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May 2016 
In This Issue
Your BRC Team
Congratulations to Ryan Magee, Staff Accountant in the Raleigh office for winning the 1st Quarter Employee Recognition Award!
Save the Date!

BRC Financial Symposiums

Presented by Bernard Robinson & Company, L.L.P.

Topics include tax updates, employment law and compliance, economic outlook for business planning, and more!

8 hours of CPE eligible

Three dates and locations for your convenience!

Winston-Salem Symposium-
October 25, 2016

Greensboro Symposium-
October 27, 2016

Raleigh Symposium-
November 3, 2016 

Noteworthy Links
IRS Tax Calendar for Businesses & Self-Employed
Half of American Families with Student Loan Debt Delay Saving for Retirement
5 Things You Can Learn From Your Tax Return
What Happens to Social Security Benefit When Your Ex Dies
Prince or Pauper, Young or Old, Here's Why You Still Need a Will
College Grads Enjoy the Best Job Market in Years
Will Fundraising Cause Your Nonprofit Organization to Owe Tax?
By John Robinson, CPA, Senior Manager
It depends.

As competition for funding dollars heats up, non-profit organizations are increasingly thinking outside the box for new ways to raise funds. If your organization is preparing to begin a new fundraising activity, you will be well-served by taking a few minutes to determine whether the income earned from that activity will be subject to unrelated business income tax ("UBIT").

Income produced by any activity that is not substantially related to your exempt purpose (other than by the need to raise funds) is unrelated business income, and your organization may be required to pay income taxes on it. For example, an organization whose primary exempt purpose is to address health concerns for a specific population in a community decides to open a coffee shop to generate funds to support its operations. Because operation of a coffee shop is not substantially related to the organization's primary exempt purpose of improving health in the specified population, income generated by the coffee shop may be subject to UBIT. However, several exceptions are provided that may allow your organization to avoid being subject to this tax. Some of these exceptions include when: 
  • All of the work is carried on by unpaid volunteers.
  • Donated merchandise is being sold.
  • The activity is not regularly conducted.
Even when subject to UBIT, you may determine the benefits gained from the activity and income generated outweigh the costs of paying UBIT. 

Some of these exceptions are straightforward, while others become more complicated. Please contact a CPA with UBIT experience to determine whether an activity produces taxable unrelated business income and to see if the activity can be structured to avoid UBIT by applying one or more of the exceptions to your organization's situation. 
Change in Lease Accounting Standard
By Kimberly Ripberger, CPA, Senior Manager

On February 25, 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2016-02, Leases. This update states that all leases create an asset and liability for the lessee. Both the right-of-use asset - which represents the lessee's right to use the asset over the lease term - and the lease liability are recognized on the statement of financial position. Under previous guidance, operating leases were omitted from the balance sheet. The Standards retain two lease classifications: (1) Direct financing leases (formerly, capital leases), and (2) Operating leases.

The new guidance is effective for public business entities, not-for-profit entities that have issued securities that are traded on an exchange, and employee benefit plans that file financial statements with the U.S. Securities and Exchange Commission for fiscal years beginning after December 15, 2018. For all other entities, the guidance is effective for fiscal years beginning after December 15, 2019. At implementation, previous guidance will be used for leases that commence before the effective date when presenting comparative financial statements. However, lessees are required to recognize a right-of-use asset and lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments tracked and disclosed under previous U.S. GAAP. 

Consider the following recommendations to adequately plan for the change: 
  • Communicate the change to all relevant parties within your organization, as this update could affect your business planning decisions
  • Review and update financial reporting policies, procedures, and internal controls to accommodate the requirements of the new guidance
  • Analyze your organization's current lease agreements to determine which leases will be affected by the change in financial statement presentation at implementation
  • Consider the effect of the new guidance on balance sheet and other financial ratios required by management, lenders, or other regulating bodies
Please consult a CPA to determine the effect, if any, this update will have on your company's financial statements to allow your company ample time to prepare for the changes.
What is an Irrevocable Trust?
By Genie Petrangeli, CPA, Senior Manager

Unlike a revocable trust, an irrevocable trust is a trust that, without judicial involvement or the written consent of the trustee or the beneficiaries, cannot be modified or terminated. Upon establishment, and at other times, the settlor (person establishing the trust) transfers assets into the trust, relinquishing all of his or her title and ownership. Most assets may be contributed to an irrevocable trust, such as cash, marketable securities, real property, life insurance policies, and certain privately held business interests.

Common reasons for creating irrevocable trusts include:
  • Reducing estate tax for the current settlor only or future generations as part of a larger estate plan;
  • Providing for someone who may not be able to properly manage the assets himself or herself (commonly known as a Spendthrift Trust);
  • Providing for the financial needs of an individual with special needs, without impeding the ability to qualify for governmental assistance (commonly known as a Special Needs Trust); and
  • Giving to charity, where the charity may benefit today or in the future.
If properly drawn, an irrevocable trust can remove all of the trust's assets from the value of the settlor's taxable estate. With most irrevocable trusts, the trustee applies for a tax identification number (EIN) and files a Form 1041, US Income Tax Return for Estates and Trusts. As appropriate, taxable income earned by the trust will be taxed to the trust itself, the beneficiaries, the grantor, or someone with powers over or interests in the trust's assets.

Please consult a CPA or attorney with experience working with irrevocable trusts, as the documents must comply with local and federal law to be effective.
Your Company Had Someone Commit Fraud:
Do You Now Have a Legal Liability?
By Victor Blackburn, CPA, Partner

According to the Association of Certified Fraud Examiners' 2014 Global Fraud Study, approximately 85 percent of fraud cases represent asset misappropriation that has a median loss of $130,000 for the affected company. Although there are various types of asset misappropriation, such as skimming, expense reimbursement, check tampering, etc., I want to focus on one specific asset misappropriation: payroll. Ten percent of all fraud takes the form of payroll misappropriation with the average cost to companies being approximately $50,000 over two years. When thinking about payroll fraud, we commonly think about ghost employees receiving a paycheck, pay rate alterations, unauthorized claiming of hours, etc. However, have you thought about the possibility of identity theft?

According to the Bureau of Justice Statistics, 17.6 million individuals experienced some form of identity theft in 2014. Though the most common type of identity theft is the unauthorized use of existing debit or credit card accounts, a growing number of cases involve the misuse of personal information to open new accounts, obtain government benefits, and even provide false information to police.

Why is this important to businesses? Consider the information that is maintained in most employees files: the employee's social security number and birth date, current and past addresses and places of work, and driver's license. This is all the information that someone needs to open new accounts or obtain government benefits, such as a tax refund.

Under current laws, such as the Health Insurance Portability and Accountability Act, the Fair Credit Reporting Act, and many others, an employer can be subject to criminal liability for data theft as well as civil liabilities for employees whose personal information has been stolen from the company. One way to combat the likelihood of such liability is to establish and follow policies and procedures regarding this information, such as not leaving personal information out in the open, shredding documents with personal information, securing electronic devices when not in use, and providing identity theft protection through various service providers.

With identity theft on the rise, it might be time to talk to your advisors, revisit current polices and procedures manuals and educational programs, and ensure everyone knows what to do and how to communicate possible identity issues when you have payroll fraud.

Bernard Robinson & Company, L.L.P. | (336) 294-4494 | |
1501 Highwoods Blvd, Ste 300
Greensboro, NC 27410
BRC Strategy is designed to provide information of a general nature and is not intended as a substitute for professional consultation and advice.  The opinions and interpretations expressed should not be construed or used as legal or tax advice, written or otherwise, and cannot be used for the purpose of avoiding any penalties that may be imposed under federal, state or local law.