wa-cpas

2025 Arizona Tax Credits

Mon, 08 Dec 2025 22:47:22 GMT

Arizona taxpayers are eligible to make charitable contributions to qualifying organizations that may directly offset their Arizona income taxes, subject to limitations. These nonrefundable tax credits allow individual taxpayers to directly offset their Arizona income tax owed, as long as there is a tax liability for the year.

Below is a summary of the credits and the maximum contribution limits for tax year 2025, including links with more information about the credits:

$200 single / $400 joint Arizona Military Family Relief Fund. https://dvs.az.gov/donate/military-family-relief-fund-2023
$200 single / $400 joint Arizona Public School Tax Credit. https://azdor.gov/tax-credits/public-school-tax-credit
$495 single / $987 joint Arizona Qualifying Charitable Organization (QCO). See https://azdor.gov/tax-credits/contributions-qcos-and-qfcos for explanation and list of qualifying charities.
$618 single / $1,234 joint Arizona Qualifying Foster Care Charitable Organization (QFCO). See https://azdor.gov/tax-credits/contributions-qcos-and-qfcos for explanation and list of qualifying charities.
$769 single / $1,535 joint Credit for Contributions to Private School Tuition Organizations. https://azdor.gov/tax-credits/credits-contributions-certified-school-tuition-organizations
$766 single / $1,527 joint “Switcher” Credit for Contributions to Certified School Tuition Organizations (if you already made the donation above). https://azdor.gov/tax-credits/credits-contributions-certified-school-tuition-organizations

Ranking Arizona: We're Proud to Be One of Arizona's Top 2 Accounting Firms in 2025.

Tue, 16 Sep 2025 21:22:21 GMT

Protect against tax identity theft with Identity Protection PINs and IRS Online Accounts

Wed, 27 Aug 2025 21:45:15 GMT

IRS Identity Protection PINs and IRS Online Accounts can help protect against tax-related identity theft.

The IRS Identity Protection PINs, also referred to as IP PINs, are a critical defense tool against identity thieves. The IRS encourages all taxpayers to establish an IRS Online Account that allows secure access to IRS account information online. This account also guards against fraudsters from attempting to create accounts on their behalf.

IP PIN facts and how to get one

Here are a few key things taxpayers should know about the IP PIN:

It’s a six-digit number known only to the taxpayer and the IRS.
If you are married, each taxpayer should obtain their own IP PIN.
The opt-in program is voluntary, though strongly encouraged.
The IP PIN is valid for one calendar year; a new IP PIN is generated yearly. You will need to login to your account at the beginning of each year to obtain your new IP PIN.
Only taxpayers who can verify their identities may obtain an IP PIN.
IP PIN users should never share their number with anyone but the IRS and their trusted tax preparation provider. The IRS will never call, email or text a request for the IP PIN.
Tax professionals cannot obtain an IP PIN on behalf of clients; taxpayers must obtain their own.
To obtain an IP PIN, visit the IRS Get an IP PIN page.
The IP PIN process for confirmed victims of identity theft remains unchanged, and victims will automatically receive an IP PIN each year.

IRS Online Account facts and how to get one

In addition to enrolling in the IP PIN program, the IRS encourages taxpayers to establish an IRS Online Account, which has the following benefits:

Provides secure online access to IRS account information.
Helps prevent fraudsters from creating a false account.
Allows taxpayers to share information with a trusted tax professional.
To set up an IRS Online Account, visit the IRS Online Account page.

The above tools help protect against the threat of tax-related identity theft and we encourage all individual taxpayers to set up an IRS online account and obtain an IP PIN.

Once you have obtained your IP PIN, please reach out to your Walker & Armstrong tax professional to securely transmit it to us. Do not email the IP PIN.

If you would like assistance in setting up an IRS online account or obtaining an IP PIN, we will be hosting an open house at all our locations on the following dates:

Phoenix office at 1850 N. Central Ave., Suite 400
Phoenix, AZ 85004
October 3, 2025 from 10 AM to 3 PM
Tucson office at 6840 N. Oracle Rd., Suite 150
Tucson, AZ 85704
October 3, 2025 from 10 AM to 3 PM
Carefree office at 36600 N. Pima Rd., Bldg 3, Suite 305
Carefree, AZ 85377
October 2, 2025 from 8 AM to 12 PM

Please come on down and take the valuable steps toward protecting your identity!

Update: BOI Reporting Requirement – Back On

Wed, 26 Feb 2025 21:21:35 GMT

With FinCEN's beneficial ownership reporting rules back in play and a new deadline of March 21, 2025, businesses need to stay flexible - especially with the possibility of more deadline twists!

The Financial Crimes Enforcement Network (FinCEN) has announced that the beneficial ownership reporting requirements are officially back in effect, with a new compliance deadline of March 21, 2025, for most companies. This update follows a court ruling from the Samantha Smith and Robert Means v. U.S. Department of the Treasury , which lifted the last nationwide injunction on the rules.

While this marks the third deadline shift in the past few months, there may be additional timeline changes within the next 30 days. FinCEN has also indicated it plans to revise the reporting rule this year to ease the burden on lower-risk entities, such as many U.S. small businesses.

Key Points to Remember:

New Reporting Deadline: March 21, 2025, for initial, updated, and corrected BOI reports
Exceptions: Entities with previously assigned later deadlines (e.g., disaster relief extensions) may retain their original filing dates

Legislative Developments:

On February 10, 2025, the House passed the Protect Small Businesses From Excessive Paperwork Act of 2025 (H.R.736), which could extend the compliance deadline to January 1, 2026 for pre-2024 reporting companies. This bill is now awaiting Senate action, but other CTA repeal bills are continuing their journey through the lengthy legislative process.

It is crucial for businesses to stay adaptable and prepared for the upcoming March deadline given the evolving nature of these requirements. If you have any questions or need assistance, please give our office a call at 602.230.1040.

Update: BOI Reporting Requirement Halted (For Now)

Fri, 27 Dec 2024 23:56:05 GMT

The on-again-off-again federal law, which would require most U.S. business entities to provide detailed information on the entity and its “beneficial owners,” is off again.

On December 3, 2024, in the case of Texas Top Cop Shop, Inc., et al. v. Garland, et al. , No. 4:24-cv-00478 (E.D. Tex.), the U.S. District Court for the Eastern District of Texas, Sherman Division, issued an order granting a nationwide preliminary injunction against enforcing the Corporate Transparency Act’s (CTA) BOI reporting requirements. The Department of Justice, on behalf of the Department of the Treasury, filed a Notice of Appeal on December 5, 2024, and separately sought a stay of the injunction. On December 23, 2024, the U.S. Court of Appeals for the Fifth Circuit granted a stay of the district court’s preliminary injunction enjoining the CTA entered in the case of Texas Top Cop Shop, Inc. v. Garland , pending the outcome of the Department of the Treasury’s ongoing appeal of the district court’s order. This stay reinstated the January 1, 2025, reporting deadline for businesses, but a panel of judges on the U.S. Court of Appeals for the Fifth Circuit did not agree.

FinCEN issued an alert acknowledging that in light of the federal Court of Appeals decision, reporting companies, except those specifically named in the alert, are once again required to file beneficial ownership information with FinCEN. The Department of the Treasury extended the reporting deadline as follows:

Reporting companies that were created or registered prior to January 1, 2024, have until January 13, 2025, to file their initial beneficial ownership information reports with FinCEN. (These companies would otherwise have been required to report by January 1, 2025.)
Reporting companies created or registered in the United States on or after September 4, 2024, that had a filing deadline between December 3, 2024 and December 23, 2024 have until January 13, 2025 to file their initial beneficial ownership information reports with FinCEN.
Reporting companies created or registered in the United States on or after December 3, 2024, and on or before December 23, 2024 have an additional 21 days from their original filing deadline to file their initial beneficial ownership information reports with FinCEN.
Reporting companies that qualify for disaster relief may have extended deadlines that fall beyond January 13, 2025. These companies should abide by whichever deadline falls later.
Reporting companies that are created or registered in the United States on or after January 1, 2025, have 30 days to file their initial beneficial ownership information reports with FinCEN after receiving actual or public notice that their creation or registration is effective.
As indicated in the alert titled “ Notice Regarding National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala.) ”, Plaintiffs in National Small Business United v. Yellen , No. 5:22-cv-01448 (N.D. Ala.)—namely, Isaac Winkles, reporting companies for which Isaac Winkles is the beneficial owner or applicant, the National Small Business Association, and members of the National Small Business Association (as of March 1, 2024)—are not currently required to report their beneficial ownership information to FinCEN at this time.

On December 26, 2024, the merits panel hearing the emergency appeal of the US District Court's nationwide stay of enforcement of the CTA decided to vacate a portion of the previously issued ruling of the stays panel that granted the stay on the District Court's injunction. The BOI reporting deadline is currently on hold again, pending a decision by the merits panel, which is expected early in 2025. If the panel decides to lift the stay, the January 13, 2025, deadline will likely apply, unless FinCEN issues another ruling to push it back. FinCEN continues to allow affected entities to voluntarily file their reports, even though deadlines and enforcement are currently on hold.

Ideas and Price Tags: A Closer Look at President-Elect Trump's Tax Reform Promises

Fri, 13 Dec 2024 00:01:42 GMT

Preparing for the Trump Administration's Tax Policy Plans

Dear Walker & Armstrong Clients,

As we prepare for potential tax policy changes, it’s essential to evaluate the key proposals put forth by President-elect Donald Trump during his campaign. His tax plan includes significant reforms for individuals and businesses, aiming to stimulate economic growth while offering tax relief. However, these changes also carry substantial fiscal costs. Below is an overview of the main proposals, their projected impacts, total revenue implications, and prospects for enactment.

Key Proposals and Their Costs

1. Extension of the Tax Cuts and Jobs Act (TCJA)

The TCJA, passed in 2017, introduced lower tax rates for individuals and corporations, increased the standard deduction and the child tax credit, and made other significant changes. These provisions are set to expire at the end of 2025. President-elect Trump has proposed to make the expiring TCJA provisions permanent. If made permanent, 2026 taxes would be calculated under the same law as 2024 and 2025 taxes. If TCJA expires, 61% of taxpayers will see their taxes go up. Expect lengthy and tumultuous discussions throughout 2025 on the extension of TCJA.

Cost: Estimates range from $4.6 trillion (Joint Committee on Taxation) to $5 trillion (Penn Wharton Budget Model) over the 10-year budget period. Because of its cost, expect intra-party arguments from the Republican deficit-hawks over the extension of TCJA.
Prospect: Some provisions in TCJA are likely to be extended, but not all. Deficit and politics will get in the way.

2. Remove Cap on State and Local Tax Deduction (SALT)

TCJA included a $10,000 limitation on the SALT deduction. President-elect Trump proposed a repeal of the $10,000 cap.

Cost: The cost of fully repealing the SALT cap is estimated to be between $620 billion to $700 billion over 10 years.
Prospect. It is unlikely that the cap will be repealed. It is more likely, because of the cost of a repeal, that the cap will be modified to appease Republican representatives in high tax states.

3. Exemption of Tips and Overtime Pay from Federal Taxes

Eliminating taxes on tips would benefit hospitality workers and personal service workers (hairdressers, Uber drivers, massage therapists) who frequently receive tips as a significant income component. Eliminating taxes on overtime pay would benefit workers in construction, warehousing, nursing, and seasonal and retail businesses who frequently log overtime hours.

Cost. Exact costs depend on thresholds and implementation, but estimates suggest a total revenue loss exceeding $500 billion over a decade.
Prospects. Five bills are presently in the House to exempt tips from federal tax, most likely because both presidential candidates proposed this change. Legislation exempting overtime pay is questionable because of the cost, and a potential for manipulation.

4. Exemption of Social Security Income from Federal Taxes

Eliminating taxes on Social Security benefits would primarily benefit middle- and higher-income households, as low-income recipients often do not pay taxes on these benefits under current rules.

Cost: Approximately $550 billion over 10 years.
Prospect: It is unlikely that we will see tax free Social Security benefits as the revenue from taxing social security income is earmarked for the Social Security and Medicare reserves – which are expected to be depleted by 2033 and 2031 respectively. In addition, reconciliation rules allow a simple majority for most tax law changes. Social Security and Medicare changes take a 60% majority vote.

5. Business Tax Incentives

Bonus Depreciation: Permanently extend 100% bonus depreciation for qualified business assets. TCJA presently provides that bonus depreciation for qualified business assets is 40% for 2025, 20% for 2026 and -0-% for 2027.

Research & Development (R&D) Expensing: Reintroduce immediate expensing for R&D costs. TCJA presently requires R and D costs to be amortized over 5 years.

Interest Deductibility: Adjust TCJA limits on deducting business interest expenses.

Costs: For all 3 proposed changes, the costs are estimated to be $930 billion over 10 years ($710 billion for R and D, $120 billion for bonus depreciation, and $100 billion for business interest deduction change.)
Prospects. Prospects are good for all three of these changes as there is a bi-partisan bill, passed in January 2024, awaiting a vote in the Senate. If enacted, the changes are likely to be effective in 2025. Any TCJA changes would be effective in 2026.

6. Corporate Rate Reductions

TCJA reduced the corporate tax rate from 35% to 21%. President-elect Trump has suggested reducing the rate further to 15% for domestic manufacturing income. The proposal mimics the repealed IRC section 199 domestic production activity deduction (DPAD).

Cost: Reducing the rate on domestic manufacturing income from 21% to 15% would cost approximately $400 billion over the 10 year budget period.
Prospects. Likely as it is aimed at helping U.S. manufacturing, a goal of both parties. Uncertain effective date.

7. Other Deductions and Credits

Caregiver Deductions: Tax relief for those providing in-home care for elderly or disabled family members.

Education Credits: New tax credits and deductions for education-related expenses.

Automobile interest deduction: If the campaign promise to make auto loan interest deductible is enacted, only a subset of taxpayers would get any benefit, particularly those who itemize deductions and have significant loan interest. Presently Americans hold about $1.6 trillion in auto loan debt and pay about $100 billion in auto loan interest.

Cost: The cost of the 3 changes is approximately $375 billion over 10 years (caregiver deduction $200 billion, education credits $50 billion, and auto interest deduction $125 billion.)
Prospects: Unknown. Details and information on implementation are lacking.

8. Tariffs as an Offset

A 10% universal on all imports is proposed to generate revenue and encourage domestic production. The President-elect has proposed a 60% tariff on imports from China.

Potential Cost to Households: A 10% tariff could increase annual household expenses by approximately $1,500. This estimated cost includes higher prices for imported goods such as food, electronics, and industrial supplies, as well as increased costs for domestic products reliant on imported components. A 60% tariff on imports from China could result in even steeper impacts. For U.S. households, this could translate to an annual increase of approximately $1,950 in expenses. Such measures could also prompt retaliatory tariffs from China and other trading partners, compounding costs for U.S. consumers and businesses.
Projected Annual Revenue: Approximately $4 trillion over 10 years if trade volumes remain stable.
Prospects. President-elect Trump frequently cited protecting U.S. manufacturing, addressing trade imbalances, and countering unfair trade practices as reasons for tariffs. Since the President has the authority to impose or increase tariffs without Congressional approval, it is likely that additional tariffs will be imposed. The amount and timing is uncertain.

Total Fiscal Impact

Combining these initiatives, the projected revenue loss over a decade could exceed $8.4 trillion, offset partially by up to $4 trillion in tariff revenue if fully implemented. However, the remaining shortfall would significantly add to the federal deficit, necessitating careful planning to mitigate long-term fiscal risks.

Implications for You

It is important to note that none of these proposals affect your 2024 taxes. For 2025 and later years, these campaign promises if enacted will have far-reaching implications for individuals and businesses. However, politicians and lobbyists will get in the way of speedy tax law changes. We will keep you up to date as 2025 progresses and more details are available on the many changes outlined here.

Please contact our office if you have questions on this summary and to discuss your yearend planning needs.

Warm regards,

The Walker and Armstrong Team

Update: Corporate Transparency Act on Hold

Fri, 06 Dec 2024 00:21:30 GMT

The on-again-off-again federal law, which would require most U.S. business entities to provide detailed information on the entity and its “beneficial owners,” is off again.

On Tuesday, December 3, a U.S. District Court judge in Texas issued a nationwide preliminary injunction preventing the federal government from enforcing the Corporate Transparency Act (CTA) and its beneficial ownership reporting requirements.

In its ruling, the court held that the CTA and its implementing regulations, including the reporting requirement, are likely unconstitutional. The injunction provides preliminary relief until the conclusion of legal proceedings.

As a result, businesses are not currently obligated to file Beneficial Ownership Information reports or comply with the CTA.

We emphasize “currently,” because Tuesday’s preliminary injunction is subject to further action by the U.S. District Court, a U.S. Court of Appeals and, perhaps, the U.S. Supreme Court. A final determination of the CTA’s constitutionality could be issued before the end of the year, but that is probably unlikely at this point. For now, though, and until further order of the Court, the reporting requirements under the CTA have been suspended.

Prior to the December 3 injunction, tens of millions of U.S. business entities were required to file reports with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) by January 1, 2025, or face harsh penalties ($500 or more per day for each day past a deadline) and, in some cases, criminal liability (up to $10,000 in fines and up to two years in prison).

Article originally posted by Hoopes, Adams & Scharber, PLC

Important BOI Reporting Requirements

Thu, 14 Nov 2024 21:36:21 GMT

The Financial Crimes Enforcement Network (FinCEN) issued a final ruling regarding a new filing requirement for 2024 regarding corporations, partnerships, and LLCs.

This new ruling will aid the ability of FinCEN and other agencies to protect the U.S. national security and financial system from illegal activity by providing vital information to law enforcement, intelligence, and financial institutions to stop money laundering by criminals, fraudsters, corrupt individuals, and others.

You may be subject to these requirements and therefore must file a report called the Beneficial Owners Information Report (BOI or BOIR). If you have a filing requirement, the report must be filed before January 1, 2025 , at the following website: https://boiefiling.fincen.gov/ .

Below are a few key elements of the BOI reporting rules ( https://www.fincen.gov/beneficial-ownership-information-reporting-rule-fact-sheet ):

There are two types of reporting companies: domestic and foreign.
A domestic reporting company is a corporation, limited liability company (LLC), or any other entity that was created by filing a document with a secretary of state or any similar office under the law of a state or Indian Tribe.
A foreign reporting company is a corporation, limited liability company (LLC), or any other entity that was formed under the law of a foreign country and is registered to do business in any U.S. state or tribal jurisdiction by filing a document with a secretary of state or any similar office under the law of a U.S. state or Indian Tribe.
If you have any uncertainty about your entity’s status as a domestic or foreign reporting company, please check with your entity’s attorney.
A Beneficial Owner is anyone who (A) exercises “substantial control” over a reporting company, or (B) directly or indirectly owns or controls at least 25% of the ownership interest of a reporting company.
When filing the BOI report, you are required to identify the company and report four pieces of information about each of the beneficial owners:
Name
Birthdate
Address
Identifying Document (driver’s license or passport).
If your company was created before January 1, 2024, you have until December 31, 2024, to file the initial report. If your company was created after January 1, 2024, you have 30 days from the date of creation to file your report.
If your company has any changes to the initial report (i.e., a change of address), you must file another report with FinCEN within 30 days of the change.
Failure to file timely may be costly. Willful violations can carry civil penalties (e.g., $500/day for each day past a deadline) and, in some cases, criminal liability (up to $10,000 in fines and up to two years in prison).

Scammers may attempt to solicit information for BOI reporting by sending unsolicited correspondence that requests payment or personal information. You should be aware of these scams and not engage with them:

Requests for payment - FinCEN does not charge a fee to file a BOI report, and they do not send correspondence asking for payment.
Requests to click links or scan QR codes - Do not click any suspicious links or attachments, or scan any QR codes in emails, on websites, or in any unsolicited mailings.
References to "Form 4022" or "Important Compliance Notice" - FinCEN does not have a “Form 4022,” and any correspondence referencing this form is fraudulent.
References to a “US Business Regulations Dept.” - This is a fraudulent reference, as there is no government entity by this name.
Paper versions - Any paper version of the beneficiary ownership reporting is fraudulent.
Suspicious URLs - When filing online, make sure you are on the official FinCEN website, www.fincen.gov .

We are unable to file the BOI reports for you, but please reach out to your Walker & Armstrong tax professional if you have questions regarding this new requirement.

Harnessing Artificial Intelligence: Maximizing Benefits While Mitigating Risks

Thu, 29 Aug 2024 21:06:14 GMT

AI offers real benefits, but it lacks the invaluable judgement, oversight, and ethical decision-making that only humans can provide.

With technology readily available at everyone’s fingertips, it is important for individuals and businesses to be mindful of how they use artificial intelligence (AI). In July, we wrote an article on “ Data Security: Why It’s Important to Secure Your Data ,” and we want to build on that discussion by addressing the responsible usage of AI.

At its core, AI teaches a computer to analyze a set of data and develop solutions based on relevant information gathered, often from the Internet. Essentially, you are training a computer to analyze data and achieve specific goals. As you refine your objectives, AI learns and improves based on accumulated experiences. However, it is important to remember that AI lacks the invaluable insight and intuition that human input provides.

BENEFITS OF USING AI

Reduction in Errors

Properly programmed AI can significantly reduce the number of errors. However, it is not foolproof, and mistakes can still occur. Therefore, it is always best practice to review any AI-generated work to ensure its accuracy.
As you continue to refine the AI’s programming, it will learn more efficient ways to output the desired information, leading to increased efficiency and accuracy over time.

Real-Time Decision Making

While we humans are limited in our ability to analyze vast amounts of data instantaneously, AI can process large datasets and deliver the necessary information much more quickly.
This ability to process data quickly allows AI to produce reports and provide an accurate view of a business’s financial health. This is particularly beneficial for management, as it supports informed decision-making.

Risk Management and Compliance

AI should be viewed as a tool that enhances – rather than replaces – human capabilities and functions. By using AI to support decision-making and creativity, organizations can improve outcomes while ensuring that employees feel secure and valued.
Given the rapidly evolving nature of AI, staying informed about the latest advancements, ethical guidelines, and regulatory changes is essential. Continuing education, to keep up with AI developments and usage strategies, should be a priority.
Engaging with ethical AI initiatives provides access to valuable resources and frameworks that support responsible AI implementation. Partnering with industry groups or contributing to the development of ethical standards ensures that AI is used in ways that align with societal values and business integrity.

CHALLENGES AND CONSIDERATIONS OF USING AI

Privacy and Data Security Concerns

AI involves handling large amounts of personal data, raising significant concerns about data privacy and security. Unauthorized access or misuse of this data can lead to security breaches and privacy violations.
It is essential to be cautious when inputting information into an AI system, to guard against disclosure of sensitive data that could compromise security.

Ethical Dilemmas

The implementation of AI in business can raise ethical issues, such as biased decision-making or unfair treatment of employees. It is important to establish transparent guidelines with employees and consider the ethical implications of AI use.

IMPACT ON EMPLOYMENT AND VALUE-ADDED ACTIVITIES

Automation of tasks by AI can lead to job displacement, particularly in roles involving repetitive or routine tasks. This can increase unemployment and widen the skills gap as displaced workers may struggle to find new opportunities.
At the same time, AI can enhance the value of human work. As we suggested earlier, AI should be seen as a tool that allows employees to focus on value-added activities, where human judgment and creativity are fundamental in providing value to customers/clients. In an optimal scenario, AI handles data collection and analysis, while humans make informed decisions based on AI’s output.

CONCLUSION

If used properly, AI can be highly beneficial. However, to quote Voltaire (and Spider-Man’s Uncle Ben), “with great power comes great responsibility.” AI should not be blindly relied upon; rather, it should be used as a resource that, in the proper context, can be extremely valuable.

Data Security: Why It’s Important to Secure Your Data

Wed, 31 Jul 2024 16:57:18 GMT

In today’s digital age, hackers are becoming more creative in stealing personal identifiable information (PII).

Data protection is important to consider when transmitting PII data through any electronic channels, especially on the internet. These communications can include, but are not limited to:

email,
instant messaging,
social media, and
cloud-based document sharing.

Below are target areas for hackers trying to steal PII data.

Email Encryption and Data Interception. Unencrypted emails are extremely vulnerable. When you send an unencrypted email, especially with attachments, there is a risk that malicious actors could intercept and access your sensitive information.

Encryption is crucial! It transforms your data into a code that can be deciphered only by the intended recipient, thereby protecting it from unauthorized access. At Walker & Armstrong, we utilize platforms and best practices to protect our clients’ PII data.

Our Client Portal can be accessed via our website at www.wa-cpas.com . From there you will be able to upload your documentation securely. After you upload the information, our administrative team will receive notification and can distribute the information to the appropriate parties.

For our tax clients, we utilize a platform called SafeSend , which can be accessed by using the link found in the email signatures of all Walker & Armstrong tax employees. By clicking on “Click here to send me files securely,” you will be directed to the SafeSend Exchange, an encrypted email site through which you can securely send documents to anyone within our firm.

For our audit clients, we utilize a platform called SmartSheet, a secure way to upload documents to a sheet that is accessible only by authorized individuals. For you to gain access to a worksheet, a Walker & Armstrong employee must add you to a sheet. Once you have been given access, you will set up a username and password to have continued access to the sheet.

All of these platforms allow you to send and receive data securely, safeguard your information, and maintain data integrity, ensuring that your documents are accessible only to authorized individuals within Walker & Armstrong.

Safe Email Practices. It’s imperative to adopt safe email practices within your personal inbox to avoid falling victim to a cyber security threat. You can do that by:

Not clicking on unknown links. Do not click on any links or open any documents that look suspicious or are from an unknown email address. These links or documents can contain malware or embed viruses into your computer, which can lead to loss of data or even the leaking of your personal information.

Verifying email addresses. Always verify the email address of the sender before replying or opening any documents. Hackers often use random email addresses that closely resemble trusted contacts, so be sure to verify accuracy before proceeding with emails. Things that you can look for include misspellings or grammar errors; email addresses that contain special characters; and even generic instead of personal greetings.

Using strong passwords. Protect your email accounts with strong passwords. A strong password typically includes a mix of upper- and lower-case letters, numbers, and symbols. Regularly updating your passwords also enhances security.

Finally, always evaluate before sending an email that contains personal information. Ask yourself, “What am I sending?” and “Who am I sending this to?” If you are unable to answer any of these questions with certainty, it is best practice to not send the email, to avoid sending sensitive information to the wrong person.

Dealing with Suspicious Communications. If you receive an email from a sender claiming to be a government tax authority, it is crucial to verify the authenticity of the communication. Rather than responding directly, contact your tax provider or the relevant authority to confirm the legitimacy of the request. By utilizing your subject matter experts, they can provide you with the necessary guidance on how to protect your data as well as verify if the communications are legitimate.

If you receive an email claiming to be sent by the IRS, you can assume that it is a fraudulent communication. According to the IRS website , the IRS “doesn't initiate contact with taxpayers by email, text messages or social media channels to request personal or financial information. This includes requests for PIN numbers, passwords or similar access information for credit cards, banks or other financial accounts.”

Protecting Your Personal Devices

Beyond email security, ensuring that your personal computer is protected is just as vital. Confirm that you have updated virus protection and anti-hacking software installed. Avoid connecting to unprotected or unsecured Wi-Fi networks in public places (e.g., coffee shops, airports, hotels, etc.). By connecting to these networks, it can expose your device to malicious attacks. Using secure networks or a hotspot is a much better way to secure your computer while browsing the internet.

Conclusion

Safeguarding your data through encrypted communications, secure portals, diligent email practices, and general cybersecurity measures is vital to protecting your information. By implementing these strategies, you can significantly reduce the risk of data breaches and ensure that your sensitive information remains protected.

Try to stay informed about the latest security practices and consult with experts when necessary to maintain the highest level of data security.

Ranking Arizona: Walker & Armstrong among the top 3 statewide since 2020

Mon, 18 Mar 2024 22:41:46 GMT

Corporate Transparency Act Places New Reporting Requirements on Many Businesses

Thu, 04 Jan 2024 19:48:03 GMT

A new federal law requires many legal entities to report specific information about the business and its owners.

Effective January 1, 2024, the Corporate Transparency Act (CTA) requires disclosure of the “beneficial owners” of most companies doing business in the United States. Congress passed the CTA in 2021 as part of the Anti-Money Laundering Act, designed to combat the use of shell corporations, LLCs, and other entities to facilitate money laundering and other criminal financial activities.

The information will be reported to the Financial Crimes Enforcement Network (FinCEN), which is a bureau of the U.S. Department of the Treasury. FinCEN prepared answers to frequently asked questions relating to the Beneficial Ownership Information Reporting Rule.

Below is a summary of the CTA, followed by a list of action items for your entity to ensure compliance. Those action items include:

updating stale contact and other important information; and
addressing any “phantom” owners or managers, people who wanted to be part of your company, but who do not want to be found by creditors, former spouses, etc. Failure to disclose owners can subject you to civil and criminal penalties, so be careful and thorough.

For additional information, please view two helpful FinCEN resources:

DOES MY ENTITY HAVE TO FILE A REPORT?

According to the FinCEN FAQ document, there are two types of reporting companies: domestic and foreign.

A domestic reporting company is defined as:

a corporation,
a limited liability company (LLC), or
any other entity created by the filing of a document with a secretary of state or any similar office (such as the Arizona Corporation Commission) under the law of a state or Indian Tribe.

A foreign reporting company is any entity that is:

a corporation, LLC, or other entity formed under the law of a foreign country, AND
registered to do business in any U.S. state or in any Tribal jurisdiction, by the filing of a document with a secretary of state or any similar office under the law of a U.S. state or Indian Tribe.

Sole proprietorships do not have to file, nor do some general partnerships.

With a few exceptions noted below, every entity that is created by the filing of a document with a state – whether formed by state law or under foreign law – must file a report. (See the discussion of exempt entities below.)

If you have any uncertainty about your entity’s status as a domestic or foreign reporting company, please check with your entity’s attorney.

WHAT ARE THE EXCEPTIONS?

Types of entity. The CTA provides a list of 23 “exempt entities” – mostly larger companies in regulated industries, such as banks, insurance companies, SEC-registered companies, utilities, many tax-exempt organizations, etc.

Entities exempt from the reporting requirement generally include:

tax-exempt organizations under section 501(c) of the Internal Revenue Code;
tax-exempt political organizations organized and operating to influence legislation or the appointment or election of public officials; and
charitable trusts.

Size of entity. In addition to exempting certain types of entities, the CTA exempts entities based on their size. Specifically, the CTA exempts a “large operating company,” defined as an entity that (a) employs more than 20 full-time employees in the U.S.; (b) filed a Federal income tax return in the U.S. for the previous year demonstrating more than $5 million in gross receipts or sales, excluding sales from sources outside the U.S.; and (c) has an operating presence at a physical office within the U.S.

Inactive entities. The list of exemptions includes, at #23, “Inactive entity.” Qualifying for inactivity requires specific criteria that you can view in the FinCEN FAQ document at https://www.fincen.gov/boi-faqs#L_2 .

If your entity does not qualify for one of the exemptions, you should plan to comply with the new law.

WHAT HAS TO BE REPORTED?

Entity information. The CTA requires an entity to report information about itself and about its “beneficial ownership.” The required entity information is basic, consisting of the entity’s:

legal name;
trade names or DBAs, if any;
physical address;
jurisdiction of formation (e.g., Arizona); and
Taxpayer Identification Number (TIN).

Owner identifying information. The CTA also requires reporting of information about the entity’s “beneficial owners,” who fall within three general categories: applicants, owners, and individuals with “substantial control” over the entity. The information to be reported is relatively straightforward. Deciding who falls within these categories is more complicated.

For each of these individuals, the CTA requires reporting of the individual’s:

name;
date of birth;
residential address; and
an identifying number from an acceptable identification document such as a passport or U.S. driver’s license, along with an image of the identification document.

WHO ARE BENEFICIAL OWNERS?

Applicants. This applies only to entities that are created on or after January 1, 2024. For such entities, an “applicant” is the individual who directly files the documents that create the entity with the relevant government office. If a different individual directs or controls the filing but does not do the filing themselves, the entity has two “applicants”: the person who files and the person who directs the filing.

Owners. An entity must report any person who directly or indirectly owns 25% or more of the equity interests of the entity. Indirect ownership can be ownership through another entity, such as a corporation or a family trust.

Individuals who have “substantial control” over the entity. Individuals with “substantial control” in a corporate setting generally include managers of LLCs, as well as “senior officers” of corporations, such as the president, CEO, CFO, COO, and general counsel.

Indirect ownership and control. The CTA requires reporting of any individual who exercises ownership or control indirectly, even without a formal title or without a formal ownership interest. This can include “phantom” ownership such as an informal profit-sharing arrangement. It can also include individuals who do not have a formal corporate title but exercise control over the entity, such as deciding who is appointed in formal positions of ownership.

WHEN DO WE HAVE TO FILE?

If your reporting company was in existence before January 1, 2024, you have until December 31, 2024, to file your initial report.
If your reporting company is created during 2024, it must file its initial report within 90 calendar days after (a) the date on which the entity received actual notice that its creation or registration is effective, or (b) the date after the state first provides public notice of the entity’s creation or registration.
For a reporting company created on or after January 1, 2025, the 90-calendar-day period mentioned above is reduced to 30 calendar days.

HOW DO WE FILE OUR REPORT?

Reports must be filed online, using the non-public, cloud-based portal maintained by FinCEN.

See “File the Beneficial Ownership Information Report (BOIR)” at https://boiefiling.fincen.gov/fileboir .

WHAT IF WE DO NOT FILE OUR REPORT?

Failure to file timely may be costly. Willful violations of the CTA can carry civil penalties (e.g., $500/day for each day past a deadline) and, in some cases, criminal liability (up to $10,000 in fines and up to two years in prison).

HOW OFTEN DO WE HAVE TO FILE?

Subsequent filings may be the riskiest and most burdensome issue for many businesses.

While filing your initial report does not seem too difficult, every time something in your report changes, you must file another report.

For all reporting companies, any change to a previously filed report must be reported to FinCEN within 30 days of the change.

GET READY

It is not too soon to start gathering the required information, especially if your business has multiple owners and/or multiple entities, or if you contemplate creating a new entity this year.

At the very least, make it the job of someone in your company to look further into the CTA’s requirements and prepare a timeline and procedures that will help you comply with the new law.

Update contact information. Be sure you have current contact information for all the individuals who may fall into the categories of applicant, owner, or controlling person.

Update corporate filings. In Arizona, you must file annual reports for corporations that list certain information about the company and its owners and officers. It is easy to copy the form from the last year and forget that things have changed. Be sure that the Corporation Commission records reflect your company’s correct information.

For LLCs, you should ensure that all information is accurately reflected in the Corporation Commission records. Your lawyer can help you with this.

Year-End Income Tax Planning Tips for Individuals

Tue, 28 Nov 2023 22:27:42 GMT

As the end of the year approaches, now is a good time to consider strategies that might help lower your tax bill for 2023.

The standard year-end approach of deferring income and accelerating deductions to minimize taxes will continue to produce the best results for all but the highest income taxpayers, as will the bunching of deductible expenses into this year or next to avoid restrictions and maximize deductions.

We have compiled a list of actions based on current tax rules that may help you save tax dollars if you act before year-end.

Tax credits for electric vehicles are still in effect. If you are looking to buy a new car by December 31, be aware that the Inflation Reduction Act introduced various credits for buying both new and used electric vehicles.

Postpone income until 2024 and accelerate deductions into 2023 if doing so will enable you to claim larger deductions, credits, and other tax breaks for 2023 that are phased out at varying levels of adjusted gross income (AGI). However, in some cases, it may be more beneficial to accelerate income into 2023. For example, that may be the case where a person will have a more favorable filing status this year than next or expects to be in a higher tax bracket next year. That is especially a consideration for high-income taxpayers who may be subject to higher rates next year under proposed legislation.

Consider converting traditional-IRA money invested in any beaten-down stocks (or mutual funds) into a Roth IRA in 2023 if eligible to do so. Keep in mind, however, that such a conversion will increase your AGI for 2023 and possibly reduce tax breaks subject to phaseout at higher AGI levels.

Many taxpayers may not be itemizing in 2023 because of the high basic standard deduction amounts that apply ($27,700 for joint filers, $13,850 for singles and for marrieds filing separately, and $20,800 for heads of household), and because many itemized deductions have been reduced or abolished. You may be able to work around these deduction restrictions by applying a bunching strategy to pull or push discretionary medical expenses and charitable contributions into the year where they will provide a tax benefit. For example, if you know that you will be able to itemize deductions this year but not next year, you will benefit by making two years’ worth of charitable contributions this year, instead of spreading out donations over 2023 and 2024.

New rules apply to required minimum distributions (RMDs) from an IRA or 401(k) plan (or other employer-sponsored retirement plan). In general, an IRA owner must take their first RMD for the year in which they reach age 72 (73 if they reach age 72 after December 31, 2022). However, they can delay taking their first RMD until April 1 of the following year. Those who reached age 72 in 2022 must take their first RMD by April 1, 2023, and the second RMD by December 31, 2023. If they reach age 72 in 2023, their first RMD for 2024 (the year they reach 73) is due by April 1, 2025.

If you are age 70½ or older by the end of 2023, have traditional IRAs, and especially if you are unable to itemize your deductions, consider making 2023 charitable donations via qualified charitable distributions from your IRAs. These distributions are made directly to charities from your traditional IRAs, and the amount of the contribution is neither included in your gross income nor deductible on Schedule A of Form 1040. However, you are still entitled to claim the entire standard deduction. (The qualified charitable distribution amount is reduced by any deductible contributions to an IRA made for any year in which you were age 70½ or older, unless it reduced a previous qualified charitable distribution exclusion.)

Know your remaining lifetime exemption and how you will use it before its potential 50% decrease in 2026. Every person is given an amount that is exempt from federal estate, gift, and generation-skipping transfer (GST) tax that they may use during their lifetimes, at death, or a combination of each. In 2023, the lifetime exemption is $12.92 million. Exemption amounts were temporarily doubled as part of the 2017 Tax Cuts and Jobs Act. Any amount unused upon expiration of the temporary doubling will be lost. Married couples that may not utilize the entire exemption of more than $25 million should consider utilizing 100% of one spouse’s exemption to capture at least part of the increase.

Make any gifts sheltered by the annual gift tax exclusion of $17,000. This can be a simple tool to decrease your estate without paying any additional tax.

Consider charitable contributions of appreciated securities, which eliminates income tax on the gain from appreciation while the fair market value is deductible if you itemize (some limitations apply).

Maximize your use of employer-sponsored or self-employed retirement accounts. The maximum contribution that an individual can make in 2023 to a 401(k), 403(b), and most 457 plans in $22,500. People aged 50 and over have the option to make an additional “catch-up” contribution of $7,500 (total $30,000).

Consider increasing the amount you set aside for next year in your employer’s FSA if you set aside too little for this year and anticipate similar medical costs next year.

If you become eligible in December 2023 to make health savings account (HSA) contributions, you can make a full year's worth of deductible HSA contributions for 2023.

If you are an Arizona resident, you can make charitable donations, to certain qualifying organizations, that offset Arizona income taxes (limitations apply).

For additional details about the above-noted items and other potential year-end planning opportunities, please contact your Walker & Armstrong tax professional .

Year-End Income Tax Planning Tips for Businesses, Owners

Tue, 28 Nov 2023 22:20:30 GMT

As the end of the year approaches, now is a good time to consider strategies that might help lower your 2023 tax bill.

The standard year-end approach of deferring income and accelerating deductions to minimize taxes will continue to produce the best results for most small businesses, as will the bunching of deductible expenses into this year or next to maximize their tax value.

We have compiled a list of actions based on current tax rules that may help you save tax dollars if you act before year-end.

Consider elections to pay state entity-level tax for pass-through entities (PTE) before year-end, to claim a current-year state tax deduction against federal taxable income while avoiding the state and local tax (SALT) deduction limitation that applies to individuals who itemize deductions.

Pass-through entities (S corporations or partnerships) and sole proprietorships may qualify for a deduction of up to 20% of their qualified business income (significant limitations apply).

If you are considered a small business with average gross receipts that don’t exceed $29 million, you may have an opportunity to adopt a more favorable method of accounting for income tax purposes that was previously not available to you (i.e., cash basis). Cash-method taxpayers may find it easier to manage taxable income. For example, holding off on billings until next year, accelerating expenses by paying bills early, or making certain prepayments may reduce taxable income for 2023.

Consider acquiring capital equipment that qualifies for 80% first-year bonus depreciation and/or Section 179 first-year expensing elections. Under current tax law, the available bonus depreciation deduction decreases each year until it phases out completely for 2027.

Maximize your contributions to retirement plans and consider year-end accruals for any contributions that are deductible in 2023 but not payable until 2024.

Consider recognizing a bonus to owners and paying it before year-end to deduct it on the 2023 tax returns.

For accrual-basis employers, determine any accrued bonuses for non-owner employees by year-end, deductible in 2023 but paid within 2½ months of year-end.

Determine if there is any opportunity to accelerate or defer income and/or deductions between 2023 and 2024.

Consider eligibility for employment and/or income tax credits resulting from paid family or medical leave, hiring of disadvantaged workers, or other employee retention programs.

For 2023, C corporations may deduct qualified charitable contributions up to 10% of taxable income.

For additional details about the above-noted items and other potential year-end planning opportunities, please contact your Walker & Armstrong tax professional .

Ranking Arizona: Walker & Armstrong #2 statewide

Tue, 14 Mar 2023 18:52:27 GMT

For the fourth straight year, Walker & Armstrong is a Top 10 mid-market Accounting Firm as reported in the 2023 edition of Ranking Arizona. Walker & Armstrong repeats its #2 ranking statewide.

Good News for Pass-Through Entities: IRS Provides Domestic Filing Exception for Schedules K-2, K3

Mon, 09 Jan 2023 17:12:15 GMT

The new exception allows eligible entities to avoid the headaches generally associated with meeting the K-2 and K-3 reporting requirements.

The IRS recently issued revised instructions regarding 2022 Schedules K-2 and K-3 for partnerships and S corporations. In these instructions, the IRS responded to requests for expanded relief and clarity for pass-through entities by adding a new “domestic filing exception.”

You may recall that, beginning with the 2021 tax year, the IRS created two new reporting schedules – K-2 and K-3 – for the stated purpose of providing greater transparency and clarity to partners and shareholders in calculating their U.S. income tax liability from relevant international items.

For most pass-through entities, furnishing the mandated schedules is a complex process that takes significant time and resources. The new exception allows eligible entities to avoid the headaches generally associated with meeting the K-2 and K-3 reporting requirements.

Are You Eligible? The IRS’s updated guidance and the new domestic filing exception provide welcome relief for many partnerships and S corporations. To take advantage of the exception, pass-through entities must meet four criteria:

The entity’s foreign activity, if any, must be limited as described in the form instructions.
If the entity is a partnership, all direct partners must be (a) individuals that are a U.S. citizen or resident alien; (b) domestic trusts or estates with solely U.S. citizen and/or resident alien individual grantors and/or beneficiaries; (c) S corporations with a sole shareholder; or (d) single-member LLCs, where the LLC’s sole member is one of the persons described in (a) through (c).
Partners and shareholders must be timely notified that partners or shareholders will not receive Schedule K-3 unless requested. The eligible entity must notify the partner or shareholder no later than the time at which it furnishes Schedule K-1 to the partner or shareholder. The notice can be provided as an attachment to Schedule K-1.
No 2022 Schedule K-3 requests are made by a partner or shareholder to the qualifying entity on or before the “one-month date” (i.e., one month before the date the qualifying entity files its income tax returns). For example, for a 2022 calendar year partnership filing on extension, the latest one-month date would be August 15, 2023. If a partner or shareholder requests a Schedule K-3 from the entity after the one-month period, the entity has to provide only the information to the requesting partner or shareholder and does not have to file the Schedules K-2 and K-3 with the IRS.

What Is Required of You. If you believe you are a qualifying partnership or S corporation (refer to items 1 and 2 above) and you wish to avoid completing Schedules K-2 and K-3, you will need to set up a formal process for communicating and providing appropriate notice to your partners or shareholders in accordance with the timelines as stipulated by the IRS.

Also, it is extremely important that you maintain (a) documentation to support the notifications you make to your partners or shareholders and (b) any responses you receive. This is a critical step to ensure that there is no ambiguity and/or misunderstanding with your partners or shareholders that could result in your entity’s non-compliance being disqualified for the new exception.

If your entity wants to move forward with the required steps for qualification under the domestic filing exception, we strongly encourage you to:

timely notify, electronically or by mail, your partners or shareholders of your entity’s intention not to provide Schedule K-3 unless specifically requested (refer to item 3 above); and
track and comply with specific requests from partners or shareholders for a Schedule K-3 (refer to item 4 above).

Sample Notification. Here is an example of an e-mail that you can modify for sending to the entity owners to notify them that they will not be provided a Schedule K-3 unless they specifically request it:

Subject Line: [ENTITY NAME] – Schedule K-3 – Tax Year 2022

Dear Owner:

For tax year 2022, [ENTITY NAME] will not be providing to you a Schedule K-3 (Partner/Shareholder’s Share of Income, Deductions, Credits, etc. – International) with your Schedule K-1 package. The entity qualifies for a domestic filing exception because it has no or limited foreign activity. If you need a Schedule K-3, you must request it from us. If you request a Schedule K-3 from us, we will provide it to you within the required timeframe as stipulated by the Internal Revenue Service.

Sincerely,

[ENTITY NAME]

Closing Comments. As we mentioned above, for the communications to qualify as timely notice, the partner or shareholder notification must be made by the qualifying entity no later than the time in which the K-1 is furnished to a partner or shareholder.

Note that if a partner or shareholder makes an untimely request for Schedule K-3 information after the specified one-month period, you have an obligation to provide the Schedule K-3 to the requesting partner or shareholder, but you do not have to file the K-2 and K-3 with the IRS.

Contact Us. As always, please feel free to contact your Walker & Armstrong tax professional with any questions about the new domestic filing exception.

We are available at your request to assist you with addressing the implications of the Schedules K 2 and K 3 reporting requirements to your entity.

Jay Parke is selected for "Az Business Leaders 2023"

Tue, 13 Dec 2022 16:59:42 GMT

Walker & Armstrong senior partner Jay Parke is featured in "Az Business Leaders 2023," published by AZ Big Media.

Inflation Reduction Act: Spending and Revenue Highlights

Mon, 29 Aug 2022 17:29:51 GMT

On August 16, President Biden signed into law the Inflation Reduction Act of 2022, which passed Congress on party-line votes.

According to Investopedia (citing Congressional Budget Office estimates), the $437 billion legislation is projected to raise $737 billion over 10 years, yielding $300 billion in deficit reduction. Estimates from other credible sources vary.

With the stated purpose of reducing the federal deficit and the rate of inflation, the Act seeks to promote, among other objectives, investment in clean energy and reductions in carbon emissions.

As for whether the Act will reduce inflation, only time will tell. In the meantime, here are some highlights of its spending and revenue provisions.

WHAT THE ACT WILL DO

Green Energy. Most of the Act’s outlays are for green energy incentives, mostly in the form of tax credits. In some cases, the credits are extensions and expansions of current credits, such as for electric vehicles or residential energy property.

The residential cle an energy (REEP) credit is 30% of the costs incurred for qualifying clean energy projects placed in service from January 1, 2022 through December 31, 2032. That is an increase from the 26% for property placed in service before January 1, 2022.

The Clean Vehicle Cre dit is extended through 2032, and the limitation on the number of vehicles eligible for the credit has been eliminated (effective for vehicles sold after December 31, 2022). Limitations apply to which vehicles qualify for the credit. The credit for new vehicles remains at $7,500, and a new credit for used vehicles has been added (the lesser of $4,000 or 30% of the purchase price). Credits are subject to an adjusted gross income threshold (eligibility ends at $150,000 for single taxpayers and $300,000 for married couples filing jointly).

As for other provisions:

Energy Security and Climate Change. The Act includes numerous investments in climate protection, including tax credits for households to offset energy costs, investments in clean energy production, and tax credits aimed at reducing carbon emissions.

Medicare Drug Prices. Starting in 2025, Medicare recipients will have a $2,000 cap on annual out-of-pocket prescription drug costs. The Act will allow Medicare to negotiate the price of certain prescription drugs, bringing down the price that some Medicare beneficiaries pay for their medications. (This provision is estimated to generate federal revenues of $265 billion.)

Affordable Care Act (ACA) Premium Subsidy. Federal health insurance premium subsidies, which were scheduled to expire at the end of 2022, are now extended through 2025.

HOW THE ACT WILL BE FUNDED

All revenue estimates are based on Congressional Budget Office (CBO) 10-year estimates.

Corporate Alternative Minimum Tax (AMT). Effective for tax years beginning after 2022, the new corporate AMT is expected to generate $222 billion in tax revenues. It applies only to large corporations with average annual Adjusted Financial Statement Income (AFSI) in excess of $1 billion over the three prior tax years.

Stock Repurchases. The Act includes a 1% excise tax on post-2022 stock repurchases by domestic public corporations whose stock trades on a securities market. (A repurchase is a redemption, or any transaction determined to be economically similar to a redemption.) The tax, projected to raise $74 billion, would not apply if the amount of net buybacks for a corporation is less than $1 million.

IRS Collections. Enhanced tax collection is a key funding source for the Act, which makes a 10-year, $80 billion investment in the Internal Revenue Service to expand the agency’s tax-collection efforts. The enhanced collection efforts are projected to generate $124 billion. Pursuant to a directive issued by Treasury Secretary Yellen, the IRS is not to increase examinations of taxpayers making less than $400,000.

Passthrough Loss Limitations. The Act includes a further extension of the excess business loss limitation of $500,000 annually, as it applies to partnership and S corporations, through 2028. This provision is simply a revenue raiser ($52 billion) and was last extended for the same purpose by the American Rescue Plan Act of 2021.

Small Business Research Credit. In tax years beginning after 2015, certain qualified small businesses have been able claim a limited amount of the research credit against payroll taxes. For tax years beginning after 2022, the Act increases the amount of this limitation from $250,000 to $500,000.

If you have questions about how the Inflation Reduction Act affects your specific situation, please contact your Walker & Armstrong tax professional .

Happy retirement, Peggy Casey

Wed, 13 Jul 2022 15:06:58 GMT

We wish Peggy Casey a long, active and healthy retirement and will always value her impact on Walker & Armstrong and our clients and friends.

Lost Revenue Alert: Coronavirus State and Local Fiscal Recovery Funds (SLFRF)

Fri, 22 Apr 2022 17:55:48 GMT

The final rule offers a standard allowance for revenue loss of $10 million, allowing recipients to select between a standard amount of revenue loss or complete a full revenue loss calculation. Recipients that select the standard allowance may use that amount – in many cases their full award – for government services, with streamlined reporting requirements.

The Final Rule Overview has more detailed information beginning on page 9:

Recipients have two options for how to determine their amount of revenue loss. Recipients must choose one of the two options and cannot switch between these approaches after an election is made.

1. Recipients may elect a “standard allowance” of $10 million to spend on government services through the period of performance.

Under this option, which is newly offered in the final rule Treasury presumes that up to $10 million in revenue has been lost due to the public health emergency and recipients are permitted to use that amount (not to exceed the award amount) to fund “government services.” The standard allowance provides an estimate of revenue loss that is based on an extensive analysis of average revenue loss across states and localities, and offers a simple, convenient way to determine revenue loss, particularly for SLFRF’s smallest recipients.

All recipients may elect to use this standard allowance instead of calculating lost revenue using the formula below, including those with total allocations of $10 million or less. Electing the standard allowance does not increase or decrease a recipient’s total allocation.

2. Recipients may calculate their actual revenue loss according to the formula articulated in the final rule.

Under this option, recipients calculate revenue loss at four distinct points in time, either at the end of each calendar year (e.g., December 31 for years 2020, 2021, 2022, and 2023) or the end of each fiscal year of the recipient. Under the flexibility provided in the final rule, recipients can choose whether to use calendar or fiscal year dates but must be consistent throughout the period of performance. Treasury has also provided several adjustments to the definition of general revenue in the final rule.

The Final Rule Overview did not specify when the option must be chosen. That information was released on April 1, 2022, in Version 2.0 of the Project and Expenditure Report User Guide . Recipients are just now learning the following information on page 38 of the Guide:

8. Revenue Replacement: Recipients will have the option to update or provide information associated with revenue replacement not previously provided as part of prior submissions. Information previously provided as part of the Interim Report (if provided) or Project and Expenditure Report (if provided) will display in this screen.

As outlined in the final rule, recipients will have the option to make a one-time decision to either calculate revenue loss according to the formula outlined in the final rule or elect a “Standard Allowance” of up to $10 million, not to exceed the award allocation, to spend on government services throughout the period of performance. Recipients must make this one-time decision during the April 2022 reporting deadline.

Recipients may choose to calculate their actual revenue loss according to the formula outlined in the final rule. It is important to note that they are not required to use the entire amount of the revenue loss. It is best thought of as a not-to-exceed amount that may be used for provision of government services.

Recipients that choose to calculate their actual revenue loss according to the formula will be required to enter the following data elements in the report:

Base Year General Revenue
Growth Adjustment Used
Year End Date
Actual General Revenue (2020 and 2021)
Estimated Revenue Loss Due to COVID-19 Public Health Emergency
Were Fiscal Recovery Funds used to make a deposit into a pension fund? (yes/no)
An explanation of how revenue replacement funds were allocated to government services

There is not a simple definition for “Base Year General Revenue.” The Final Rule points us back to the Interim Final Rule , which adopted a definition of “general revenue” based largely on the components reported under “General Revenue from Own Sources” in the Census Bureau’s Annual Survey of State and Local Government Finances. The Interim Final Rule defined the term “general revenue” to include revenues collected by a recipient and generated from its underlying economy and would capture a range of different types of tax revenues, as well as other types of revenue that are available to support government services. In calculating revenue, recipients should sum across all revenue streams covered as general revenue.

Common revenue sources that compose general revenue include, but are not limited to the following:

Tax revenues
Charges for services
Intergovernmental transfers between State and local governments
Rents
Royalties
Lottery proceeds
Fines
All revenue from Tribal enterprises and gaming operations

The following revenue sources are excluded from the definition of general revenue:

Intergovernmental transfers from the Federal government
Utility revenue
Social insurance trust revenue

Treasury published a general revenue table in the Appendix to the Coronavirus State and Local Fiscal Recovery Funds Frequently Asked Questions (FAQ) that was most recently updated in January 2022. It helpfully provides, on the final page (43), a diagram of included and excluded revenue sources . The Final Rule adjusted the definition to allow recipients that operate utilities that are part of their own government to choose whether to include revenue from these utilities in their revenue loss calculation. The Final Rule also clarified in the text that revenue includes liquor store revenue.

The growth adjustment is the greater of either a standard growth rate — 5.2 percent — or the recipient’s average annual revenue growth in the last full three fiscal years prior to the COVID-19 public health emergency. Note that the standard growth rate was 4.1% in the Interim Final Rule but was updated to 5.2% in the Final Rule. Recipients should also note that the growth rate is compounded annually. Let’s make certain assumptions and show a hypothetical set of calculations:

Base Year General Revenue = $10,000,000 for the year ended 12/31/2019
Growth Adjustment Used = standard growth rate of 5.2%
Year End Date = 12/31/2019
Actual General Revenue: $8,000,000 for the year ended 12/31/2020, and $9,000,000 for the year ended 12/31/2021

Estimated Revenue Loss Due to COVID-19 Public Health Emergency

2020 revenue would have been $10,000,000 + 5.2% = $10,520,000 - $8,000,000 = $2,520,000 lost revenue
2021 revenue would have been $10,000,000 + (5.2% squared) 10.67% = $11,067,000 - $9,000,000 = $2,067,000 lost revenue

Recipients may not yet have considered how to allocate revenue replacement funds to government services. The FAQ provides a non-exhaustive list of areas to consider:

The Interim Final Rule gives recipients broad latitude to use funds for the provision of government services to the extent of reduction in revenue. Government services can include, but are not limited to, maintenance of infrastructure or pay-go spending for building new infrastructure, including roads; modernization of cybersecurity, including hardware, software, and protection of critical infrastructure; health services; environmental remediation; school or educational services; and the provision of police, fire, and other public safety services.

Recipients may be unsure whether a particular infrastructure upgrade, such as fire hydrants, would be an eligible cost in the “Public Health and Economic Impacts” or “Water, Sewer & Broadband Infrastructure” sections of the Fund. Using the “Replacing Lost Public Sector Revenue” section for projects provides greater flexibility as well as streamlined reporting and compliance requirements.

For the explanation of how revenue replacement funds were allocated to government services, recipients will want to consider language that is sufficiently granular to meet Treasury’s minimum reporting requirements while not being overly specific to lock themselves prematurely into a particular course of action. Another consideration is to avoid using revenue replacement funds to fund support services that are included in the recipient’s indirect cost pool. That approach could have the effect of transforming indirect cost pool expenditures into direct costs, thereby reducing the negotiated indirect cost rate down the road.

Summary

Recipients are facing decisions regarding Revenue Replacement that must be made quickly so they can be implemented in the SLFRF quarterly or annual report. Recipients must:

determine whether to use the Standard Allowance or to calculate lost revenue using the formula;
enter an amount of revenue loss; and
describe how they plan to allocate the funds.

New partners at Walker & Armstrong

Thu, 31 Mar 2022 18:53:41 GMT

Walker & Armstrong LLP is very pleased to announce the partner promotions of four of our firm's service area leaders.

Promoted to partner are:

Kimberly Bolligar , Tax Services
Curtis Bright , Audit and Assurance
Teresa Cairo , Tax Services
Lisa Parke , Audit and Assurance

"Each of these highly valued professionals has demonstrated a level of character, commitment, and competence that warrants their elevation to high-level leadership positions within our firm,” said senior partner Jay Parke in announcing the promotions. "They personify our firm’s core values of integrity, accountability, positive attitude and respect, and they comprise a solid foundation for our future growth and success."

From our offices in Phoenix, Tucson and Carefree , Walker & Armstrong provides tax , audit and advisory services to businesses , individuals, local government entities , tribal governments , and not-for-profit entities .

Founded in 1971, our firm is ranked #2 statewide by Ranking Arizona among midsize accounting firms.

Ken Mason named Advisory Services Director

Tue, 15 Mar 2022 17:20:05 GMT

A graduate of the Wharton School of Finance at the University of Pennsylvania and for several years the manager of the firm’s Advisory Services practice, Ken offers over 40 years of financial experience in the for-profit and not-for-profit sectors and in serving local governments , tribal governments and tribal entities.

Jay Parke presents "COVID-19 Funding and Compliance" at ASCPA Governmental Accounting Conference

Mon, 07 Feb 2022 17:55:32 GMT

Walker & Armstrong audit partner Jay Parke presented "COVID-19 Funding and Compliance" at the Arizona Society of Certified Public Accountants' 2022 Governmental Accounting Conference on February 4.

Form 1099: Basics for Business

Fri, 07 Jan 2022 16:12:13 GMT

are eng aged in a trade or business, regardless of entity type (i.e., individual/sole proprietor, LLC, s-corporation, not-for-profit, etc.), or

own ren tal property that you operate for profit.

You are required to issue a Form 1099 to any business or non-employee to whom you paid, during 2021, in the course of your trade or business, at least:

$600 in serv ices provided (i.e., landscapers, repair companies, maintenance providers, property managers, accountants, attorneys, architects, engineers, photographers, entertainers, consultants) ( Form 1099-NEC )

$600 in payment to medical or healthcare providers (Form 1099-MISC )

$600 in rents, including rentals of machines or equipment (Form 1099-MISC )

$600 in prizes or awards (Form 1099-MISC )

$10 in royalties (Form 1099-MISC )

$10 in interest (Form 1099-INT )

$10 in dividends (Form 1099-DIV )

The above list is not all-inclusive, but it does include the more common types of payments that must be reported on a Form 1099.

If you would like our assistance in preparing your 1099s, please contact your Walker & Armstrong professional.

Arizona Tax Credits Offer Choices for the Use of Your Tax Dollars

Wed, 01 Dec 2021 15:15:55 GMT

Arizona taxpayers can directly offset a portion of their Arizona income taxes by making charitable contributions to four types of qualifying entities:

Private school tuition organizations
Qualified charitable organizations
Qualified foster care organizations
Public schools (district and charter)

The tax credits are subject to limitations, and there are different categories of credits with maximum contribution limits, based on your filing status (i.e., married filing jointly vs. single).

Visit https://aztaxcreditfunds.com/wa-cpas for more information and for assistance in donating directly to qualifying organizations of your choice.

We do not endorse or recommend any specific organizations. There are certain organizations displayed under each category, but the lists are not all-inclusive (there is a link under each credit that provides a full listing of qualifying organizations as published by the Arizona Department of Revenue). You may donate to any of these qualifying organizations.

If you have a question about making an Arizona tax credit charitable contributions, please contact your Walker & Armstrong tax professional .

Employee Retention Tax Credit Ends Retroactive to September 30

Mon, 15 Nov 2021 22:19:25 GMT

If you claimed the credit for wages paid in October and November and reduced your tax deposits accordingly, those amounts must now be deposited .

Among its many provisions, the Federal Infrastructure Investment and Jobs Act (IIAJ), which President Biden signed into law on November 15, 2021, retroactively ends the Employee Retention Tax Credit (ERTC) to apply only through September 30, 2021.

The tax credit was originally set to expire December 31, 2021.

As a result of the ERTC’s retroactive termination, most employers (see exception below) may not claim the credit with respect to wages paid after September 30. If you claimed the credit for wages paid in October and November and reduced your tax deposits accordingly, those amounts must now be deposited.

While the “late” deposits may be subject to a penalty under IRC Section 6656, we anticipate that the IRS will issue guidance to help employers comply and, hopefully, provide relief from the late-deposit penalty.

You may need to contact your payroll service provider to review your payroll tax compliance (including tax deposits) to ensure that you can avoid negative consequences from the retroactive law change.

Exception . The new expiration date does not apply to “recovery startup businesses,” i.e., a business that began operations after February 15, 2020; has annual gross receipts of $1 million or less; employs one or more employees (other than 50% owners); and does not otherwise qualify for the ERTC.

Background . The ERTC was adopted as part of the Federal CARES Act that was passed in the spring of 2020, to encourage employers to retain employees during the pandemic. Congress later extended and modified the ERTC to apply to wages paid before January 1, 2022.

If you have additional questions or concerns about the retroactive termination of the ERTC, please contact your Walker & Armstrong tax professional .

What You Should (and Should Not) Do If You Receive Mail from the IRS or State Tax Agencies

Mon, 23 Aug 2021 23:46:39 GMT

Most letters and notices from tax agencies are about tax returns or tax accounts, pertain to a specific issue, and include specific instructions on what to do.

Every year the IRS and state tax agencies mail letters or notices to taxpayers for many different reasons. Typically, it’s about a specific issue with a taxpayer’s tax return or tax account. A notice may tell them about changes to their account, ask for more information, or advise them that a tax payment is due.

Here are some do’s and don’ts for anyone who receives mail from the IRS or state tax agencies:

Don’t ignore it. Most letters and notices are about tax returns or tax accounts, pertain to a specific issue, and include specific instructions on what to do.

Don’t throw it away. Keep any notices or letters you receive. These include adjustment notices (when an action is taken on the taxpayer’s account) and, most recently, Economic Impact Payment notices and letters about advance payments of the 2021 child tax credit. You may need to refer to these communications when filing your 2021 tax return, and you should retain for three years from the date you filed your tax return.

Don’t panic. Tax agencies and their authorized private collection agencies do send letters by mail. Most of the time, all the taxpayer needs to do is read the letter carefully and take the appropriate action.

Don’t reply unless you are instructed to do so. There is usually no need to reply to a notice unless you are specifically instructed to do so. On the other hand, if a tax payment is due, you should reply with your payment. IRS.gov has information about payment options .

Do review the information. If a letter is about a changed or corrected tax return, review the information and compare it with the original return. If you agree, make notes about the corrections on your personal copy of the tax return and keep it for your records.

Do respond to a disputed notice. If you don’t agree with the tax agency, you should send a letter (or have us do it) explaining why you dispute the notice. You should mail your response to the address on the contact stub included with the notice and include information and documents for the agency to review when considering the dispute.

Do take timely action. A notice may reference changes to your account, taxes owed, a payment request, or a specific issue on a tax return. Your prompt action could minimize additional interest and penalty charges.

Do remember there is usually no need to call the IRS or other tax agency. If you must contact the IRS by phone, use the number in the upper right-hand corner of the notice. When you call the agency, have in front of you the agency’s letter and a copy of your tax return. And be prepared for a long wait time before the phone is answered.

Do avoid scams. The IRS will never contact you via social media or text message, and will not ask you to pay over the phone. They will direct you to an online payment portal on their official website. The first contact from the IRS usually comes in th e mail. If you are unsure if you owe money to the IRS, you can view your tax account information on the IRS website.

We can help. If you receive a notice, please provide it to us immediately for our review. We will advise you if there is any action to be taken in response to the notice. We will retain the notice in our records for further analysis when preparing your tax returns.

Question? Please contact your Walker & Armstrong tax professional .

Webinar on Demand: "Cyber-insecurity: How Safe Is Your Data?"

Mon, 19 Jul 2021 06:02:09 GMT

In our May 26, 2021, webinar, audit partner Jay Parke (Walker & Armstrong) and Certified Ethical Hacker Michael Cocanower (itSynergy) and helped our audience members identify cybersecurity threats and discussed procedures for protecting their data.

If you could not attend our webinar, or if you want to see it again, click here to view it on YouTube !

Coronavirus Relief Fund for Tribes: "Subrecipient" vs. "Beneficiary" and Compliance Topics

Wed, 31 Mar 2021 16:00:07 GMT

Tribes should follow authoritative guidance from the federal government in reporting recipients of pass-through CRF funding.

More about: Walker & Armstrong's services to Tribal governments

Tribal corporations or other business-type entities;

Tribal schools;

non-profit organizations; and

other subordinate or external entities.

Recipients under the following types of programs are not considered subrecipients of federal funding but are instead considered beneficiaries:

General Welfare Emergency Assistance Program (GWEAP); and

Small Businesses (costs of business interruption or reopening safely).

Tribes should follow authoritative guidance from the federal government in making the above determinations.

Subrecipient vs. Beneficiary

What are the characteristics of a subrecipient versus those of a beneficiary? The Uniform Guidance informs us that a pass-through entity is defined as a subrecipient if it carries out part of a Federal award received by the pass-through entity.” Tribes may have taken the following steps to communicate clearly that the following applicants were receiving funds to carry out parts of a Federal award:

Tribal corporations, schools, non-profit organizations and other applicants may have been required to provide detailed budgets and budget narratives.

Applicants other than Tribal departments may have been required to complete subrecipient monitoring forms and supporting documents for the Tribe to perform a risk assessment.

Applicants other than Tribal departments that received awards may have been required to execute subrecipient agreements.

Subrecipient Monitoring

Tribes should understand that by issuing awards to subrecipients (subawards), they were undertaking certain obligations.

First, it is important to define our terms as set forth in 2 CFR 200.1 :

Subaward means an award provided by a pass-through entity to a subrecipient for the subrecipient to carry out part of a Federal award received by the pass-through entity. It does not include payments to a contractor or payments to an individual that is a beneficiary of a Federal program. A subaward may be provided through any form of legal agreement, including an agreement that the pass-through entity considers a contract.

Subrecipient means an entity, usually but not limited to non-Federal entities, that receives a subaward from a pass-through entity to carry out part of a Federal award; but does not include an individual that is a beneficiary of such award. A subrecipient may also be a recipient of other Federal awards directly from a Federal awarding agency

2 CFR 200.331 goes on to say:

(a) Subrecipients. A subaward is for the purpose of carrying out a portion of a Federal award and creates a Federal assistance relationship with the subrecipient. See definition for Subaward in § 200.1 of this part. Characteristics which support the classification of the non-Federal entity as a subrecipient include when the non-Federal entity:

(1) Determines who is eligible to receive what Federal assistance;

(2) Has its performance measured in relation to whether objectives of a Federal program were met;

(3) Has responsibility for programmatic decision-making;

(4) Is responsible for adherence to applicable Federal program requirements specified in the Federal award; and

(5) In accordance with its agreement, uses the Federal funds to carry out a program for a public purpose specified in authorizing statute, as opposed to providing goods or services for the benefit of the pass-through entity.

Now we turn to the Compliance Supplement for a discussion of Subrecipient Monitoring beginning on page 121.

Compliance Requirements

A pass-through entity (PTE) must:

Identify the Award and Applicable Requirements – Clearly identify to the subrecipient:

(1) the award as a subaward at the time of subaward (or subsequent subaward modification) by providing the information described in 2 CFR section 200.331(a)(1);

(2) all requirements imposed by the PTE on the subrecipient so that the federal award is used in accordance with federal statutes, regulations, and the terms and conditions of the award (2 CFR section 200.331(a)(2)); and

(3) any additional requirements that the PTE imposes on the subrecipient in order for the PTE to meet its own responsibility for the federal award (e.g., financial, performance, and special reports) (2 CFR section 200.331(a)(3)).

Evaluate Risk – Evaluate each subrecipient’s risk of noncompliance for purposes of determining the appropriate subrecipient monitoring related to the subaward (2 CFR section 200.331(b)). This evaluation of risk may include consideration of such factors as the following:

(1) The subrecipient’s prior experience with the same or similar subawards;

(2) The results of previous audits including whether or not the subrecipient receives single audit in accordance with 2 CFR part 200, subpart F, and the extent to which the same or similar subaward has been audited as a major program;

(3) Whether the subrecipient has new personnel or new or substantially changed systems; and

(4) The extent and results of federal awarding agency monitoring (e.g., if the subrecipient also receives federal awards directly from a federal awarding agency).

Monitor – Monitor the activities of the subrecipient as necessary to ensure that the subaward is used for authorized purposes, complies with the terms and conditions of the subaward, and achieves performance goals (2 CFR sections 200.331(d) through (f)). In addition to procedures identified as necessary based upon the evaluation of subrecipient risk or specifically required by the terms and conditions of the award, subaward monitoring must include the following:

(1) Reviewing financial and programmatic (performance and special reports) required by the PTE.

(2) Following-up and ensuring that the subrecipient takes timely and appropriate action on all deficiencies pertaining to the federal award provided to the subrecipient from the PTE detected through audits, on-site reviews, and other means.

(3) Issuing a management decision for audit findings pertaining to the federal award provided to the subrecipient from the PTE as required by 2 CFR section 200.521.

The preceding section provides the background for the steps that Tribes may have taken to ensure that the Tribe and its subrecipients maintained compliance with the requirements of the CRF:

Subrecipient Monitoring Form for risk assessment;
Subrecipient Agreement to identify the award, requirements and monitoring procedures;
Selecting a Tribal financial official to serve as fiscal monitor; and
Selecting a qualified employee or contractor to serve as project monitor.

Single Audit

Treasury’s FAQs include these key questions and answers:

7. Are Fund payments considered federal financial assistance for purposes of the Single Audit Act?

Yes, Fund payments are considered to be federal financial assistance subject to the Single Audit Act (31 U.S.C. §§ 7501-7507) and the related provisions of the Uniform Guidance, 2 C.F.R. § 200.303 regarding internal controls, §§ 200.330 through 200.332 regarding subrecipient monitoring and management, and subpart F regarding audit requirements.

13. What are the differences between a subrecipient and a beneficiary under the Fund for purposes of the Single Audit Act and 2 C.F.R. Part 200, Subpart F regarding audit requirements?

The Single Audit Act and 2 C.F.R. Part 200, Subpart F regarding audit requirements apply to any non-federal entity, as defined in 2 C.F.R. 200.69, that receives payments from the Fund in the amount of $750,000 or more. Non-federal entities include subrecipients of payments from the Fund, including recipients of transfers from a State, territory, local government, or tribal government that received a payment directly from Treasury. However, subrecipients would not include individuals and organizations (e.g., businesses, non-profits, or educational institutions) that are beneficiaries of an assistance program established using payments from the Fund. The Single Audit Act and 2 C.F.R. Part 200, Subpart F regarding audit requirements do not apply to beneficiaries.

One point of clarification is that Single Audit is required for any subrecipient that expends $750,000 or more in a year. Treasury likely assumed in its answer to #13 that all funds received in 2020 would be expended in 2020.

Conclusion

Tribes should have relied on the above authoritative guidance in determining their responsibilities for proper administration of CRF funds that they passed through to other entities. Subrecipients of the CRF that expended $750,000 or more of federal funds in Fiscal Year 2020 can look forward to further guidance with regard to the Single Audits that they will be required to undergo.

SEE ALSO

Good News for Tribes: One-Year Extension of Coronavirus Relief Fund

Thu, 21 Jan 2021 16:49:20 GMT

The $900 billion stimulus package that became law on December 27 includes an extension of the Coronavirus Relief Fund (CRF), to December 31, 2021.

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Thanks to the CRF extension to December 31, 2021, Tribes now have the opportunity to step back, assess where to go from here, and utilize the CRF to achieve project completion.

This article provides a framework for that assessment and sets the stage for a series of future articles that delve into various topics with an overall goal of successful utilization and close-out of the CRF.

Treasury Department Notice

On December 28, 2020, the Department of the Treasury distributed the following email:

Subject : Notice to Coronavirus Relief Fund Recipients

The Consolidated Appropriations Act, 2021, extends the period during which recipients may incur eligible costs that may be covered using payments from the Coronavirus Relief Fund (CRF) to December 31, 2021 (Division N, Title X, Section 1001). President Trump signed the legislation on December 27, 2020, and the change is effective immediately.

References to “December 30, 2020” in Treasury guidance dated September 2, 2020 ( https://home.treasury.gov/system/files/136/Coronavirus-Relief-Fund-Guidance-for-State-Territorial-Local-and-Tribal-Governments.pdf ) and Frequently Asked Questions dated October 19, 2020 ( https://home.treasury.gov/system/files/136/Coronavirus-Relief-Fund-Frequently-Asked-Questions.pdf ) should be read as “December 31, 2021” in all instances related to the use of funds to cover costs incurred under Section 601(d)(3) of the Social Security Act. Treasury will update its guidance to reflect this change to the statute in the near future.

Please ensure that your subrecipients are aware of the one-year extension of the period of available use of the CRF.

Eligible Costs

As stated above, the Treasury guidance regarding eligibility of costs should now read:

“The CARES Act provides that payments from the Fund may only be used to cover costs that—

are necessary expenditures incurred due to the public health emergency with respect to the Coronavirus Disease 2019 (COVID–19);

were not accounted for in the budget most recently approved as of March 27, 2020 (the date of enactment of the CARES Act) for the State or government; and

were incurred during the period that begins on March 1, 2020, and ends on December 31, 2021.”

Projects

The questions that are uppermost in many minds pertain to project planning. On December 22, the Native American Finance Officers Association (NAFOA) hosted a Tribal Leader Town Hall that answered two urgent questions:

Can Tribes continue the projects that are underway?

Can Tribes undertake new projects?

The answer to both questions is "yes," with three important caveats.

First, the projects must be in response to COVID-19.

Second, the new completion deadline is December 31, 2021.

Third, the projects are subject to budgetary constraints.

The third caveat takes us to our next topic.

Budget

Tribes face multiple challenges in ascertaining where they stand financially. Ideally, Tribes established budgets for various initiatives and created codes in their accounting systems for tracking purposes as discussed in our May 13, 2020, article, “ CARES Act Funding for Tribal Governments .”

Even with the proper structure in place, there are still a number of moving parts, such as:

tracking project financial progress against the budget;

managing unanticipated cost overruns or savings; and

tracking subrecipient financial performance.

The quarterly financial report that Treasury required to be submitted on January 11, 2021, provided a useful checkpoint in ascertaining a Tribe’s financial standing. The greater the ease of preparing the report, the more confidence that a Tribe can have in knowing the condition of its CRF funding. It is important to note any challenges that arose and to develop corrective actions that promote greater accountability and provide actionable information for decision-making.

Planning

The key question that we invite all readers to ask is this: What is the best and highest use of the remaining CRF funding?

If any projects were shelved because they could not be completed in 2020, do they continue to present the greatest benefit to the community, or should the funds be repurposed?

The past ten months have been a learning experience in many ways. Assumptions regarding community needs have been challenged. Organizational capacities have been changed or stretched on the fly. Tribes are encouraged to leverage these lessons learned and incorporate them into their planning for 2021 and beyond.

As previously noted, this article is intended as the first of a series. Future planning topics may include:

Compliance Activities
Audit Preparation
Close-Out

Readers are invited to submit additional topics or questions related to the above topics. The hope is to stimulate thinking across Indian Country and provide a vehicle for sharing questions and recommendations. As always, the ultimate goal is to help Tribes provide the greatest hope for better lives for their members.

SEE ALSO

IRS Expands "Identity Protection PIN" to Taxpayers Nationwide

Mon, 11 Jan 2021 18:42:03 GMT

As part of its ongoing security measures, the Internal Revenue Service has expanded the IRS Identity Protection PIN (IP PIN) Opt-In Program to all taxpayers who can properly verify their identities. The IRS urges taxpayers to opt in to the IP PIN program in 2021, to take proactive measures against identity theft.

The IP PIN is a six-digit number assigned to eligible taxpayers to help prevent the misuse of their Social Security number on fraudulent federal income tax returns. An IP PIN helps the IRS verify a taxpayer’s identity and accept their electronic or paper tax return.

The online tool utilizes Secure Access authentication, which uses several different ways to verify a person’s identity. The authentication process is very thorough, and the IRS encourages taxpayers, before using the “Get an IP PIN” tool, to review the requirements at IRS.gov/SecureAccess .

After you have passed the Secure Access authentication, your IP PIN will immediately appear on your screen.

Visit Get An Identity Protection PIN ( www. IRS.gov/IPPIN )

Persons who cannot pass Secure Access authentication and have incomes of $72,000 or less may complete Form 15227 and submit it to the IRS. Taxpayers with income greater than $72,000 may make an in-person appointment with a Taxpayer Assistance Center.

Taxpayers who obtain an IP PIN should never share their code with anyone except their trusted tax provider. The IRS will never call to request the taxpayer’s IP PIN, and taxpayers must be alert to potential IP PIN scams.

Here’s what taxpayers need to know about the IP PIN before applying:

The “Get an IP PIN” tool is the preferred method of obtaining an IP PIN and the only one that immediately reveals the PIN to the taxpayer.

Taxpayers with either a Social Security number or Individual Tax Identification Number who can verify their identities are eligible for the opt-in program.

The IP PIN is valid for one year. Each January, the taxpayer must obtain a newly generated IP PIN.

To avoid rejections and delays, your IP PIN must be properly entered on electronic and paper tax returns.

Any primary taxpayer (listed first on the return), secondary taxpayer (listed second on the return) or dependent may obtain an IP PIN if they can pass the identity proofing requirements.

The IRS plans to offer, in 2022, an opt-out feature to the IP PIN program for taxpayers who find it is not right for them.

Please contact us if we can be of any assistance in obtaining an IP PIN or if you have any questions about whether the program is appropriate for you.

Covid-19 Stimulus II: A Look at the Major Provisions

Wed, 30 Dec 2020 16:52:53 GMT

The $900 billion coronavirus relief bill that became law Sunday evening offers important benefits for most employers, small businesses and families. Here are some of the highlights.

STIMULUS PAYMENTS TO INDIVIDUALS AND FAMILIES

Households will receive a maximum of $600 per adult and $600 for each child. The payments start phasing out when 2019 individual adjusted gross income exceeds $75,000 ($150,000 for married couples filing jointly) or when head-of-household income exceeds $112,500. For individuals without dependent children, the payments go to zero when an individual’s AGI reaches $87,000 ($174,000 for married couples).

According to the Treasury Department, issuance of the $600 stimulus payments began on December 29.

PAYCHECK PROTECTION PROGRAM

For many business owners, self-employed persons, not-for-profit entities, etc., the second round of stimulus benefits includes $285 billion for a familiar friend, with the return of the Paycheck Protection Program (PPP).

Eligible Borrowers. New PPP loans are available to qualified first-time borrowers and borrowers that previously received a PPP loan. Previous borrowers must have used, or show that they will use, the full amount of their first PPP loan.

In contrast to the first round of PPP, round two benefits only privately owned (a) “small” borrowers (i.e., fewer than 300 employees per location) that (b) experienced revenue declines of more than 25% in the first, second or third quarter of 2020 (as compared to the same quarter in 2019). Borrowers that apply after December 31 can use their gross receipts from the fourth quarter of 2020.

For loans under $150,000, the application process has been simplified.

Public companies are not eligible, and neither are entities that are affiliated with entities in the People’s Republic of China.

Loan Amounts. The maximum loan is $2 million, and borrowers can choose an eight- or 24-week forgiveness period. As before, the loan calculation 2.5x payroll and payroll costs for the period chosen. (Eligible companies in the Accommodation and Food Services industry can use a 3.5x factor.)

Deductibility of PPP Forgiveness Expenses. This is a major benefit: Any expenses that you used in applying for forgiveness and that are normally tax-deductible are now also tax-deductible to the extent that tax laws otherwise allow.

Business costs that you can use to get forgiveness for your PPP loan (e.g., payroll, payroll-related expenses, rent, and mortgage interest) still apply and have been expanded to include:

other costs of operations;

some property damage costs, such as uninsured losses caused by public unrest;

essential expenditures to a supplier pursuant to a contract, purchase order, etc.; and

costs of protecting workers from Covid-19.

This is a partial list, and the expenditures described are subject to various restrictions not mentioned here.

The 60/40 cost allocation, between payroll and non-payroll costs, that has been required for receiving full forgiveness still applies.

The requirement to restore your full-time employees and salaries and wages to previous levels before the pandemic has been extended. Your loan forgiveness may still be reduced based on the number of employees and employee salary that fell more than 25%

OTHER FINANCIAL RELIEF

Among other provisions that provide Covid-19-related relief are the following:

The Employee Retention Tax Credit has been extended to July 1, 2021. The credit rate is increased from 50% to 70% of qualified wages, eligibility is extended, and the limit on per-employee creditable wages is increased from $10,000 for the year to $10,000 for each quarter. (See a Forbes magazine article for more on the changes to this tax credit .)

To help restaurants, the new law allows you to deduct 100% of your business meals provided by a restaurant during 2021 and 2022.

For charitable givers, the above-the-line charitable contribution is extended through 2021 and is increased to $600 for those married filing jointly (the limit remains at $300 for other filers). This means taxpayers will be able to take the standard deduction and still deduct up to $600 in charitable giving when calculating their taxable income.

It almost goes without saying that a $900 billion piece of legislation cannot be adequately discussed in under a thousand words, but we hope that knowing about these highlights will help you in funding your business or organization in the coming months.

Preparing for the New GASB Lease Standard

Fri, 23 Oct 2020 16:15:15 GMT

GASB 87 is effective for governments with a June 30 year-end for the year ending June 30, 2022. ¹ Recently, the Arizona Auditor General issued (with our gratitude) the following guidance, which we have revised only slightly.

In June 2017, the Governmental Accounting Standards Board (GASB) issued “Statement No. 87 – Leases” (GASB 87). GASB 87’s objectives are to enhance the information needs of financial statement users by:

improving how governments report leases;
enhancing the comparability of financial statements between governments; and
improving the relevance, reliability, and consistency of information about governments’ leasing activities.

GASB 87 modifies the definition of leases for reporting purposes. Accordingly, governments must determine whether contracts that convey the right to use another entity’s nonfinancial asset, such as property, equipment and vehicles — including contracts not explicitly identified as leases — must be reported as leases under GASB 87.

See also: “ Accounting for Leases ” (Government Finance Officers Association)

Governments may enter into leases for many types of assets. Under previous guidance, leases were classified as either capital or operating leases — depending on whether the lease met certain criteria — with different reporting requirements for each type. GASB 87’s definition of leases excludes contracts that transfer ownership; therefore, such contracts previously classified as capital leases are not covered by GASB 87 requirements and are instead reported as financed purchases.

Other previously classified capital and operating leases will now be accounted for under a single reporting model that requires:

lessees to recognize a lease liability and an intangible right-to-use leased asset; and
lessors to recognize a lease receivable and a deferred inflow of resources.

It is more common for a government to be a lessee (leasing property or equipment), but a government may also be a lessor if, for example, it leases unused space to a third party.

The new lease accounting standards represent the most far-reaching changes GASB has introduced in several years. For governments with a significant volume of leases, implementation efforts may take well over a year.

Also, implementation may significantly impact not just the finance department, but also many departments and stakeholders at various levels across the organization.

Finally, changes in processes and internal controls are likely necessary to identify all material leases ² and capture the underlying data as necessary to efficiently apply the new lease standard.

WHAT SHOULD YOU BE DOING NOW TO PREPARE?

Achieving compliance requires early planning and assessment. Governments should become familiar with the new standard, identify key personnel and responsibilities, and develop a comprehensive plan that includes implementation milestones.

One of the biggest implementation challenges that governments will face is determining their complete population of leases. Determination and analysis of the lease population, as further discussed below, will aid in the successful implementation of GASB 87.

Take a complete inventory of all contracts to identify the lease population. Not every lease under the new standards will be called a lease in its existing contract. Also, leases may be embedded within service contracts and agreements.

For example, a school district’s contract for student transportation services may include the use of the contractor’s buses. If the contract allows the school district to control aspects of how those buses are used, that service contract may include an embedded lease of buses under GASB 87.

Procedures to help identify leases, including embedded leases, may include the following:

Consult with legal and procurement departments and with employees who are most familiar with contracting processes.

Consult with operational departments, as needed, to identify contracts maintained in decentralized systems outside the business or procurement areas.

Scrutinize accounts payable data to identify significant vendors and recurring payments that could be lease arrangements under the new guidance.

Analyze rent expenses and revisit rental agreements for property and equipment.

Evaluate construction projects and related agreements for potential lease arrangements.

Review service contracts that include the use of tangible assets to provide the related services.

Re-evaluate previous operating leases in which the government is the lessor, to ensure proper recognition of lease receivables and deferred inflows of resources under the new guidance.

The individuals with the best knowledge of contracts should help identify unrecorded leases, taking a close look at all operations. Governments should undertake careful upfront planning to identify a complete lease population and, as new and modified contracts are executed, establish appropriate policies and procedures. Identifying embedded leases can involve considerable time and judgment because, in the past, many of those contracts may not have been identified as leases.

Analyze the lease population and determine scope. After all potential leases have been identified, the government should evaluate and analyze them to determine if they meet the new GASB 87 criteria. Excluded from GASB 87 reporting are leases that:

are determined to be short-term (i.e., those with a total possible term of 12 months or less) or
transfer ownership of the underlying asset.

Governments should work closely with their internal and external auditors to determine appropriate materiality thresholds for lease reporting. This materiality assessment should consider the significance of the lease liability and asset for lessees, and the lease receivable and deferred inflow of resources for lessors. Governments should revisit their lease thresholds at least annually to ensure that all material leases, either individually or in the aggregate, are reported.

Identify opportunities to leverage technology as part of the implementation process. The new lease standard requires significantly more data and calculations to produce accounting journal entries and disclosures for lease reporting.

Governments that identify numerous leases across departments should consider centralizing storage and management of lease agreements using IT solutions to facilitate transition to the new lease standard. Governments that choose to implement a new IT tool to manage leases will need to allow additional time in their implementation process to ensure the new tool will be fully operational.

CONCLUSION

As should be clear after a review of this guidance, understanding, preparing for and complying with GASB 87 will require advance planning, attention to detail, and the assistance of the government entity’s audit firm.

As always, Walker & Armstrong’s audit and advisory services teams stand ready to advise and assist our local and tribal government and quasigovernmental clients, and to provide staff training as needed.

To initiate the process of preparing for GASB 87, contact your Walker & Armstrong audit professional today.

[1] GASB Statement No. 95 – Postponement of the Effective Dates of Certain Authoritative Guidance.

[2] GASB standards need not be applied to immaterial items.

The Coronavirus Relief Fund for Tribes: Administrative Leave

Mon, 20 Jul 2020 22:16:01 GMT

The new Treasury Guidance has opened a door for Tribes to continue providing for their employees’ financial needs without having to deplete their reserves.

SEE ALSO

We interpret the language to mean that Tribes can recoup from the Fund the cost of administrative leave that they provided to government employees due to the stated reasons. Under that interpretation, Tribes can recover the costs of providing administrative leave to employees who have been unable to work during the entire time that their operations have been shut down during stay-at-home orders or due to occurrences of COVID-19 in the workplace. We have consulted with colleagues in the accounting and legal professions who are advising Tribes in CARES Act matters, and they concur with our interpretation.

We note that there is no restriction regarding the job duties or classifications of the affected employees. This is a major departure by Treasury, which has included restrictive language in other sections of the Guidance regarding payment of wages and fringes using the Fund. This may be a game-changer for Tribes and may even portend further relaxation of Fund eligibility requirements down the road.

IMPLEMENTATION

Tribes will need to structure their administrative leave programs to create a strong documentation trail. Here are essential elements to consider:

Adopt an administrative leave policy that specifies the conditions under which employees qualify to receive leave.

Coordinate the policy with other leave policies. For instance, consider the impact of vacation and sick leave accruals and whether to require that other leave be taken before an employee may take administrative leave.

Establish a special pay code in your payroll system to isolate wages paid and fringe benefit costs incurred under the program.

Identify and document the employees who have been sent home and are unable to work.

Determine the effective dates for the program. The earliest beginning date should be the initial award of administrative leave on or after the date of the initial shutdown or stay-at-home mandate, but there may not be continuous eligibility due to reopening and reclosing.

Create a time record for each affected employee in each pay cycle to support their continued participation in the program.

Create a separate program in the general ledger to support Treasury reporting.

SCOPE

The question has arisen: Can or should Tribes transfer wages and fringes from other federal awards for the affected employees? The corollary question is: Must they apply the same approach to all federal awards equally? There are pros and cons to consider.

Pro

Transferring federal dollars will use the Fund more quickly.

The transfer would relieve a financial burden on programs that receive a Tribal supplement due to inadequate federal funding.

Con

The wages and fringes will not earn indirect costs if they are transferred (unless Treasury allows indirect costs, indirect-type costs, or administrative charges down the road).

The wages and fringes may already have been reported to the awarding agencies, which will necessitate revised reports.

There is guidance from the Office of Management and Budget, the Department of Labor and the Department of Justice (to name a few) that they are allowing wages and fringes for employees who cannot work.

The transfer is likely to result in many awards with spending below budget, with an ensuing administrative burden related to the carryover balance.

We believe that the case is clear cut in favor of transferring the allowable wages and fringes from the general fund to the Fund. Tribes just need to recognize that transferring wages from the indirect cost pool will reduce the actual indirect costs earned during the year, which will create an over-recovery that factors into the negotiated rate two years from now.

On balance, for the reasons stated above, we tend not to favor transferring wages and fringes from other awards into the Fund. However, we believe that it is allowable and that each Tribe must decide based on its individual facts and circumstances. For Tribes that decide to transfer federal money, we strongly encourage adopting a consistent approach across all awards.

CONCLUSION

The new Treasury Guidance has opened a door for Tribes to continue providing for their employees’ financial needs without having to deplete their reserves. This is a welcome development in a time of great need.

Tips for Secure Credit Card Usage

Mon, 13 Jul 2020 18:08:02 GMT

Best practices and strategies to avoid fraudulent use of your credit card:

Import credit card data directly into your accounting system.

Distinguish card usage for business versus personal transactions.

Issue cards to individuals rather than sharing a business card.

Understand the billing cycle; keep balances low, and pay your bill on time and in full.

Avoid unnecessary balance transfers between cards.

Monitor your charges regularly, either online or via your monthly statement.

Ask frequently used vendors whether they have "purchasing” cards that work only for their locations (e.g., fuel cards).

Never enter your credit card number when using unsecured public Wi-Fi networks.

In making online purchases, use only secure website addresses that include the "https" prefix.

If you do not initiate the call, do not share your card number with unverified representatives.

Do not email or say in public your card number or security code.

Choose your passwords carefully, and change them regularly.

Disable autofill in your browser.

Log out after every transaction.

Shred receipts.

Consider the use of mobile apps (such as SAP Concur , Genius Scan , Expensify or Rydoo ) to capture credit card activity, submit transactions for business reimbursement, and maintain for recordkeeping.

The Coronavirus Relief Fund for Tribes: July 8 Update

Wed, 08 Jul 2020 20:49:01 GMT

This article discusses the Treasury Department's latest Guidance and explores in greater depth the assistance to Tribal businesses and related parties.

SEE ALSO

(The link in the first paragraph originally pointed the reader to Guidance that was issued on June 24, 2020. Now it takes you to brand-new guidance that was issued today. There is an important update regarding administrative leave for governmental employees, which we will cover in our next article.)

New Guidance

Page 8 of the FAQ states that payments from the Fund may be used to meet non-federal matching requirements for Stafford Act assistance. Tribes that had been deterred from applying for Federal Emergency Management Agency (FEMA) funding due to matching requirements may want to reconsider their decision.

Page 8 now makes explicit that per capita payments are not eligible for reimbursement from the Fund. Tribes that have previously made per capita distributions now appear to be faced with two unappealing options.

Option 1: Try to recharacterize the distribution as emergency assistance after the fact. That would require the legal structure and administrative aspects discussed in our article, " The Coronavirus Relief Fund for Tribes ," to be put in place. It would also require the Tribe’s auditors to get comfortable that the program was successfully brought into compliance with the General Welfare Exclusion Act and CARES Act requirements. We recommend that any Tribes considering this option consult with their outside accountants or auditors as the first step in a process that is bound to be burdensome.

Option 2: Charge per capita distributions to the fund normally used – most likely the general fund or a per capita major fund. This will mitigate against questioned costs arising during the Tribe’s Single Audit. Again, we recommend that Tribes consult with their accountants or auditors.

Page 8 also states that Fund payments may be provided to non-profits for distribution to individuals in need of financial assistance related to COVID-19. Tribes already had discretion to provide assistance to political subdivisions, businesses or individuals. We will explore this topic in the second section of this article.

Tribes may use the Fund to remarket their convention facilities and tourism industry. By extension, this includes their gaming properties. The FAQ states that the costs of such remarketing must satisfy the requirements of the CARES Act and has exclusionary language regarding a long-term plan to reposition the Tribe’s properties in the marketplace.

The FAQ provides a very helpful clarification regarding payroll expenses. Treasury is allowing the entire payroll cost of an employee whose time is substantially dedicated to mitigating or responding to the COVID-19 public health emergency. We renew our previous advice to maintain thorough documentation of employee time and effort to support charges to the Fund.

Assistance to Tribal Businesses and Related Parties

Tribes may have complex legal structures that include enterprises or other related parties that are defined as component units for financial statement reporting as well as entities that are not component units but are still part of the Tribe. The latter category may include schools, traditional Villages, or enterprises with a governance structure that excludes them from treatment as component units. Tribes may consider passing portions of the Fund to these entities to administer on behalf of their stakeholders.

We hear that some Tribes are asking, “Can we transfer funds to our casinos to cover their lost revenue?” and “What should we consider in making that determination?”

The FAQ has language that may shed some light concerning a variety of fund transfers scattered throughout the document, so let’s start by gathering it in one place.

May a State receiving a payment transfer funds to a local government? Yes, provided that the transfer qualifies as a necessary expenditure incurred due to the public health emergency and meets the other criteria of section 601(d) of the Social Security Act. Such funds would be subject to recoupment by the Treasury Department if they have not been used in a manner consistent with section 601(d) of the Social Security Act.

May a unit of local government receiving a Fund payment transfer funds to another unit of government? Yes. For example, a county may transfer funds to a city, town, or school district within the county, and a county or city may transfer funds to its State, provided that the transfer qualifies as a necessary expenditure incurred due to the public health emergency and meets the other criteria of section 601(d) of the Social Security Act outlined in the Guidance. For example, a transfer from a county to a constituent city would not be permissible if the funds were intended to be used simply to fill shortfalls in government revenue to cover expenditures that would not otherwise qualify as an eligible expenditure.

The Guidance provides that eligible expenditures may include expenditures related to the provision of grants to small businesses to reimburse the costs of business interruption caused by required closures. What is meant by a “small business,” and is the Guidance intended to refer only to expenditures to cover administrative expenses of such a grant program? Governments have discretion to determine what payments are necessary. A program that is aimed at assisting small businesses with the costs of business interruption caused by required closures should be tailored to assist those businesses in need of such assistance. The amount of a grant to a small business to reimburse the costs of business interruption caused by required closures would also be an eligible expenditure under section 601(d) of the Social Security Act, as outlined in the Guidance.

The Guidance provides that expenses associated with the provision of economic support in connection with the public health emergency, such as expenditures related to the provision of grants to small businesses to reimburse the costs of business interruption caused by required closures, would constitute eligible expenditures of Fund payments. Would such expenditures be eligible in the absence of a stay-at-home order? Fund payments may be used for economic support in the absence of a stay-at-home order if such expenditures are determined by the government to be necessary. This may include, for example, a grant program to benefit small businesses that close voluntarily to promote social distancing measures or that are affected by decreased customer demand as a result of the COVID-19 public health emergency.

May Fund payments be used to assist impacted property owners with the payment of their property taxes? Fund payments may not be used for government revenue replacement, including the provision of assistance to meet tax obligations.

The Guidance provides that ineligible expenditures include “[p]ayroll or benefits expenses for employees whose work duties are not substantially dedicated to mitigating or responding to the COVID-19 public health emergency.” Is this intended to relate only to public employees? Yes. This particular nonexclusive example of an ineligible expenditure relates to public employees. A recipient would not be permitted to pay for payroll or benefit expenses of private employees and any financial assistance (such as grants or short-term loans) to private employers are not subject to the restriction that the private employers’ employees must be substantially dedicated to mitigating or responding to the COVID-19 public health emergency.

Must a State, local, or tribal government require applications to be submitted by businesses or individuals before providing assistance using payments from the Fund? Governments have discretion to determine how to tailor assistance programs they establish in response to the COVID-19 public health emergency. However, such a program should be structured in such a manner as will ensure that such assistance is determined to be necessary in response to the COVID-19 public health emergency and otherwise satisfies the requirements of the CARES Act and other applicable law. For example, a per capita payment to residents of a particular jurisdiction without an assessment of individual need would not be an appropriate use of payments from the Fund.

May Fund payments be provided to non-profits for distribution to individuals in need of financial assistance, such as rent relief? Yes, non-profits may be used to distribute assistance. Regardless of how the assistance is structured, the financial assistance provided would have to be related to COVID-19.

Are Fund payments considered federal financial assistance for purposes of the Single Audit Act? Yes, Fund payments are considered to be federal financial assistance subject to the Single Audit Act (31 U.S.C. §§ 602-230-1040 and the related provisions of the Uniform Guidance, 2 C.F.R. § 602-230-1040 regarding internal controls, §§ 602-230-1040 through 602-230-1040 regarding subrecipient monitoring and management, and subpart F regarding audit requirements.

If a State transfers Fund payments to its political subdivisions, would the transferred funds count toward the subrecipients’ total funding received from the federal government for purposes of the Single Audit Act? Yes. The Fund payments to subrecipients would count toward the threshold of the Single Audit Act and 2 C.F.R. part 200, subpart F re: audit requirements. Subrecipients are subject to a single audit or program-specific audit pursuant to 2 C.F.R. § 602-230-1040(a) when the subrecipients spend $750,000 or more in federal awards during their fiscal year.

Key Points

Does any of the above seem confusing or contradictory? In a word, yes. Does it seem to open a door to Tribes providing funds to casinos so the casinos can make distributions back to the Tribes? We hear that some Tribes may want to interpret the Guidance in support of that position. We have drilled into this topic to emphasize first principles and try to bring perspective that helps Tribes weigh factors effectively in their decision-making process.

Here are four key points that we believe Tribes should consider:

Fund payments retain their character as federal financial assistance, whether made directly by Tribes or passed through to subrecipients.

Fund payments made to or on behalf of Tribal entities count toward the $750,000 threshold for the entity to be subject to Single Audit.

Tribes must be prepared to perform subrecipient monitoring.

Expenditures from the Fund, regardless of which entity spends them, are subject to the eligibility restrictions in the CARES Act.

We previously recommended that, when Tribes consider how to provide assistance to businesses, they do so in a manner that does not risk the business becoming a subrecipient of the award. We have engaged in subsequent consultations that lead us to believe that is not possible. However, Tribes can get a leg up on subrecipient monitoring by providing the assistance on a cost-reimbursement basis ― i.e., reimburse costs that are substantiated by receipts and additional supporting documents in the case of significant purchases.

Procurement

We noted that the above Guidance referred to certain requirements of the Uniform Guidance but not others. We checked out the CFDA listing and found this nugget:

The following 2CFR policy requirements are excluded from coverage under this assistance listing:

Subpart B, General provisions

Subpart C, Pre-Federal Award Requirements and Contents of Federal Awards

Subpart D, Post Federal; Award Requirements

Subpart E, Cost Principles

Subpart D is the section that includes Procurement Standards (§§ 602-230-1040.

Does this mean that Tribes have liberty to waive procurement standards when using the Fund? Yes, if they go about it correctly. Remember that the Tribe is bound by the stricter of the federal standard or the Tribe’s standards as set forth in its procurement code, ordinance, policies and procedures. The Tribal Council may pass a resolution that waives its procurement standards when using the Fund, either on a case-by-case basis or for the life of the Fund.

Subpart E, Cost Principles is also excluded from coverage.

Does this mean that Tribes have liberty to spend the Fund in a lavish or extravagant manner? A prudent Tribe will not test that question for two technical reasons:

The Fund guidance states, “The statute also specifies that expenditures using Fund payments must be 'necessary.' The Department of the Treasury understands this term broadly to mean that the expenditure is reasonably necessary for its intended use in the reasonable judgment of the government officials responsible for spending Fund payments.”

Subpart F, Audit Requirements does apply to the Fund. § 602-230-1040(c) Scope of audit - Internal control makes reference to the compliance supplement that auditors will follow when testing expenditures.

The compliance supplement is projected to be issued in September 2020 and may provide definitive guidance regarding allowable costs. Until such time, the prudent course of action is to rely on the Fund guidance that, to be allowable, costs must be reasonably necessary.

Aside from the above technical considerations, we always urge Tribes to be good stewards of the resources that are available to them.

Expenditure Timing

The June 30 update provides important clarifications regarding costs that were incurred between March 1, 2020, and December 30, 2020 (the “covered period”). Here are the highlights:

Goods or services must be received during the covered period, but payment can occur later (generally within 90 days). There must be a COVID-19-related necessity for the goods or services to be received in that time frame.

Leases of equipment and other property are eligible expenditures only for the covered period, regardless of when they are paid. For example, let’s say you enter into a one-year lease for $10,000 for the period July 1, 2020, through June 30, 2021. The Fund will cover only the first six months, or $5,000 of the lease costs.

Goods delivered in the covered period need not be used during the covered period in all cases. Treasury is allowing bulk purchases to the extent that there is consistency with the Tribe’s procurement policies and practices and the goods will begin to be used in the covered period.

The guidance states, “… the touchstone in assessing the determination of need for a good or service during the covered period will be reasonableness at the time delivery or performance was sought[.]” Tribes that are considering stockpiling goods are advised to be mindful of the principle that, to be allowable, costs must be reasonably necessary.

Treasury recognizes the likelihood of supply chain disruptions that may delay delivery until after the covered period ends. They will allow the Fund expenditure if the Tribe obtained a contractual commitment from the vendor to deliver the goods by December 30, 2020, and delivery was delayed due to circumstances beyond the Tribe’s control.

This guidance applies in a like manner to costs of subrecipients. The Tribe will need to monitor its subrecipients’ activities to ensure that they adhere to the same principles and practices.

Closing Thoughts

Tribes have now received their shares of both the first 60% distribution from the Fund and the final 40% distribution. They continue to operate in an environment that is replete with unknowns, although updates to the Guidance are helping to a degree. Tribes are relying on trusted advisors to help them navigate uncharted waters.

The pandemic continues to cause hardships and uncertainty in people’s lives. Tribes are continuing their efforts to “flatten the curve” and protect the health and well-being of their people. Despite their best efforts, I know personally one Tribal employee who caught the virus and another whose father lost his life to the virus. I am sadly sure that many of my readers can share such stories. We continue to pray for you and your loved ones.

Tips for Identity Protection

Mon, 15 Jun 2020 17:59:20 GMT

Identity theft remains a serious issue across the United States, and we would like to remind taxpayers to be on alert for identity theft scam artists.

Thieves steal identities in a number of ways, including using card-skimming devices, access through unsecure Wi-Fi, stealing mail, a data breach, or hacking email accounts to obtain log-in passwords and financial data. They also use "phishing" schemes or use false pretenses to obtain personal information.

To help prevent being the victim of identity theft, we recommend the following:

Do not carry identification with your social security number (SSN) on it.

If someone asks for an SSN, always ask why, because it is not always required.

Keep personal and confidential information in a secure place.

Take extra precautions when discarding personal or confidential information.

Protect personal computers, smartphones and other devices by using anti-virus software.

Use strong passwords, and never share your passwords.

Check your free credit report annually (at, for example, www.annualcreditreport.com ).

Monitor wage earnings by examining your statement from the Social Security Administration.

Never give personal information through email, social media or text messaging. Unless you initiated the call, never give personal information over the phone.

Please remember that the taxing agencies (e.g., the Internal Revenue Service and the Arizona Department of Revenue) will never:

use unsolicited email, text messages or any social media to discuss your personal tax issue

call demanding immediate payment or about taxes owed without first having mailed out an official notice

demand you pay taxes without giving you the opportunity to question or appeal the stated amount owed

require you to use a specific payment method to pay your taxes, such as a prepaid debit card

threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.

If you are a victim of identity theft or receive a suspicious call from a taxing agency, please contact us and we can advise you of the appropriate steps to take.

The Coronavirus Relief Fund for Tribes

Mon, 01 Jun 2020 20:14:13 GMT

As Tribes await receipt of the final 40% distribution of Fund proceeds, now is the time to focus on eligible expenditures that will deliver lasting benefits to Tribal members.

This article will focus on certain second-order effects that our clients and other Tribal leaders are seeking to mitigate. They fall into three broad categories:

economic impacts to Tribal members and households;

economic impacts to Tribal entrepreneurs and businesses; and

how to open up safely into the “new normal.”

SEE ALSO

Assistance to Tribal Members and Households

Tribes are considering how to support their members and employees who have been furloughed, laid off, had their work hours reduced, or have incurred additional household expenses due to the health impacts of COVID-19 and the lockdowns imposed by governments to try to flatten the curve. We have read and heard about Tribes that have declared per capita distributions using the Fund. We do not advise that approach, because these distributions appear to be taxable to the recipients and do not appear to be eligible for reimbursement from the Fund. Instead, we join a chorus of legal and accounting experts who are advising Tribes to provide emergency assistance that will be non-taxable to the recipients and eligible to be paid from the Fund.

Distributions to Tribal members can be structured so that they (1) qualify for exclusion from gross income pursuant to the Tribal General Welfare Exclusion Act of 2014 and (2) conform to the CARES Act. The key structural elements are:

Develop an emergency assistance program that conforms to the General Welfare Exclusion Act. The program should be defined with sufficient breadth to accommodate future emergencies, not just the current situation. We recommend consulting with an attorney who has expertise with regard to the General Welfare Exclusion Act.

Pass a Tribal Council resolution that speaks to the hardships being experienced by the Tribe and its members, the need to promote the general welfare of the Tribe and its members, and the necessity of using the Fund to preserve the availability of Tribal funds for other needs. Again, we recommend consulting with an attorney to craft appropriate language.

Develop a survey or application process to demonstrate the hardships that members are experiencing due to the impacts of COVID-19. We believe that it is key that only members who submit survey responses or applications are eligible to receive assistance.

There will be an administrative burden on the Tribe to distribute, collect and certify the completed surveys or applications. The labor and supply costs associated with this effort are deemed to be eligible expenditures of the Fund.

Assistance to Tribal Businesses

Tribes are considering how to support Tribal enterprises and Tribal members’ businesses. Members who are entrepreneurs or operate small businesses are likely incurring revenue losses and other financial hardships that will qualify them to receive emergency assistance as discussed in the preceding section. Businesses that have storefronts or other physical facilities, regardless of their ownership structure, may also incur costs related to re-opening safely. Costs may include:

personal protective equipment for employees and customers

disinfecting and sanitizing the physical space (initial and ongoing)

physical alterations to promote safety

touchless technology.

We discussed in our previous article that the Fund may ultimately be considered a federal award that is subject to Single Audit. On May 28 (updated June 24 and July 8), the Department of the Treasury issued a Frequently Asked Questions memo (see page 9) that they have assigned a Catalog of Federal Domestic Assistance (CFDA) number.

We recommend that, when Tribes consider how to provide assistance to businesses, they do so in a manner that does not risk the business becoming a sub-recipient of the award. This is best accomplished by providing the assistance on a cost reimbursement basis ― i.e., reimburse costs that are substantiated by receipts and additional supporting documents in the case of significant purchases.

Opening Up Safely Into the “New Normal”

Earlier Fund guidance, which was updated on June 30, 2020 ( see PDF ), states that medical expenses and expenses of actions to facilitate compliance with COVID-19-related public health measures are eligible. The guidance provides the following examples that this article will discuss regarding eligible expenses to:

establish and operate public telemedicine capabilities for COVID-19-related treatment

facilitate distance learning, including technological improvements, in connection with school closings to enable compliance with COVID-19 precautions

improve telework capabilities for public employees to enable compliance with COVID-19 public health precautions.

How can Tribes provide their members with the tools and training required for successful telemedicine, distance learning, and telework capabilities? Our vision for robustly addressing these needs is that every household will have a laptop PC, and every school-age child will have a tablet. These devices will have broadband access to the internet, and the users will have the knowledge to operate them. Tribes are painfully aware that there are numerous obstacles that must be overcome. To name just a few, there is widespread lack of:

reliable power extended to communities and scattered homes

a fiber backbone or other high-speed telecommunication

secure data channels for sensitive information

in-house expertise to build out a wide area network

computer literacy in the population behind the digital divide.

Tribes have a tremendous challenge in designing solutions that banish the digital divide. The Fund provides a tremendous opportunity in the form of funding for these solutions, which may encompass:

microgrids to provide reliable power

fiber or satellite channels for voice and data transmission

distribution, installation and training in support of household technology solutions

server capacity and security solutions in support of telework

ongoing support that is culturally appropriate.

We imagine a near future in which the following occurs:

Tribal elders can receive mental health support – face to face at a safe distance – to help them cope with social isolation.

Children can engage in educational activities in their homes with rich content tailored to their individual needs.

Tribal employees or members with outside employment can telecommute as needed.

Tribes know better than we do the specific needs of their communities. Visioning exercises are not a “one size fits all” proposition but must instead be adaptable to the needs and challenges that each Tribal community faces. Technology partners must be engaged and solutions must be designed that achieve results quickly.

The May 28 Treasury guidance, which was updated June 24 and July 8 (see Frequently Asked Question s), states that expenditures to expand rural broadband capacity are eligible uses of Fund payments only if they are necessary for the current public health emergency.

We bring the perspective of experienced teleworkers, as I write this article in my home office with previous experience rolling out a virtual private network from a main campus to over a dozen locations.

Closing Thoughts

Tribes have received their shares of the first 60% distribution from the Fund. They have just submitted data to the U.S. Department of the Treasury for allocation of the final 40% distribution. They continue to operate in an environment that is replete with unknowns. They are relying on trusted advisers to help them navigate uncharted waters.

The pandemic continues to cause hardships and uncertainty in people’s lives. Many Tribes have taken decisive action to “flatten the curve” and protect the health and well-being of their people. We pray for the success of these efforts.

CARES Act Funding for Tribal Governments

Wed, 13 May 2020 20:14:15 GMT

The sheer size of the Coronavirus Relief Fund will have a significant impact on major fund determination for many Tribes’ audited financial statements.

The federal CARES Act* enacted on March 27, 2020, provides funding to be directed to Tribal governments from a number of Federal agencies.

As of this writing, we have tracked the following sample of new contracts, contract modifications and relief funding available to our clients:

Indian Self Determination Contracts with the Indian Health Service (IHS contract modifications)

Indian Self Determination Contracts with the Bureau of Indian Affairs (BIA contract modifications)

CARES Act for Nutrition Services for Native American Programs under Title VI of the OAA (new formula grant from HHS)

Child Care Supplemental Funds (discretionary funding from HHS)

FEMA Public Assistance (PA) Program (must be applied for pursuant to an emergency declaration by Tribes that have an Emergency Plan)

Public Health Emergency Preparedness – COVID-19 (amendment to an Intergovernmental Agreement with a State Health Department)

the Coronavirus Relief Fund, which began distributing the first $4.8 billion in early May 2020.

SEE ALSO

Restricted Funds

All of the above funds are restricted as to time and purpose. In other words, they must be expended within certain periods of availability (time restriction) for purposes that are identified in the award documents. The Coronavirus Relief Fund will typically be the largest dollar amount and cites allowability provisions in the CARES Act, so let’s use it as an example by quoting from the Guidance for State, Territorial, Local, and Tribal Governments dated April 22, 2020.

“The CARES Act provides that payments from the Fund may only be used to cover costs that—

are necessary expenditures incurred due to the public health emergency with respect to the Coronavirus Disease 2019 (COVID–19);
were not accounted for in the budget most recently approved as of March 27, 2020 (the date of enactment of the CARES Act) for the State or government; and
were incurred during the period that begins on March 1, 2020, and ends on December 30, 2020.”

The guidance goes on to state that the funds are explicitly not for revenue replacement. This provision is highly likely to be challenged by Tribes and their advocates, but we advise Tribes to perform their planning activities in accordance with the guidance that is currently in effect.

Broadly stated, the eligible expenditures include COVID-19-related:

Medical expenses
Public health expenses
Payroll expenses for “front line” personnel
Expenses of actions to facilitate compliance with COVID-19-related public health measures (this item is interesting because it includes telecommunications and technology, which merit further discussion in a future article)
Expenses associated with the provision of economic support in connection with the COVID-19 public health emergency
Any other COVID-19-related expenses reasonably necessary to the function of government that satisfy the Fund’s eligibility criteria.

Tribes will need to study carefully the terms and conditions of the award documents for the grants and contracts other than the Coronavirus Relief Fund. We are working with Tribal personnel to develop a matrix that will bring together the time restrictions and purpose restrictions so they can effectively prioritize which funds they will use first for which purposes. There is considerable overlap in allowable activities from the different funding sources, which calls for thoughtful planning.

Action Items

We recommend that Tribes form interdisciplinary task forces to facilitate and coordinate their planning efforts. Tribal Executives, Administration, public health professionals, public safety personnel, human services, human resources and finance leaders all have roles to play in planning the following activities:

Assess the needs of the Tribal government, businesses and community members that arise from the public health emergency and the likely “new normal”

Develop approaches and first steps for addressing these needs

Set priorities and timelines

Develop budget estimates (high, low and probable)

Identify the funding sources to be used for each planned activity, taking into consideration the eligible purposes and time restrictions of each funding source.

Accountability

Tribes are asking us for advice on how to track these funds. When we saw the initial funding come in from IHS, we thought about how Tribes can best demonstrate accountability by structuring the funding in their charts of accounts. The major objectives in our view are:

Prepare the required Federal Financial Reports (SF-425 or other) or financial reports to pass-through entities such as States

Properly report the funds in the audited financial statements

Prepare an accurate Schedule of Expenditures of Federal Awards (SEFA)

Equip Tribal Councils to provide to their Tribal members financial reporting that ties together all of the funding streams related to COVID-19 response.

We developed this simple “decision tree” for guidance in implementing COVID-19 funds in their charts of accounts:

Fund

A new award should be assigned a new fund number.
A contract modification should be added to the existing fund.

Department

If a Tribe has a program or project segment in its chart of accounts, then the funds can be assigned to the departments that are responsible for administering the funds.
Otherwise, we recommend creating a unique COVID-19 Response department that is used across the organization in all funds.

Program or Project

We recommend creating a unique COVID-19 Response program or project that is used by all departments across the organization in all funds.

The Great Unknown

As of this writing, no one knows if the Coronavirus Relief Fund will be assigned a number in the Catalog of Federal Domestic Assistance (CFDA). When deciding on a fund number, we believe the safest approach is to assume that the Fund will eventually have a CFDA number and be reported on the SEFA. If that does not come to pass, no harm done.

What we do know is that the sheer size of the Fund will have a significant impact on major fund determination for many Tribes’ audited financial statements. It will be important for financial statement preparers to consider qualitative and quantitative criteria when we are developing the structure for Fiscal Year 2020 financial statements because we also need to look forward to Fiscal Year 2021 and beyond.

Closing Thoughts

It seems surreal to write an article about technical accounting issues during a global pandemic. We are all living in a reality that hardly anyone but the most imaginative science fiction writer could have postulated. We are all navigating uncharted waters as best we can. It is being said over and over but it bears repeating ... we are all in this together. We pray for the good health, safety and general well-being of our colleagues in the accounting industry, our clients and, most of all, the Tribal community members who we all serve.

*Coronavirus Aid, Relief, and Economic Security Act.

Uniform Guidance: A Post-Implementation Recap

Fri, 16 Jun 2017 20:31:37 GMT

Auditees, auditors and regulators can move forward with a more modernized accounting of federal awards, increased efficiency and an improved audit process.

Those of you who either receive or audit federally fund awards have had the opportunity to become fully immersed in the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance).

Issuance of the Uniform Guidance dusted off the rules and regulations from nearly two decades of trials, tribulations and experiences encountered by auditees and auditors. It also provides a refreshed look at what constitutes federally funded expenditures worthy of audit consideration within a more organized uniform framework of requirements.

Regardless of the underlying nature of the federal award recipient, whether for a state or local government, hospital, higher education or nonprofit organizations, the uniform guidance applies across the board from which all participants are reading from the same script. With more than years under our belt, now is a good time for a period of post-implementation introspection on how the “Super Circular” has lived up to its name.

Worthy of modern technology, the Uniform Guidance has been electronically codified with well-organized subparts starting with a list of acronyms and definitions, general provisions, pre-federal award requirements, post federal award requirements, cost principles, and audit requirements. Accordingly, the reader can easily navigate the Uniform Guidance and drill down to the applicable regulation with precision and efficiency.

One of the most refreshing aspects of the Uniform Guidance was the consolidation and elimination of eight separate OMB Circulars. No more trying to clarify the differences between circulars or evaluating the applicability of a myriad of circulars to individual recipient circumstances.

According to the OMB, the objectives of the Uniform Guidance were to:

Change the focus from compliance to performance

Eliminate conflicting and duplication of cost principles

Provide consistent and transparent treatment of costs

Improve and strengthen federal agency oversight

Improve administration of federal awards from the application through the close-out process

Provide better identification of risks associated with federal awards

Target the audit for risk of fraud or waste

In 2013, it was estimated that approximately 5,000 nonfederal entities would be relieved of the single audit requirements due to raising the annual federal expenditure threshold to $750,000. With $600 billion dollars in federal grants awarded annually, it was time to focus on the dollars expended and provide some relief to the small recipients. An overarching objective of the OMB and federal agencies was consideration about how grant policies could be reformed to increase the efficiency and effectiveness of federal programs and eliminate unnecessary and duplicative requirements by focusing on areas that emphasize achieving better outcomes at a lower cost.

The Uniform Guidance also provides relief to the recipients in that they can elect to charge a de minimis indirect cost rate of 10% of modified total direct costs if they choose not to apply indirect costs under either the simplified or direct allocation methods. This is especially useful for not-for-profits who may not have had a federally negotiated indirect cost rate.

In addition, there were several reporting changes affecting non-federal entities under the Uniform Guidance including:

Subrecipient amount must now be shown on the face of the schedule of expenditures of federal awards (SEFA) including the pass-through entity’s identifier number.

Auditees may list amounts expended separately by year for multiple federal award years.

Loan amounts from the beginning of year plus any new additions must be shown on the face of the SEFA (for loans in which the federal government imposes continuing compliance requirements) and disclosure in the notes to the SEFA of the outstanding loan balances at the end of the year.

Notes to the SEFA must include a disclosure as to whether the non-federal entity elected to use the 10% de minimis cost rate.

Corrective action plan must include both financial statement and compliance findings and anticipated completion date.

Another change is that the issuance deadline for the data collection form (Form SF-SAC) has been extended under the Uniform Guidance to the next business day when the deadline falls on a weekend or holiday. Federal agencies can no longer grant a waiver of the deadline and the consequences to the auditee for not meeting the deadline is a material weakness in compliance.

Criteria for a low-risk auditee had changes which require the auditee to meet all of the following conditions for each of the preceding two audit periods:

Single audits on an annual basis (i.e. no biennial audits)

Unmodified auditor’s opinion on the financial statements or in relation to the SEFA

No material weaknesses identified in the report under GAGAS (Yellow Book)

Auditor did not report a substantial doubt as to the entities ability to continue as a going concern

No audit findings of Type A federal programs for the preceding two audit periods for (a) material weaknesses or modified opinion in the report on internal control for major programs and (b) no known or likely questioned costs

The Uniform Guidance also provides auditors with changes, including:

$750,000 minimum threshold requiring a single audit (up from $500,000)

$750,000 (or 3% of total federal expenditures) for Type A programs (up from $300,000)

Type A program determination no longer considers inherent risk

$187,500 (or 25% of Type A expenditure threshold) for Type B programs (up from $100,000)

A need to sufficiently document basis for determining the classification of a program as low versus high-risk

Lowered the minimum “percentage of total expenditures test” to 20% for low-risk auditees and 40% for high-risk auditees (these percentages were previously 25% and 50%, respectively)

Must classify a program as a Type A high-risk if, in the most recent period, the auditor issued a modified opinion (i.e., material weakness) or there were known questioned costs exceeding 5% of the total of that program’s expenditures

Raised the threshold to $25,000 for known or likely questioned cost of an audited major program or known questions costs of a non-audited federal program (up from $10,000)

Summary schedule of prior audit findings must include both financial statement and compliance findings

As for auditor compliance testing of major programs, two of the prior general requirements under OMB Circular A-133 consisting of the prevailing wage regulations under the Davis-Bacon Act and real property acquisition and relocation assistance were removed from the compliance supplement. However, certain programs retained wage-rate requirements in the special tests and provisions section.

Recent Development. Effective for fiscal years beginning on or after December 26, 2017, nonfederal entities are to have implemented changes to their procurement policies and procedures in accordance with sections 602-230-1040 through 602-230-1040 of the Uniform Guidance. Many nonfederal entities are finding the procurement policies and procedures requirement as noted below more restrictive:

Documented procurement procedures that reflect federal law, Uniform Guidance standards, and any state regulations

Focus on the most economical solution during the procurement process and avoid using federal funds for acquisition of unnecessary items

Written conflict-of-interest policies that include restricting employees or agents from participating in the procurement process if they have an actual or apparent conflict of interest

Must document the procurement activities including the basis for the type of procurement, contract type and basis for selection and price

Recipient of federal awards must maintain an appropriate level of oversight

Conclusion

For auditees, the super-circular has been super challenging with the additional work necessary to update policies and procedures to comply with the revised procurement requirements and cost principles. However, on a positive note, the level of documentation for personnel time and effort reporting requirements has become more flexible.

So, looking back, did the Uniform Guidance achieve its objectives? There certainly has been a significant investment by auditors and auditees to learn and implement the new requirements. However, now empowered with this knowledge, auditees, auditors and regulators have moved forward with a more modernized accounting of federal awards, increased efficiency and an improved audit process.

Storing Tax Records: How Long Is Long Enough?

Thu, 14 Aug 2014 18:39:05 GMT

The three-year rule applies to many business and personal tax records, but in some cases records must be retained for up to six years or longer.

Federal law requires you to maintain copies of your tax returns and supporting documents for three years. The “three-year rule” leads many people to believe they’re safe provided they retain their documents for that period of time.

However, if the IRS believes you have significantly underreported your income (by 25% or more) or believes there may be indication of fraud, the IRS may go back six years in an audit.

Create a Backup Set of Records and Store Them Electronically

Keeping a backup set of records – including, for example, bank statements, tax returns, insurance policies, etc. – is easier than ever, now that many financial institutions provide statements and documents electronically, and much financial information is available on the Internet.

Even if the original records are provided only on paper, they can be scanned and converted to a digital format. Once the documents are in electronic form, taxpayers can download them to a backup storage device, such as an external hard drive, or burn them onto a CD or DVD (don’t forget to label it).

You might also consider online backup, which is the only way to ensure that data is fully protected. With online backup, files are stored in another region of the country, so that if a hurricane or other natural disaster occurs, documents remain safe.

Caution: Identity theft is a serious threat in today’s world, and it is important to take every precaution to avoid it. After it is no longer necessary to retain your tax records, financial statements, or any other documents with your personal information, you should dispose of these records by shredding them and not disposing of them by merely throwing them away in the trash.

Business Documents To Keep For One Year

Correspondence with customers and vendors
Duplicate deposit slips
Purchase orders (other than purchasing department copy)
Receiving sheets
Requisitions
Stenographer notebooks
Stockroom withdrawal forms

Business Documents to Keep for Three Years

Employee personnel records (after termination)
Employment applications
Expired insurance policies
General correspondence
Internal audit reports
Internal reports
Petty cash vouchers
Physical inventory tags
Savings bond registration records of employees
Time cards for hourly employees

Business Documents to Keep for Six Years

Accident reports, claims
Accounts payable ledgers and schedules
Accounts receivable ledgers and schedules
Bank statements and reconciliations
Cancelled checks
Cancelled stock and bond certificates
Employment tax records
Expense analysis and expense distribution schedules
Expired contracts, leases
Expired option records
Inventories of products, materials, supplies
Invoices to customers
Notes receivable ledgers, schedules
Payroll records and summaries, including payment to pensioners
Plant cost ledgers
Purchasing department copies of purchase orders
Sales records
Subsidiary ledgers
Time books
Travel and entertainment records
Vouchers for payments to vendors, employees, etc.
Voucher register, schedules

Business Records to Keep Forever

While federal guidelines do not require you to keep tax records “forever,” in many cases there will be other reasons you’ll want to retain these documents indefinitely:
Audit reports from CPAs/accountants
Cancelled checks for important payments (especially tax payments)
Cash books, charts of accounts
Contracts, leases currently in effect
Corporate documents (incorporation, charter, by-laws, etc.)
Documents substantiating fixed asset additions
Deeds
Depreciation schedules
Financial statements (year end)
General and private ledgers, year end trial balances
Insurance records, current accident reports, claims, policies
Investment trade confirmations
IRS agents’ reports
Journals
Legal records, correspondence and other important matters
Minute books of directors and stockholders
Mortgages, bills of sale
Property appraisals by outside appraisers
Property records
Retirement and pension records
Tax returns and worksheets
Trademark and patent registrations

Personal Documents to Keep for One Year

Bank statements
Paycheck stubs (reconcile with W-2)
Canceled checks
Monthly and quarterly mutual fund and retirement contribution statements (reconcile with year-end statement)

Personal Documents to Keep for Three Years

Credit card statements
Medical bills (in case of insurance disputes)
Utility records
Expired insurance policies

Personal Documents to Keep for Six Years

Supporting documents for tax returns
Accident reports and claims
Medical bills (if tax-related)
Property records and improvement receipts
Sales receipts
Wage garnishments
Other tax-related bills

Personal Documents to Keep Forever

CPA audit reports
Legal records
Important correspondence
Income tax returns
Income tax payment checks
Investment trade confirmations
Retirement and pension records

Special Circumstances

Car records (keep until the car is sold)
Credit card receipts (keep with your credit card statement)
Insurance policies (keep for the life of the policy)
Mortgages, deeds and leases (keep for six years beyond the agreement)
Pay stubs (keep until reconciled with your W-2)
Property records and improvement receipts (keep until property sold)
Sales receipts (keep for life of the warranty)
Stock and bond records (keep for six years beyond selling)
Warranties and instructions (keep for the life of the product)
Other bills (keep until payment is verified on the next bill)
Depreciation schedules and other capital asset records (keep for three years after the tax life of the asset)

UBIT: A Walker & Armstrong Primer for Not-for-Profit Entities

Thu, 21 Feb 2013 18:56:39 GMT

Walker & Armstrong can help prevent income from activities outside your tax-exempt purpose becoming subject to “unrelated business income tax.”

In general, there are two types of unrelated business income (UBI):

debt-financed income, and
income from regularly conducted, unrelated trade or business activity.

Debt-financed income is relatively narrow in scope, typically consisting of such sources as rent, interest, dividends or royalties generated by financed property.

In contrast, unrelated trade or business income can take a wide variety of forms. Examples include income from: the sale of advertising in the organization’s regular publications or website1; insurance programs sold to members; booth rental at trade shows2; and the ongoing sale of merchandise (e.g., mass-market clothing) that is unrelated to the organization’s purpose, even those the profits benefit the organization.

To be considered UBI, the source of the income must meet three requirements:

It is a trade or business.
It is regularly carried on.
It is not substantially related to furthering the exempt purpose of the organization.

There are exceptions to these requirements, such as when the unrelated business activity is conducted primarily for the convenience of the organization’s members, students, patients, employees, etc.; when income is generated from the sale of low-cost items, donated property or, similarly, from work performed by volunteers; or when the organization earns dividends, royalties, interest, capital gains, etc., from passive investments.

Calculating and Reporting UBIT

Similar to a for-profit enterprise, taxable UBI is derived from the gross income generated by the unrelated activity, less allowable deductions. “Allowable deductions” are expenses directly connected with the unrelated business activity.

In generating taxable and non-taxable income, it is common to make “dual use” of facilities, operating costs and employee-related costs. That is, some of the people, equipment, etc., that are necessary to carry out the organization’s tax-exempt purpose are also used to generate UBI. In those cases, costs must be allocated between the uses. For example, if an employee earns $50,000 per year and devotes 10% of her time to an unrelated business activity, then $5,000 of her salary is deductible from gross UBI.

UBI is taxed at corporate income tax rates and is reported on U.S. Form 990-T and the applicable state income tax form. An organization with $1,000 or more of gross income from unrelated business is required to file its Form 990-T by the 15th day of the fifth month after the end of its tax year. If the organization anticipates paying $500 or more of UBIT for the year, it is required to pay the tax in quarterly estimated payments.

Excessive Unrelated Business Income

If UBI comprises a substantial portion of its income, an exempt organization risks losing its tax-exempt status. This is because the unrelated business activities of the organization will have gone beyond those that are merely incidental to the organization’s tax-exempt purpose. In such circumstances, the organization may wish to establish a taxable subsidiary. That allows the subsidiary to freely engage in commercial activity without threatening the tax-exempt status of the parent organization.

To complicate this issue, neither the courts nor the IRS clearly defines what constitutes a “substantial” or “excessive” portion of an organization’s income. Guidance might be gained from recent court decisions in which UBI totaling 30% of an organization’s overall income was sufficient to trigger revocation of its tax-exempt status. In 2002 the IRS issued a private letter ruling referencing courts’ denial of exemptions to organizations where their UBI exceeded 25% of their total.

Internal Control Considerations: A Close Look

Fri, 14 Dec 2012 20:01:52 GMT

Understanding basic concepts of internal control is nearly universal, but implementing an effective internal control structure is a challenge that Walker & Armstrong can help you address.

On the positive side, adequate internal controls can improve operating efficiency and effectiveness, increase employee morale, and improve a not-for-profit's financial position.

Not-for-profits are often challenged in determining the correct balance of costs versus benefits involved in establishing and maintaining internal controls. Devoting excessive resources can be counterproductive and may have the opposite effects of those desired. The appropriate balance depends on many factors unique to each not-for-profit and requires careful evaluation of available resources and risks.

A starting point is an understanding of the various components of internal control that affect your organization. It is important to understand these components in theory and then consider the practical applications.

Following is an overview of five areas comprising the internal control structure:

Control Environment
Information and Communication
Risk Assessment
Monitoring
Control Activities

The first four components are often referred to as “entity-level controls” because they have a pervasive effect on the accomplishment of management's control objectives. In contrast, the fifth component encompasses policies and procedures and specific activities established to help ensure that management directives are carried out. These controls are necessary to counter the effect of poorly designed or non-operational entity-level controls.

Control Environment

A positive control environment provides the foundation upon which all other aspects of internal control rest. The organization-wide tone is set by management, with the oversight of governance, and is disseminated throughout the organization by adherence to ethical practices, monitoring and, when unethical behavior occurs, appropriate disciplinary action. In addition, training and retaining competent individuals and providing relevant and timely feedback regarding job performance are critical to good management of a not-for-profit entity.

How an organization evaluates and accepts risk is also an indicator of a well-functioning control environment. The inability to focus on critical risk areas can result in threats to the security of the entire organization. Also, intentionally assuming unnecessary risks can result in a heightened potential for lost resources. For example, devoting a large amount of resources to capital projects that are not essential to providing services may result in excessive debt and wasteful use of liquid assets.

Information and Communication

Inter- and intradepartmental communication is another key control that, if neglected, can undermine the integrity of a not-for-profit entity. Decision makers in not-for-profit organizations may not fully anticipate the financial ramifications of their decisions, including contractual arrangements and their impact on financial reporting. As a result, transactions that could have a material effect on financial statements may not be recorded in a timely manner because there may be inadequate communication regarding a resolution or agreement. For example, a board may approve an agreement of which the finance department may not be immediately made aware, causing key transactions to be left unrecorded.

In addition, if programs and departments do not receive accurate financial information in a timely manner, their ability to make sound decisions is adversely affected. In situations where accounting records are not current, programs and departments may use separate recordkeeping systems, which leads to inefficiencies and greater potential for errors in accounting and reporting.

Risk Assessment

In the current economic and regulatory environment, the ability to evaluate and respond to risks is more relevant than ever. Handicapped by increasingly scarce financial and human resources, not-for-profit entities must make decisions on how to best allocate those resources to ensure that essential aspects of its mission are carried out. The concepts embodied in the “enterprise risk management” (ERM) framework developed by the Treadway Commission’s Committee of Sponsoring Organizations are vital to assessing and responding to risks.

There are different levels in which ERM can be implemented (i.e., full versus partial); however, the overall approach generally follows this sequence:

Focus on a small number of top priorities.
Leverage your existing resources.
Build on existing risk management activities.

While it is important to acknowledge the importance of ERM, it is also important to prevent ERM implementation from taking on a life of its own and hindering the accomplishment of key objectives.

Monitoring

Monitoring is how management evaluates the functional sufficiency of an internal control system. The nature and extent of monitoring vary with the organization’s size and complexity and its available monitoring resources. Unfortunately, the monitoring process is often a weak area within not-for-profit organizations, particularly when responsibility is not assigned to a specific individual or group.

While larger not-for-profits may have an internal audit department, that option is not economically feasible for all not-for-profit entities. However, fiscal restraints should not hinder an organization from developing a monitoring process that includes identification and monitoring of key risk areas. For example, having a process to identify restrictions on contributions is essential to maintaining accountability to donors.

In addition, providing timely and sufficient responses to donors, funding agencies and lenders is essential to maintaining compliance and credibility necessary to ensure future funding opportunities.

Control Activities

Not-for-profit entities often devote substantial resources to design and implementation of control activities, such as:

the review of financial results (e.g., budget versus actual)

policies and procedures

segregation of duties

physical custody and control over assets

proper initiation and execution of transactions

accurate and timely recording of transactions

appropriate access restrictions.

Segregation of duties is a key control activity often affected by the current economic environment. As the level of human resources in not-for-profit organizations declines, there is a heightened risk that individuals who are part of a key process have too much access and control over the initiation and recording of transactions. This in turn results in an increased risk of errors and misappropriation.

Also, a critical element to a successful control environment is well defined and current documentation of control processes and procedures that outline responsibilities and authorizations of control functions. As tasks, functions and controls change, a strong control environment requires written documentation, continual monitoring and timely updating of processes and procedures. In addition, best practices include personnel training and timely communication of control changes.

Control activities are an integral part of a well functioning internal control structure. However, in a not-for-profit organization's environment, control activities often take such precedence that sufficient resources are not dedicated to the four other internal control components.

Summary

The development and maintenance of strong internal controls is not only a best practice; it is a prerequisite for demonstrating accountability, maintaining efficiency and complying with laws and regulations and the terms of grants and contracts and donor requirements.

The key steps are:

obtaining an understanding of key control components
evaluating risks and available resources
implementation
monitoring.

Design and implementation require coordination and good communication among all functional areas of the organization.

There are many resources available to not-for-profits to assist in developing and implementing a strong internal control structure. Resources include publications issued by the Treadway Commission’s Committee of Sponsoring Organizations and the American Institute of Certified Public Accountants (AICPA). Locally, experienced public accounting firms such as Walker & Armstrong serve as convenient and reliable sources of information and guidance.

Compliance Auditing and Preparation for Single Audit

Tue, 23 Oct 2012 22:48:58 GMT

Walker & Armstrong helps clients substantially reduce the complexity and distraction of a single audit via effective preparation, adherence to internal controls, and implementation of certain key steps that promote audit quality.

Non-federal entities that expend $750,000 or more in federal awards are subject to audit requirements that are commonly referred to as ”single audits.” Among the purposes of a single audit is the promotion of sound financial management, including effective internal control, with respect to federal awards administered by state and local governments and not-for-profit organizations.

Testing Requirements

As part of the financial audit, the auditors perform both financial and compliance procedures directly related to the expenditure by the audit organization (i.e., the entity being audited) of federal awards that are received directly from the federal government or passed through states and local agencies. The auditor is required to test compliance with applicable laws, regulations, and the provisions of contracts or grant agreements that may have a direct and material effect on each major program. Additionally, auditors are requested to test controls over compliance of federal awards. When controls are effective, auditors are permitted to reduce their sample sizes for compliance testing.

Not all federal programs are necessarily tested each year. The auditor is required to evaluate the audit organization’s programs based on the level of annual expenditures and the organization’s classification of risk of each program. The auditor is encouraged to test programs that are considered high-risk, in which the annual expenditure is less than $750,000 but greater than $187,500 (“Type B” programs). Programs (or clusters of programs) with expenditures in excess of $750,000 must be tested by the auditors at least once every three years. The programs selected by the auditor for testing are referred to as a “major program.”

The Role of the Audit Organization

A 2007 report issued by the AICPA’s Government Audit Quality, in response to the President’s Council on Integrity and Efficiency (PCIE), indicated the importance of the audit organization in the single audit process. It is important that audit organizations are well educated about the requirements of the Uniform Guidance under 2 CFR Part 200 and other reference documents (e.g., compliance supplements), as well as the audit organization’s role in the process and the importance of hiring a qualified single auditor.

The audit organization should maintain accounting records that summarize and monitor allowable expenditures both individually and collectively for grants and contracts. Individual grants or contracts may require limitations on expenditures for specific expenditure classifications or, more generally, between program and administrative costs. Additionally, allowability of expenditures is critical to federally funded programs and required to be separately identified from other activities or programs of the audit organization. Collectively, the expenditure of federal awards is required to be reported on the SEFA and data collection form.

Understanding the Requirements

Before applying for and expending federal funds, it is essential for an audit organization to understand federal statutes, regulations, and the terms and conditions of federal awards, and establish internal control to ensure compliance. The five components of internal control that should be considered to reasonably ensure compliance with each applicable type of compliance requirement for each federal program include:

the control environment

risk assessment

control activities

information and communication

monitoring.

It is important for audit organizations to be proactive and periodically assess risk, strengthen internal control, and monitor the internal control relating to federal awards. This will allow audit organizations to address and correct any control deficiencies on a timely basis.

Regulations often tested by the auditors under the contract or grant agreement include:

activities allowed or unallowed

cash management

eligibility

matching, level or effort, and earmarking

procurement, suspension and debarment

reporting

subrecipient monitoring by the audit organization

special tests and provisions as outlined in the award agreement.

The audit organization plays a key role in the single audit process and is responsible for compliance with the terms of the grant or contract and internal control over compliance. Although the auditor may assist in drafting the Schedule of Expenditures of Federal Awards (SEFA), it is the audit organization’s responsibility to prepare the SEFA along with the electronically submitted Data Collection Form.

Promoting Audit Quality

Common deficiencies of audit organizations include (a) proper reporting of all relevant information and all federally funded programs in the SEFA, (b) system of monitoring and site visits by the audit organization of sub-recipients expending pass-through funds, (c) applying matching requirements simultaneously to multiple contracts, (d) maintaining equipment records that identify assets acquired using federal funds, (e) physical inventory of equipment every two years and reconciliation to property records, (f) time records with credible documentation supporting times estimates to multiple grants, (g) timely reporting to awarding agencies, (h) shifting of costs between programs, (i) proper recognition of applicable credits (i.e. discounts, rebates, refunds or contract settlements), and (j) documentation supporting noncompetitive procurement (i.e., sole source, emergency or no response to solicitation).

Here are five steps that, if implemented, can promote audit quality:

Verify that the audit firm has quality, knowledgeable staff with the right skills for your single audit.

Grant your auditor access to all necessary financial and program records.

Ensure that your key staff are available to your auditor.

Be actively involved; take initiative to understand what your auditor is doing and ask questions when you don’t understand.

Make the most of the exit process; ask questions about your auditor’s work, the audit opinion and other compliance reports.

Further, an audit organization can prepare for their single audit by:

ensuring rigorous procurement processes

developing robust governance structures

being well educated about the single audit process and what it requires of both the audit organization and the auditors

maintaining clean and organized records

documenting policies and procedures

achieving organization-wide understanding of your control system

periodically reviewing the internal control system and its effectiveness

monitoring new employees with respect to strict adherence to internal controls

understanding and knowing where to find the OMB Compliance Supplements

understanding the Single Audit Act Amendments of 1996 and Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance)

preparing a complete and accurate SEFA

considering the qualifications of the audit firm during the hiring process

evaluating the reasonableness of the audit firm’s anticipated hours.

Conclusion

The complexity and distraction of a single audit can be substantially reduced with effective preparation, adherence to internal controls, implementing the suggestions contained in this article, and selecting an experienced audit firm that is committed to ensuring your compliance and to making the audit process a smooth and disruption-free experience.

Not-for-Profit Board Governance Considerations

Fri, 20 Apr 2012 20:23:10 GMT

With sound governance especially critical in a time of scarce resources, Walker & Armstrong offers guidelines to help not-for-profits establish and monitor effective boards.

The following are certain guidelines to assist not-for-profits in establishing and monitoring effective boards. We urge the reader to share these guidelines with other members of management and the board of directors.

Active and Engaged Boards

Complacent board members increase the risk of noncompliance with laws, regulations and the terms of contractual agreements. Also, the risk of asset diversion increases when board involvement lessens. The following are recommendations to enhance board involvement:

Increase meeting effectiveness by maintaining written agendas for each meeting.

Hold meetings on at least a quarterly basis, and require attendance. Nonparticipation should prompt a written notice, and habitual unexcused absences should result in board member dismissal.

Keep the meeting time long enough to allow for meaningful discussions and analysis, while not being excessive. Meetings that extend beyond time that is necessary will result in less interest and involvement.

Use technology to assist in involving board members who cannot attend board meetings in person.

Use committees to facilitate board oversight and involvement.

See Chapter 30 of Arizona Revised Statutes for specific laws governing board meetings.

Board Size and Structure

Board size will vary depending on the size and complexity of the not-for-profit organization and may change over time. Not-for-profit organizations should maintain ongoing efforts to recruit new board members who cover a sufficiently varied expertise in areas that will benefit the organization, such as finance, law, human resources, advertising, public relations, etc.

Board Independence

The IRS reviews charities’ board composition to determine whether the board represents a broad public interest and to identify the potential for insider transactions that could result in misuse of assets. The IRS also tries to determine whether an organization has independent members, stakeholders or other persons with the authority to elect members of the board or approve or reject board decisions, and whether the organization has delegated control or key management authority to a management company or other persons. Organizations that file Form 990 will find that the form asks specific questions about the governing body's independence.

Following are recommendations for maintaining board independence:

At least two-thirds of the board of a public charity should be independent.

Independent board members should not be compensated as employees or independent contractors.

If compensated, independent board members should not have their compensation determined by individuals who are compensated by the organization.

Independent board members should not directly or indirectly receive material financial benefits from the organization except as a member of the charitable class served by the organization.

Independent board members should not be related to anyone compensated by the organization.

IRS Form 990 requires disclosure of the number of independent board members.

Board Education and Communication

Not-for-profit organizations should strive to educate their board members and have a method of maintaining accountability. The following are recommendations to assist with such education and communication:

All board members should have clear job descriptions.

Board orientations are a critical component for conveying roles and responsibilities.

Not-for-profit organizations should have a process for evaluating and communicating board performance.

Use annual board member self-assessments to assist in the evaluation process.

Have a documented process for removing non-performing board members.

Term Limits

Term limits are a matter of choice and can lead to a process of change in governance and oversight. If term limits are not used, the organization should consider ways to maintain active and productive board involvement through the evaluation process and the expression of appreciation for their service.

Executive Compensation and Excess Benefit Transactions

A charity is barred from paying more than reasonable compensation for services rendered. While the Internal Revenue Code does not require charities to follow a particular process in determining the amount of board and employee compensation, the compensation of officers, directors, trustees, key employees and others in a position to exercise substantial influence over the affairs of the charity should be determined by persons who are knowledgeable in compensation matters and who have no financial interest in the determination. Note: The excess benefit transaction rules are not applicable to 501(c)(6) organizations.

The Form 990 requires disclosure of the process used to determine the compensation of an organization’s top management official and other officers and key employees, including a review and approval by independent persons, comparability data and contemporaneous substantiation of the deliberation and decision. In addition, the Form 990 solicits compensation information for certain officers, directors, trustees, key employees and highly compensated employees.

The IRS has observed significant errors or omissions in the reporting of executive compensation on the IRS Form 990 and other information returns, and executive compensation continues to be a focal point in their examinations.

Conflicts of Interest

Directors of not-for-profit organizations should act in the best interest of the organization rather than in their personal interest or the interest of some other person or organization. Specifically, directors should avoid conflicts of interest that are detrimental to the organization.

The IRS encourages boards to adopt and regularly evaluate a written conflict-of-interest policy that requires directors and staff to act solely in the interests of the organization without regard for personal interests. The policy should include (a) maintaining written procedures for determining whether a relationship, financial interest or business affiliation results in a conflict of interest, and (b) prescribing a course of action when a conflict of interest is identified.

The IRS encourages organizations to require its directors, trustees, officers and others covered by the policy to disclose, in writing and on a periodic basis, any known financial interest that the individual, or a member of the individual’s family, has in any business entity that transacts business with the organization. The organization should regularly and consistently monitor and enforce compliance with the policy.

Understand Funding for the Not-for-Profit Organization

To provide sufficient oversight and support of management, board members should learn as much about the not-for-profit organization as possible. Board members should learn about the various programs and understand the challenges and opportunities of each.

This understanding should also encompass the organization's revenue and support and the related restrictions and legal requirements, including those pertaining to endowments and Federal and state grants and contracts.

The State of Arizona has adopted the Uniform Prudent Management of Institutional Funds Act, which places special requirements on board members of organizations with endowments. The act generally requires the governing board of an endowed organization to establish a spending policy and establishes a rebuttable presumption of imprudence for spending greater than 7% of the endowment in any given year. In addition, the board should have a general understanding of debt compliance requirements, including guarantees, if any.

Review of Governing Documents, Missions and Goals

The board has a fiduciary responsibility to perform periodic reviews of the organization's governing documents to determine whether operations are consistent with its articles of organization and bylaws. Although the Internal Revenue Code does not require not-for-profit organizations to have governance and management policies, the IRS will review an organization’s application for exemption and annual information returns to determine whether the organization has implemented policies relating to executive compensation, conflicts of interest, investments, fundraising, documenting governance decisions, document retention and destruction, and whistleblower claims.

Governing documents should be amended in a timely manner to reflect organizational changes. The IRS must be informed of significant changes to governing documents, policies and programs. This can be done through the use of an attachment to the Form 990. Care should be taken to ensure that changes do not affect an organization's tax exempt status.

As indicated in the preceding paragraphs, board governance takes substantial responsibility and commitment to ongoing improvement. We hope this summary will assist not-for-profit organizations in communicating board responsibilities and providing a method for monitoring the governance function.

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2025 Arizona Tax Credits

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GASB 87 is effective for governments with a June 30 year-end for the year ending June 30, 2022. ¹ Recently, the Arizona Auditor General issued (with our gratitude) the following guidance, which we have revised only slightly.