nonprofit

Article Autumn Hines

The financial stability of any K-12 school directly impacts its educational mission. Now, more than ever, academic institutions need tools that provide visibility and help plan for the future. Effective accounting systems should balance core financial functions with specialized reporting needs unique to educational institutions. Selecting appropriate accounting software is a crucial decision that affects the administration, teaching staff, and students.  

So, what are the things K-12 schools should be looking for in an accounting system? 

Cloud-Based Accessibility

You need financial tools that work wherever you are. Cloud-based solutions give you secure access from your office, home, or even while traveling to that education conference. This means your administrative team, department heads, and board members can all see the financial information they need when they need it. 

Multi-Dimensional Reporting

Let’s face it – school finances can be complicated. K-12 schools have complex financial structures that require sophisticated reporting tools. Effective accounting software should offer multi-dimensional reporting across: 

  • Departments and programs 
  • Campus locations 
  • Restricted and unrestricted funds 
  • Grants and endowments 
  • Capital projects 

This functionality is essential to allow schools to track how resources are allocated and maintain compliance with donor restrictions and reporting requirements. 

Real-Time Visibility

You can’t manage what you can’t see. Key stakeholders need accurate, up-to-date information to make informed decisions and ensure financial sustainability. Your accounting software should give you: 

  • Dashboards that you can customize for different roles 
  • Educational-specific performance indicators 
  • Quick comparisons of budget vs. actual spending 
  • Financial metrics based on enrollment 
  • Analysis of per-student costs 

With these tools, you’ll spot trends early, address problems quickly, and make decisions based on live data. 

Process Automation

If you’re part of a small admin team, you probably wish you didn’t have to do the same repetitive tasks over and over. Accounts payable and receivable, bank reconciliations, and expense management are all vital, but they take time. Automating these routine tasks reduces the likelihood of errors and frees time to focus on mission-critical activities. 

Integration Capabilities

Your finances are interconnected, so your accounting software should be, too. You need it to integrate with things like: 

  • Fundraising tools 
  • Tuition management software 
  • Payroll 

When these systems communicate, you eliminate duplicate data entry, improve accuracy, and get a complete picture of your operations and finances. 

What to Consider When Choosing

As you evaluate different options, look for software that addresses these key requirements. A solution like Sage Intacct checks all these boxes – providing education-specific functionality, scalability, appropriate access controls, strong security, and measurable ROI. The right accounting platform will become a foundation that supports your financial operations and educational mission, giving you the insights you need to help your school thrive. 

Article Autumn Hines

Every nonprofit strives to make a difference. However, achieving efficiency and scalability often requires digital transformation—a journey that can be complex given the unique challenges nonprofits face, such as limited staffing and constrained budgets. With the right strategy, nonprofits can leverage technology to optimize operations and drive their mission forward.

Why Your Nonprofit Needs Digital Transformation

Technology is a powerful tool that can streamline operations, enhance donor engagement, and strengthen financial oversight. Digital transformation helps nonprofits:

  • Reduce manual workloads through automation
  • Improve data analysis for better decision-making
  • Enhance communication with stakeholders
  • Strengthen cybersecurity and compliance

Despite its clear benefits, digital transformation in the nonprofit sector trails behind other industries due to resource constraints and a lack of strategic guidance.

Overcoming Challenges

Nonprofits embarking on a digital transformation journey should focus on these key areas:

  1. Leadership Buy-In: Commitment from leadership is crucial. Executives and board members must champion digital initiatives, demonstrating their value to staff and stakeholders.
  2. Strategic Planning: Technology investments should align with the organization’s mission and long-term goals. Conducting an initial assessment helps prioritize technology adoption based on impact and feasibility.
  3. Training and Change Management: New tools often require training, which can be difficult for staff who are balancing existing responsibilities. Organizations should provide adequate support to ease transitions and increase adoption rates.
  4. Resource Allocation: Prioritizing investments with the highest impact ensure that nonprofits maximize their technology budgets. Cloud-based solutions, automation, and data analytics tools often provide cost-effective and scalable options.

Best Practices for a Successful Transition

To ensure a smooth and effective transition, nonprofits should adopt the following best practices:

  1. Assess Your Current State: Identify gaps and inefficiencies in current operations. A technology assessment can help determine which digital solutions align best with organizational needs.
  2. Engage Stakeholders: Involve team members at all levels in planning discussions. Their insights can guide decision-making and foster buy-in, ensuring smoother implementation.
  3. Set Measurable Goals: Establish clear objectives to track progress, such as improving donor retention, increasing operational efficiency, or enhancing financial transparency.
  4. Start Small, Scale Smart: Pilot new technology with a small group before rolling it out to the whole organization. This allows for feedback and adjustments, reducing disruption.

How Dean Dorton Technology Can Help

At Dean Dorton, we understand the unique challenges nonprofits face. Our technology consulting services provide:

  • Personalized consultations to evaluate existing infrastructure and identify opportunities for improvement
  • Cloud-based financial and ERP solutions, like Sage Intacct, enhance financial management
  • Cybersecurity and compliance support to protect donor and organizational data
  • Process automation and workflow optimization to increase efficiency
  • Data analytics and reporting solutions to drive informed decision-making

Our team works closely with nonprofits to develop tailored strategies that align with their missions while optimizing operations and engagement.

Looking Ahead

The nonprofit sector is evolving, and digital transformation is essential for long-term success. Organizations that embrace technology will be better positioned to achieve their goals, enhance stakeholder relationships, and navigate an increasingly digital landscape.

By leveraging best practices, nonprofits can successfully integrate digital solutions that drive meaningful change.

Article Sam Stephenson

A trust is a legal arrangement that lays out how property and assets contributed to the trust are managed during your lifetime and at your passing. Charitable trusts include provisions for the trust creator to use their assets to support charitable causes they find meaningful. They can be effective tools to satisfy philanthropic goals and estate planning at the same time.

Two types of commonly used Charitable Trusts: 

  • Charitable Remainder Trust
  • Charitable Lead Trust 

Charitable Remainder Trust – designed to give assets to charity and receive income in the during the creator’s lifetime. During the term of the trust, the trust pays out either a fixed dollar amount or a percentage of the trust assets each year to the trust to the trust creator. One or more qualified charitable organizations are named in the trust to receive the remaining assets at the end of the trust term, or at the end of the trust creator’s life, depending on how the trust is designed. 

Charitable Lead Trust – designed to give assets to charity for a length of time chosen by the trust creator. During the term of the trust, the trust pays out either a fixed dollar amount or a percentage of the trust assets each year to one or more named qualified charitable organizations. The assets remaining at the end of the charitable term are distributed to beneficiaries named in the trust. These beneficiaries are often family members of the trust creator. 

Tax Benefits

The funding of either a Charitable Remainder Trust (CRT) or Charitable Lead Trust (CLT) can be eligible for a partial charitable income tax deduction. The deduction amount is dependent on many factors including the type of trust, the length of the trust’s duration, current interest rates, any amounts to be paid to the trust creator and IRS limits. Placing assets in a charitable trust lowers the value of the trust creator’s taxable estate. 

Can Be Combined with your Donor Advised Fund

Both Charitable Lead Trusts and Charitable Remainder Trusts can be designed to name a Donor Advised Fund (DAF) as the qualified charity to receive the assets of the trust. DAFs have an indefinite life and have the potential to create a legacy of family giving long after the creator’s passing.

Article Sam Stephenson

Fundraising events such as galas, dinners, and golf tournaments can provide benefits to charitable organizations including increasing awareness of its charitable mission, raising additional funds and creating favorable publicity.  Fundraising events, whether in-person or virtual, can also cause unintended headaches if tax compliance issues are overlooked. 

The success of a charitable organization’s fundraising event is dependent on the coordination and communications between the charitable organization’s fundraising, marketing and accounting departments. All three of these areas are critical to ensure adequate records are completed, maintained and followed. 

Each fundraising event has distinct tax reporting requirements. Let’s walk through a couple of fundraising events and their respective tax reporting requirements. 

Gala or Dinner Events

A charity that hosts a gala or dinner event charges a fee to attend the event. The fee is generally consisting of two parts – the fair market value (FMV) of the dinner as well as any entertainment and a charitable contribution, which is the amount of the fee that exceeds the fair market value of the dinner and entertainment. 

At the conclusion of the event, the charity will send an acknowledgement to the participant thanking the individual for attending the event and informing them of the price of the ticket ($150), the benefits the participant received for attending the event ($80), and the amount of their charitable contribution ($70). This information is also disclosed on the charity’s form 990. 

For all tickets $75 and over, the charity must provide the donor an acknowledgement regarding the tax-deductible portion of the donation. 

How can a charity determine the fair market value of a dinner and/or entertainment?

The key word to remember is reasonable. Is it reasonable to think a steak dinner with a salad, potato, vegetable and dessert would cost $10 if purchased at a restaurant? NO. The charity must provide the donor with a good faith estimate of the goods or services the donor received. 

The charity could obtain a menu or price list from a restaurant in their area that would provide a similar dining experience. If the caterer provided a discount, they could ask the caterer their typical price – the charity can factor in cost or the value of venue etc., in determining the fair value of what the donor received in return. 

Best practices are to have the charity’s development, marketing and accounting areas working together in planning and running its charity’s gala. 

Charity Auctions 

Charities often decide to a have a silent and a voice auction at the gala dinner event. The charity solicits and receives non-cash items for the auction. Acknowledgements or receipts should always be provided to the donor for donations including non-cash or in-kind contribution. It is the responsibility of the donor (NOT the charity) to determine the value of a non-cash contribution for purposes of their income tax returns. DO NOT provide the donor a value for their donated item. 

The charity’s acknowledgement should include the charity’s name/address, employer identification number, a description of the item donated, and the date of the donation. The acknowledgment should NOT include the item’s value. The acknowledgement should also include one of these statements: 

• No good or services were provided in return of the contribution OR 

• A description of the item and good faith estimate of the value of any goods and services provided in return for the contribution (NOT the item’s value) 

After the non-cash item is received, the charity internally places a value on the item. The charity should include language notifying attendees that only amounts paid in excess of the fair market value may be deductible as a charitable contribution. For example: 

The excess amount above an item’s fair market value that a winning bidder pays to receive the item typically is tax deductible. 

Determining the value of the items for the auction can be a tough job, and it’s often difficult to know where to start. The charity may use any reasonable method to estimate the fair market value as long as the charity applies the method in good faith. 

If the donated item is commercially available, the charity can use the purchase price of the item as its value. If the item is not commercially available, the charity may determine the fair market value by using comparable goods or services.

Article Autumn Hines

For any entity that receives federal funding, the process for monitoring and managing grant money is about to be streamlined and simplified.

Nonprofit organizations should obtain an understanding of these changes and how they will impact their entity.

Proposed Changes to OMB Guidelines

The Office of Management and Budget (OMB) has proposed making changes to the Uniform Guidance (now to be referred to as the OMB Guidance for Federal Financial Assistance), which dictates how the federal government handles grants management. The proposed changes reflect a common complaint from nonprofits: that pursuing and managing federal assistance is too cumbersome and complex.

The proposed changes, which take effect on October 1, 2024, revise the Uniform Guidance in numerous ways, from clarifying vague language to relaxing some requirements. This list is far from complete, but here are some of the highlights:

  • Fewer Audits – Perhaps the largest change is that the single audit threshold will increase from $750,000 to $1,000,000. Fewer nonprofits will have to undergo audits, granting them greater latitude over when, where, and how they use funding.
  • Expanded Accessibility – In the past, smaller or newer nonprofits haven’t had the resources necessary to seek federal funding. In response, the OMB is simplifying and standardizing the process by, for example, including a plain-language Executive Summary in every grant announcement.
  • Expedited Approvals – Nonprofits can now make fixed amount subawards up to $500,000 without the federal agency giving written approval. Federal funds will move faster from nonprofits into the communities they serve with less administrative cost and burden involved.
  • Favorable Rates – Grant recipients without a federal negotiated indirect cost rate have the option to charge a de minimis rate of 15%, up from 10% previously. This change helps any nonprofit, and particularly novice organizations, streamline internal accounting and recoup more costs. Similarly, the threshold for capital expenditures has increased from $5,000 to $10,000.

Prepare Now Before Changes Take Effect

These changes will impact every organization that receives federal funding. Nonprofits should be ready ahead of the rule changes, which are set to be finalized in October.

The complete and detailed guidance on federal financial assistance is available on the Federal Register website.

The nonprofit experts at Dean Dorton can help you understand how this change will affect your organization, so contact us while there’s still time.

Article Dean Dorton

In November of 2023, the Department of Treasury and the Internal Revenue Service published their first installment of proposed regulations providing guidance on operating and interpreting the tax provisions governing donor-advised funds (“DAF”). Before these proposed regulations, sponsoring organizations that manage DAFs had limited guidance to operate their DAF programs.

The new proposed regulations clarify and broaden the definition of accounts treated as DAFs and the distributions constituting taxable distributions, as well as other regulations for DAFs. In addition, future guidance for DAFs is also expected in the following areas:

  • What constitutes a prohibited benefit under Section 4967? – a prohibited benefit that is more than incidental benefit to the donor; donor-advisors, related persons, and fund managers from the DAF.
  • Excess benefit transaction under Internal Revenue Code (IRC) Section 4958.
  • Tax treatment of DAF distributions to public charities for purposes of the public support computations under Section 509(a).

The proposed regulations will become effective for taxable years ending after the date when they are published as final regulations. Comments are requested on the proposed regulations by January 16, 2024.

This article will explain (1) the basic terms that are part of the definition of a DAF (2) the exceptions to a DAF and (3) the definition of a taxable distribution under IRC Section 4966. Although many questions are unanswered, the proposed regulations provide guidance that will affect the operations of a sponsoring organization with DAFs.

Definition of a DAF

Background – With certain exceptions, Section 4966 defines DAFs as a fund or account:

  • that is separately identified by reference to contributions of a donor or donors;
  • that is owned and controlled by a sponsoring organization (a public charity); AND
  • with respect to which at least one donor or donor-advisor has, or reasonably expects to have, advisory privileges with respect to the distribution or investment of amounts held in such fund or account by reason of the donor’s status as a donor.

The proposed regulations provide clearer guidance to determine whether a DAF exists and broaden the definition of a DAF, by defining the “Bolded Words” above, which are explained further below.

Key Words Definition
Separately Identified Before the proposed regulations, generally, if the fund did not reference the names of donor(s), the fund or account would not qualify as a DAF.

The proposed regulations provide that a fund or account is separately identified by reference to contributions if the sponsoring organization maintains a formal record of contributions to the fund of the donor(s).

If there is no formal record, whether the fund is separately identifiable would be based on all the facts and circumstances. The following factors tend to show the fund is separately identified:

  1. Whether the fund or account balance reflects items such as contributions, dividends, interest, distributions, administrative expenses, and gains and losses (realized or unrealized) and whether the sponsoring organization generally solicits advice from the donor or donor-advisor before making distributions from the fund or account.
  2. Whether the fund or account is named after one or more donors or related persons.
  3. Whether the sponsoring organization refers to the fund or account as a DAF or the sponsoring organization has an agreement or understanding with the donor(s) that such fund is a DAF.
  4. The donor(s) regularly receive a fund or account statement from the sponsoring organization.
  5. The sponsoring organization generally solicits advice from the donor(s) before making distributions from the fund or account.

Exception – A fund or account solely funded by contributions from public charities (other than non-functionally integrated supported organizations) and governmental units described in Section 170(c)(2) are not treated as separately identified, and thus would not be considered a DAF.
Donor or Donor-Advisor The proposed regulations define a donor, generally, as any person or entity, but specifically excludes public charities, other non-integrated supporting organizations, and governmental units under Section 170(c)(2). The definitions of donor and donor advisor are both extremely important in determining whether an arrangement is a DAF, but also in determining who may be subject to the excise taxes on taxable distributions.

The proposed regulations define a donor-advisor as a person appointed or designated by the donor to have advisory privileges regarding the distribution or investment of assets held in a DAF or a person to whom a donor-advisor delegates advisory privileges. There is no specific appointment form or designation that is necessary under the proposed regulations.

A donor-advisor includes the following:

  • An investment advisor who provides investment management services with respect to both the DAF and personal non-DAF assets of a donor.
  • An investment advisor who serves the sponsoring organization as a whole and is recommended by a donor is not a donor-advisor.
  • A person, other than a public charity or governmental unit, who establishes a fund and has advisory rights regardless of whether they make contributions to the fund.
  • An advisory committee member recommended by the donor or donor-advisor and appointed by the sponsoring organization unless certain criteria are met.
Advisory Privileges The proposed regulations expand when a donor or donor-advisor has advisory privileges that would result in DAF treatment. A facts and circumstances test is provided as to whether a donor has advisory privileges, regardless of whether the privileges are exercised.

A donor or donor advisor would have advisory privileges if any of the four factors exist:

  • The sponsoring organization allows the donor or donor-advisor to provide non-binding recommendations regarding distributions or investments of the DAF.
  • A written agreement states that a donor or donor-advisor has advisory privileges.
  • Marketing materials or a document indicating that a donor or donor-advisor may advise on distributions or investments of the DAF.
  • The sponsoring organization generally solicits advice from a donor or donor-advisor.

In addition, the proposed regulations go on to provide additional special rules relating to advisory privileges.
Distribution The proposed regulations provide that the term “distribution” generally means any grant, payment, disbursement, or transfer, whether in cash or in-kind, from a DAF. In addition, the proposed regulations expand the definition of distribution by defining “a deemed distribution.” Any use of DAF assets that results in a more than incidental benefit to a donor, donor-advisor, or related person is a deemed distribution that would generally be a taxable distribution.

The last section of this article will explain what constitutes a taxable distribution. The proposed regulations note distributions resulting in more than an incidental benefit to a donor, donor-advisor, or related party may also result in a prohibited transaction subject to the excise tax under Section 4967.

Exceptions to the Definition of a DAF

The proposed regulations also expand and clarify the exceptions when certain funds or accounts are included in the statutory exceptions from the definition of a DAF.

  • Funds that make grants to a single identified organization

A fund or account is not a DAF if it is established to make distributions solely to a single identified public charity or governmental entity. The proposed regulations define a “single identified organization” as an organization described in IRC Sections 170(c)(2) or 509(a)(1), (2), or (3) (other than a Type III non-functionally integrated supporting organization), and a governmental entity.

This exception does not apply if the donor, donor-advisor, or related party has or reasonably expects to have the ability to advise regarding distributions from the single identified organization or if a distribution from the fund or account will have a more than incidental benefit to a donor, donor-advisor or related party.

  • Grants to individuals for travel, study, or other similar purposes

A fund or account that only provides scholarships, fellowships, or other grants is not a DAF if certain requirements are met. The proposed regulations also provide a facts and circumstances analysis to make sure the donor or donor-advisor is not directly or indirectly in control of the selection committee.  Section 501(c)(4) organizations that are broad-based also meet this exception if certain conditions are met.  In addition, the selection committee may be controlled by a Section 501(c)(4) organization.

  • Disaster relief funds

Consistent with Notice 2006-109, the proposed regulations establish disaster relief funds or accounts that meet the requirements of IRC Section 139 (e.g., for a federally declared disaster) is not a DAF. The proposed regulations do not extend this exception to emergency hardship funds.

Definition of a Taxable Distribution

Background – Under Section 4966 a 20% excise tax is imposed on a sponsoring organization with respect to any taxable distribution from a DAF and a 5% excise tax on any fund manager that knowingly agrees to a taxable distribution.

The definition of “knowingly agrees to a taxable distribution” is interpreted broadly.  A fund manager will be considered to know that a distribution is taxable if they know the distribution is taxable or if they have knowledge of facts sufficient to determine the distribution is taxable and fails to make reasonable attempts to determine whether the distribution is taxable.

The proposed regulation incorporates the definition of a taxable distribution found in IRC Section 4966(c)(1). A taxable distribution means any distribution from a DAF (1) to a natural person or (2) to any other person, if the distribution is for any purposes other than one specified in Section 170(c)(2)(B) or if the sponsoring organization does not exercise expenditure responsibility in accordance with Section 4945(h).

The proposed regulations include an anti-abuse rule providing that, if a series of distributions through intermediary distributees undertaken pursuant to a plan achieves a result that is inconsistent with the purposes of section 4966, these distributions are treated as a single distribution for purposes of section 4966.

For example, if a donor advises on a distribution that the sponsoring organization makes from a DAF to a charity, and the donor arranges for that charity to use the distributed funds to make distributions to an individual recommended by the donor which is inconsistent with Section 4966, then the distribution would be considered a single distribution, and a taxable distribution from the sponsoring organization to the individual.

The proposed regulation also provides the following guidance regarding taxable distributions:

  • Distributions to a foreign organization are not a taxable distribution if the sponsoring organization exercises expenditure responsibility or obtains an equivalency determination in accordance with Section 4945.
  • Distributions to an organization that is not a charity described in Section 170(b)(1)(A) is not a taxable distribution as long expenditure responsibility is exercised.
  • Incorporates the expenditure responsibility rules applicable to grants by private foundations with slight modifications.
  • A taxable distribution is a distribution that is used for non-charitable activities including a distribution for lobbying, even though public charities are permitted to engage in a limited amount of lobbying.

Summary

Treasury and the IRS have requested comments on these proposed regulations by January 16, 2024. The application will likely affect numerous individuals and organizations. Sponsoring organizations should determine whether DAF certain funds or accounts are considered DAFs under the proposed regulations and whether their DAF structures comply with these proposed regulations.

If you have any questions regarding the proposed regulations, please contact your trusted Dean Dorton advisor.