without donor restrictions
• Above is required, but further disaggregation within
these classifications is permitted (i.e. board designated
unrestricted net assets)

29. 3. Statement of Cash Flows
• Changes under 2016-14
– Will continue to allow organizations to have the choice
between indirect and direct methods
• Should direct method be chosen, the requirement for the “indirect
reconciliation” is no longer necessary

30. 4a. & 4b. Net Assets
• Updated footnote disclosures
– Donor restricted net assets
• Nature and amount of these restrictions
– Board-designated unrestricted net assets
• Amount, purpose, and type of these designations

31. 4c. & 4d. Liquidity & Availability of Resources
• Qualitative disclosures required:
– How does the Organization manage its liquid available
resources and its liquidity risk?
– Footnote disclosure
• Quantitative disclosures required:
– Needs to communicate “the availability of the Organization’s
financial assets at the balance sheet date to meet cash needs
for general expenditures within one year”
– On the face of the financials or in the footnotes
– Calls for a classified Statement of Financial Position
(current and noncurrent sections/subtotals)

32. 4e. Expense Reporting – Quantitative
Disclosures
• Presentation
– Requirement under 2016-14 that expenses be show by
“natural” AND “functional” classifications
• Can be on a “Statement of Functional Expenses”
• Can be on a “Statement of Activities”
• Or can be in a table in the footnotes
– No longer allowed to simply break out the total of expenses
into these functional categories. Needs to be shown by BOTH
nature/function
– Could be in a grid or matrix format although not required.

33. 4f. Expense Reporting – Qualitative Disclosures
• Disclosures
– Qualitative disclosures regarding the methods used for
allocation
• The biggest takeaways – everything goes back to “How
does your functional expense allocation process stand
up to scrutiny?”
– To ponder
• Organization doing an adequate job tracking?
• Is documentary support maintained/available?
• Time and effort reporting
– Inherent biases when entering time
• Are job position descriptions in line with how the employees are
actually allocating their time?

34. 5. Reporting of Investment Return
• Movement towards a more all-inclusive approach when
considering the Organization’s returns for a period
• How to present on the financials:
– “Net presentation of investment expenses against investment
return on the face of the Statement of Activities”
• Includes “external” and “direct internal”
• May report net return in multiple lines
– i.e. – separate portfolios, different net asset classes, operating
vs. nonoperating, etc.
– What is meant by “direct internal”?
• Could potentially include a payroll allocation from CEO, CFO, etc., if
that individual is participating in the planning, strategy, decision-
making, investment-return-generating activities as they relate to the
Organization’s portfolio(s) of investments.
• Time and effort tracking

35. 5. Reporting of Investment Return (continued)
• Important to remember from earlier discussion on
functional expenses that the investment expenses are
NOT shown within the functional expense framework.
They are netted against investment returns.
• Investment expenses: netted vs non-netted
– Netted – fees were for strategy, decision-making, return-
generation
– Non-netted – fees were for accounting, processing, book-
keeping (would end up within the functional expenses)
– Important to make this distinction

36. Questions?
James Moore, CPA
Supervisor, Dublin office
james.moore@reacpa.com
614.889.8725

37. Additional Resources
• www.reacpa.com/taxreform
• Webinar recordings:
– High-level overview for businesses, pass-through entities,
international, individuals, estates, trusts & gifts
– Deep dive on business, pass-through entity and international
provisions
– Deep dive on individual, estate, trust & gift provisions