Matt Nasca

Assignment 2

September 29, 2010

Dr. Strickland
 For many non-profit charitable organizations donations are the lifeline of how they

operate and how they help the communities or people in need. The IRS requires that nonprofit

organizations file Form 990 each year. Analysis of the form implies that the IRS is concerned

with how the nonprofit organization disperses money. For example Form 990 Section VIII part

one requires that the nonprofit list the name and addresses of the five highest paid employees

and part two requires the names and address of employees earning more than $50,000. Section 3

requires that the charity provide the names and address of the five highest paid independent

contractors for professional services. [ CITATION Form990 \l 1033 ]

In addition, the IRS is also interested in where the money comes from. NPOs have been a

tax shelter for many years. One example of a NPO as a tax shelter would be in the donation of a

large parcel of land which the donor restricts the uses or prohibits sale of the land by the charity.

The donor would write off and inflated value of the donated land against personal income tax, no

longer be sent a bill by the city or county for the property tax, and contractually restrict the sale

of the land by the charity and have a clause to purchase the land back after some amount of time.

If the parcel of the land was situated behind the donors this was financially advantageous without

having any charitable sentiment. Now any donation to an NPO cannot have such legal

restrictions. However, almost all NPOs will use donations in the donor’s area of choice.

In the event that the IRS audits an NPO, it is recommended by the IRS that a record

keeping system should include a summary of transactions and that all transactions have

documentation to support them. There is no uniform record keeping system for an NPO similar

to GAAP for public companies. Failure to keep records or the documentation to support the

record can result in the NPO losing its tax-exempt status. When donations are made it is the

donor’s responsibility to obtain a receipt for cash or in-kind donations. The language the IRS

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uses for valuing in-kind donations is “good faith estimate.” I believe that with a small amount of

research that the value of nearly any item can be done in good faith. In conclusion, it is

recommended that any NPO use a record keeping system similar to GAAP for managerial and

financial purposes. For example, GAAP states that person that receipts cash should not be the

person that fills out the deposit slip.

Convio Common Ground

Common Ground is a paid application on Salesforce’s app exchange. Some of the functionality

of the NPSP is duplicated by Common Ground. A third party reports that in-kind gift donations

are supported by Common Ground however, there is no information available on their website

about the in-kind donation support feature[ CITATION Ide10 \l 1033 ]. Common Ground is built on

the Force platform using the AppExchange it is possible to integrate many accounting systems.

Donor Perfect

Donor Perfect received the best ratings for accounting support for all versions of their

system[ CITATION Ide10 \l 1033 ]. In addition, the Donor Perfect website states that there is an

integrated add-on to the system that includes a scanner[ CITATION Don10 \l 1033 ]. The scanner is

used for reducing data entry for donations (I assumed in-kind donations but the site does not go

into detail).

Giftworks by Mission Research

The

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Appendix

IRS Suggested NPO Best Practices

GROSS RECEIPTS

Gross receipts are the amounts received from all sources, including contributions a public charity

should keep supporting documents that show the amounts and sources of its gross receipts

documents that show gross receipts include: donor correspondence, pledge documents, cash

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register tapes, bank deposit slips, receipt books, invoices, credit card charge slips, and Forms

1099-mISc, Miscellaneous Income

PURCHASES, INCLUDING ACCOUNTING FOR INVENTORY

Purchases are items bought, including any items resold to customers If an organization produces

items, it must account for any items resold to customers Thus, for example, the organization

must account for the cost of all raw materials or parts purchased for manufacture into finished

products. Supporting documents should show the amount paid, and that the amount was for

purchases documents for purchases include: canceled checks, cash register tape receipts, credit

card sales slips, and invoices. These records will help a public charity determine the value of its

inventory at the end of the year See Publication 538, Accounting Periods and Methods, for

general information on methods for valuing inventory

EXPENSES

Expenses are the costs a public charity incurs (other than purchases) to carry on its program

Supporting documents should show the amount paid and the purpose of the expense documents

for expenses include: canceled checks, cash register tapes, contracts, account statements, credit

card sales slips, invoices, and petty-cash slips for small cash payments

EMPLOYMENT TAXES

Organizations that have employees must keep records of compensation and specific employment

tax records See Publication 15, Circular E, Employer’s Tax Guide, for details 28 5

ASSETS & LIABILITIES

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Assets are the property, such as investments, buildings and furniture an organization owns and

uses in its activities liabilities reflect the pecuniary obligations of the organization a public

charity must keep records to verify certain information about its assets and liabilities Records

should show:

 when and how the asset was acquired

 whether any debt was used to acquire the asset

 documents that support mortgages, notes, loans, or other forms of debt

 purchase price

 cost of any improvements

 deductions taken for depreciation, if any

 deductions taken for casualty losses, if any, such as losses resulting from fires or

storms

 how the asset was used

 when and how the asset was disposed of

 selling price

 expenses of sale

Documents that may show the above information include: purchase and sales invoices,

real estate closing statements, canceled checks, and financing documents If a public charity does

not have canceled checks, it may be able to show payment with certain financial account

statements prepared by financial institutions. These include account statements prepared for the

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financial institution by a third party all information, including account statements must be highly

legible The following defines acceptable account statements.

IF payment is by: check THEN statement must show: check number, amount, payee’s name, and

date the check amount was posted to the account by the financial institution

IF payment is by: electronic funds transfer THEN statement must show: amount transferred,

payee’s name, and date the transfer was posted to the account by the financial institution

IF payment is by: credit card THEN statement must show: amount charged, payee’s name, and

transaction date

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