Newsletter by Hawkins Ash CPAs
In this edition
November 2018

Board-Designated Net Assets

Nonprofit Tax Tidbits:
Form 990 Schedule E and F

The Tax Cuts and Jobs Act (TCJA) – New Requirements for Tax Exempt Organizations

State and Federal Compliance Updates

Client Feature and Executive Direct Q&A:
Marshfield Clinic Health System YMCA
Board-Designated Net Assets
With the upcoming implementation of the new FASB Accounting Standards Update 2016-14 (the standard) there will be changes occurring with the disclosures regarding board-designated net assets. For starters, board-designated net assets are net assets without donor restrictions that are subject to self-imposed limits by action of the governing board. Board-designated net assets may be earmarked for future programs, investments, contingencies, purchase or construction of fixed assets or other uses. 

Under FASB No. 117 the disclosure of board-designated net assets was optional. However, with the standard, nonprofits will be required to disclose information about the amounts and purpose of board-designated net assets on the face of the statement of financial position or in the notes to the financial statements. You are not required to board-designate your unrestricted net assets. However, some non-profits find it beneficial to do so because it allows them to show commitment to a certain plan, program, or strategy.

Keep in mind that board-designations will have an impact on the new disclosures regarding the liquidity and availability of financial assets, so it is important you are taking availability of funds into consideration when assigning these internal designations. If your nonprofit decides to board-designate any unrestricted net assets, it is important that you take a look at your current policies and procedures to make sure you are prepared for the additional disclosure requirements under the standard.

Important Pieces of Your Board-Designated Net Assets Policy
1.) Purpose of designating unrestricted funds: It is important to set clear objectives in regards to what the goals are in designating funds. Examples could include:
  • To create an internal line of credit to manage cash flow and maintain financial flexibility
  • To enable the organization to sustain operations through delays in payments of committed funding 
  • To pay for one-time, nonrecurring expenses that will build capacity, such as staff development or research and development

2.) Calculation of designated amounts: How will your nonprofit determine the amount of designated money set aside? With the new disclosure requirements you will be required to disclose specific dollar amounts, so it is important you set guidelines on how those figures will be calculated. Examples could include:
  • Estimation of reserves based on average recurring monthly operating costs
  • Estimated cost of certain one-time expenses 

3.) Intended use of the designated funds: How will the funds be used? Some objectives will be clear if you are designating funds for a specific project or item. However, in the case of maintaining reserves for operations, you may need to set specific guidelines for when the reserves may be used. 

4.) Determined chain of command to designate funds and release funds for use: Will the board of directors have authority over the designation and release of funds? Or will this be delegated to management? It is important to set clear procedures regarding management of the funds to avoid misuse of funds.

5.)Plan for monitoring designated funds: How will the available funds be tracked and monitored? Will the amounts be set aside in a separate checking account or simply left co-mingled with other operating funds? If funds are being designated, it is important that the amounts be maintained and made available for the designated uses. 

If you have any questions regarding board-designated net assets or the new disclosure requirements, please contact your Hawkins Ash CPAs representative.
Author: Brittany Leonard, CPA
Direct: 608.793.3123
Education Opportunities
Performing Year-End Tasks in QuickBooks
Join us for a session of our QuickBooks Connect Roundtable Series. During this 1.5 hour call-in session, our conversation will center around year-end in QuickBooks. Debbie Denny will lead the dialogue, answering questions and providing tactical advice to topics you submit during registration.

November 27, 2018 | 9:00 a.m. - 10:30 a.m.

Payroll and Year-End Reporting Webinar
As an employer, you know year-end payroll processing and reporting is a complex undertaking that adds to the stress of closing the books for the year. To ensure a smooth, error-free year and to get the latest information, please join us for our Payroll and Other Year-End Reporting Webinar.

December 6, 2019 | 9:00 a.m. - 10:30 a.m.
Nonprofit Tax Tidbits:
Form 990 Schedule E and F
The next installment in our series on the sections of the IRS Form 990 focuses on Schedule E – Schools and Schedule F – Statement of Activities Outside the United States. 

Schedule E
Schedule E is completed for private educational organizations that maintain a regular faculty and curriculum and have students in attendance at the place where the educational activities are carried on. Schedule E is used to report certain information to the government. Private schools that are exempt from tax are required to have racially nondiscriminatory policies toward their students. The schedule includes a series of questions to determine whether or not the school meets the requirement.

Schedule F
Schedule F is used by an organization to report information on any activities conducted outside of the United States. The form is required if the organization has aggregate revenues or expenses conducted outside of the United States of more than $10,000. Activities conducted outside the United States include grants and other assistance, program-related investments, fundraising activities, unrelated trade or business, program services, investments, or maintaining offices, employees, or agents for the purpose of conducting activities outside the United States. 

If you have any questions regarding Form 990 Schedules E and F, please contact your Hawkins Ash CPAs representative.
Author: Brittany Leonard, CPA
Contact: 608.793.3123
The Tax Cuts and Jobs Act (TCJA) – New Requirements for Tax Exempt Organizations
The provisions of the Tax Cuts and Jobs Act were enacted into law on December 22, 2017. Within the legislation, there are new requirements affecting Internal Revenue Code Section 512 - Unrelated business taxable income. New Code section 512(a)(6) requires an organization subject to the unrelated business income tax rules to calculate unrelated business taxable income for each trade or business activity that is present. Under previous guidance, organizations were allowed to aggregate the income and deductions from all their unrelated business activities.

On August 21, 2018, the IRS released advanced Notice 2018-67 that provides preliminary guidance and transition rules in applying the new requirements. The IRS is seeking comments on this guidance through December 3, 2018 prior to issuing final regulations.

Notice 2018-67 includes:

  • General guidance for identifying separate trades or businesses, stating: “an exempt organization may rely on any reasonable, good-faith interpretation, considering all the facts and circumstances, when determining the organization’s unrelated separate trades or businesses.” The Notice further provides using the North American Industry Classification System (NAICS) 6-digit code system to differentiate unrelated trades or businesses would be considered a reasonable interpretation (these codes are already required on Form 990-T).

  • A brief discussion regarding deductions that are attributable to multiple unrelated trades or businesses and the requirement to allocate these using a reasonable methodology. There is currently minimal guidance on this; however, the IRS is expected to provide something more definitive in the final issuance of this Notice.

  • Guidance on how Section 512(a)(6) impacts the following:
  • Income from partnership interests
  • Income identified as unrelated debt financed income, income from controlled entities, and certain insurance income
  • The application of the new rules to social clubs, voluntary employee’s beneficiary associations, and supplemental unemployment compensation benefit trusts
  • Fringe benefits
  • Calculating net operating losses within the new framework
  • Global intangible low-taxed income

Tax-exempt organizations should review their current unrelated trade or business activities to determine the impact of the new requirements in Notice 2018-67. Please contact your Hawkins Ash representative for further questions or discussion. 
Author: Matt Neu, CPA
Direct: 920.684.2549
State and Federal Compliance Updates
Nonprofit organizations depend on various revenue streams to carry out their missions. Some sources of revenue, principally state and federal funding, have compliance and reporting requirements. Organizations that receive this type of funding need to be aware of recent changes and revisions to compliance guidance so they do not inadvertently jeopardize vital revenue sources. In addition to available guidance from state and federal sources, it is often necessary to review contracts and agreements which often contain additional requirements specific to that funding source.

Although this article focuses on State of Wisconsin compliance changes and updates, many states have compliance and program requirements which should be reviewed annually for changes for administering state funded programs. A significant source of funding for many Wisconsin nonprofits is the Department of Health Services (DHS). The most recent revision to the DHS audit guide was issued in October 2018 and is effective for 2018 calendar year audits. Notable changes include and increase the audit threshold from $25,000 to $100,000, clarification on DHS audit requirements regarding contractor relationships, and a reconfigured decision tree to assist agencies in determining the type of audit required. It also contains changes due to the repeal of the 10% accumulated reserve provisions. The October 2018 version of the DHS audit guide is available at

The Wisconsin Department of Children and Families (DCF) is another state agency which distributes funding to many nonprofits. The DCF issued a 2017 revision which has changes for contracts as of January 1, 2018. Similar to the DHS changes, audit thresholds were increased to $100,000 and the 10% accumulated reserve provisions were repealed. The DCF also uses the Provider Agency Audit Guide (PAAG) in conjunction with the DCF audit guide. The PAAG was revised in 2017 and should be used for DCF funding which involves the purchase of care and services. The most recent versions of the DCF guide and the PAAG audit guide are available at under State Audit Requirements.

The Office of Management and Budget (OMB) announced the availability of the 2018 Compliance Supplement on May 18, 2018. This supplement applies to federal funding. Although the compliance supplement is meant to provide auditors with compliance requirements and guidance, nonprofits should also review applicable program supplements so they are aware of potential changes to programs they administer. This supplement, unlike previous year’s editions, only includes significant updates and changes between 2017 and 2018. This means non-profit organizations and auditors will reference the 2017 supplement in conjunction with the 2018 supplement. In essence, if a particular program does not have a compliance supplement among the programs listed in the 2018 supplement, then the 2017 supplement will be used for guidance. The 2018 compliance supplement is available at

This article has just touched on some of the most recent compliance updates. Please contact your local Hawkins Ash nonprofit representative for additional information and guidance.
Author: Chuck Krueger, CPA
Direct: 920.684.2547
Client Feature and Executive Director Q&A
Marshfield Clinic Health System YMCA
The Marshfield Area YMCA began construction on the expansion and renovation of the Marshfield Clinic Health System YMCA in the fall of 2017. The Everett & Dolores Roehl Youth Center opened this summer and the full project will be complete by spring 2019.
The re-imagined YMCA will help the organization serve more children and youth through new childcare facilities including classrooms, kitchen and outdoor playground and a new School Age Center for youth with homework help and recreation opportunities. A new fieldhouse will provide facilities for indoor court/field sports and a running track; greatly expanding opportunities for team sports and sporting events. More people will be able to achieve a healthy lifestyle with an expanded state-of-the-art Healthy Living Center (with 24/7 access), wellness consultation and fitness testing rooms, additional cardio and strength training equipment, and renovated exercise rooms. New social gathering areas will encourage conversation and bonding. Studies have shown that strong social ties can have a direct and positive impact on health and contribute to the prevention of chronic disease. These gathering areas are especially important for seniors and families.
“Another important aspect of this project is the partnerships we are forming,” said John Nystrom, YMCA CEO. “Through partnerships, more people in our community will have access to a full range of opportunities to improve their quality of life. We will work closely with the Marshfield Clinic Health System, Wood County Head Start and the Marshfield School District, as well as continue to collaborate with other groups and organizations committed to a stronger community.”
We took the opportunity to ask John Nystrom about some aspects of being and becoming a nonprofit leader.
What are some things you know now that you wish you knew when you first started as a nonprofit leader? Don’t be a Q-TIP (Quit Taking It Personally). Deal with things as they happen, try to anticipate problems, focus on solutions, and keep moving forward toward accomplishing goals. Most important, enjoy every day and focus on the impact your work is having on others.
What has been your biggest source of pride as executive director? 
I am very proud of the success we've seen with the capital campaign to expand the existing YMCA. We raised $11 million and received the new markets tax credit allocation for a total investment of $15 million.
What are the dominant challenges that you see nonprofit organizations facing, and what do you think would be viable solutions?  
Competing for employees in light of rising costs of benefits. Health Insurance for employees is unaffordable and can cost as much for family coverage as one FTE. Perhaps moving in a direction of likeminded non-profits creating a consortium to increase group size and lower premium costs.
What other executive directors or philanthropic leaders do you look up to? 
My first boss who is now retired. He nurtured my career so that one day I would be prepared to walk in his footsteps.
How do you see the organization changing in the next two years, and how do you see yourself creating that change?  
A healthy nonprofit is ready to change as the needs in the community change and takes the lead at assessing/anticipating community needs and initiating that change. But, they are also prepared to work with likeminded nonprofits in order to have greater impact and maximize resources. The two most emerging needs in our community is quality affordable childcare and living a healthy lifestyle.
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