The CPA Desk

A Thought Leader Production by PKFTexas

Misconceptions with Nonprofit Raffles

Jen:  This is the PKF Texas Entrepreneur’s Playbook.  I’m Jen Lemanski, this week’s guest host, and back again with Nicole Riley, one of our Audit Senior Managers on our Not For Profit team.  Welcome back to the Playbook Nicole.

Nicole:  Thanks, glad to be here.

Jen:  Now I’m on the boards of several not for profits and we tend to do raffles as a way to raise money for our foundation, what have you.

Nicole:  As many do.

Jen:  What do we need to know about raffles?  I’ve heard you give some advice about that.

Nicole:  Well the misconception is that raffles are easy and they’re no big deal.  What a lot of people don’t realize is that actually falls under state gaming regulations which are pretty strict.  So it’s really important that an organization know the state rules and regulations before do raffles.  Sometimes you have to have a license, sometimes there’s a limit to how many times a year you can actually have a raffle and then other jurisdictions actually regulate what’s printed on the raffle ticket itself.  So there’s some very specific rules that you do need to follow to make sure you’re compliant.

Jen:  So just going down to Costco and buying those Keep This Coupon 2 ticket things, it’s a little more complicated than that.

Nicole:  It really is and the violations can be really steep, including jail and fines.  So it’s important to consult an attorney and also the Attorney General’s website.  Especially if you’re in Texas; the Texas Attorney General has some frequently asked questions that you can look into before you go down that road.

Jen:  So really doing your research, making sure that you’ve got an attorney consulted, making sure you’ve got a CPA consulted and then reaching out to the Attorney General’s office to make sure you’ve got everything the way it needs to be is what you would say?

Nicole:  It’s important to have your ducks in a row before you open an organization to liability.

Jen:  That sounds great.  Will you please come back and share some more with us in a future episode?

Nicole:  Absolutely.

Jen:  To learn more about how we can help your nonprofit visit  This has been anther Thought Leader production brought to you by PKF Texas The Entrepreneur’s Playbook.

Three Things Your Nonprofit’s Board Needs to Know

Information is power. And regularly supplying information to your not-for-profit’s board of directors is the key to the board properly fulfilling its duties. This doesn’t mean you have to share every internal email or phone message. Board members should, however, receive and understand information that will help them work together and better serve your organization.

Three types of information are important to share with your board:

  1. Financial. To fulfill their fiduciary duties, the board needs copies of your Form 990, and the board president or treasurer should review and approve it before it’s filed. The board also needs the results of any audit you’ve conducted, salary information for key staff, monthly and quarterly financial reports showing income and expenses, and proof of directors and officers insurance, if your organization provides it.
  2. Strategic. This includes reports on your nonprofit’s work, such as:
  • How programs are being carried out,
  • Program usage statistics,
  • Progress on event timelines, and
  • Membership statistics.

If your organization collects information from the audience it serves through formal or informal means, provide at least an executive summary of your findings to your board. Occasionally sharing with the board articles that relate to your nonprofit’s mission, locations or audiences also may be useful.

  1. Board member. To help foster teamwork and commitment to the cause, ask that members share brief bios and other relevant background information. Also publicly share thank-yous when board members make special efforts — whether those efforts are individual (such as securing an event sponsor) or group (performing due diligence on a new executive director).

Of course, you always want to inform your board when unexpected events occur, particularly if they have the potential to negatively affect your organization or require swift action. But don’t deluge your board with so much information that they can’t keep up. If it’s something that will help them serve your nonprofit, it’s something you should share. Contact us for more information on good nonprofit governance.

Key Deadlines for Businesses in Q3

Here are some of the key tax-related deadlines affecting businesses and other employers during the third quarter of 2017. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

July 31

  • Report income tax withholding and FICA taxes for third quarter 2017 (Form 941), and pay any tax due. (See exception below.)
  • File a 2016 calendar-year retirement plan report (Form 5500 or Form 5500-EZ) or request an extension.

August 10

  • Report income tax withholding and FICA taxes for third quarter 2017 (Form 941), if you deposited on time and in full all of the associated taxes due.

September 15

  • If a calendar-year C corporation, pay the third installment of 2017 estimated income taxes.
  • If a calendar-year S corporation or partnership that filed an automatic six-month extension:
    • File a 2016 income tax return (Form 1120S, Form 1065 or Form 1065-B) and pay any tax, interest and penalties due.
    • Make contributions for 2016 to certain employer-sponsored retirement plans.

Three Tips to Follow When Buying a Business

Jen:  This is the PKF Texas Entrepreneur’s Playbook.  I’m Jen Lemanski, this week’s guest host, and I’m here with Martin Euson, one of our tax directors on our Transaction Advisory Services team. Welcome to the Playbook Martin.

Martin:  Thank you, Jen.

Jen:  So Transaction Advisory Services, I know you’ve told me before that we advise people when they’re looking to purchase a business, what are some of the top tax issues that you want them to consider when looking into something like that?

Martin:  There are three key areas that I advise clients on who are looking to buy a business. First and foremost I advise them that they should really understand the form, the substance and the structure of the transaction they’re proposing to undertake from both a legal perspective and a tax perspective because as you may imagine those two can differ. Secondly, I advise them they should really be able to manage their risk and limit their exposure to the historical tax liabilities of the business that they’re proposing to buy.  And thirdly I advise them that they should really understand the tax attribute profile of the business that they’re proposing to acquire.  In other words are there any loss carryovers or credit carryovers that may be available to then in the future?

Jen:  So it sounds like there are a lot of moving parts when you’re potentially thinking about buying a business.  What sort of timing should all of this take?

Martin:  Jen the most important issue here with respect to timing is that all of this stuff be accomplished prior to the transaction.  If you’re looking at this stuff after the transaction’s already happened it’s really of limited value.

Jen:  So it’s really too late?

Martin:  Yes.

Jen:  Perfect. So they need to call you and get you on the phone now if they’re even thinking about buying a company?

Martin:  Absolutely.

Jen:  Perfect. Well, we’ll get you back to talk some more because I think this is a little bit more in depth than we can go into right now.

Martin:  Thanks, Jen, I look forward to it.

Jen:  To learn more about how we can assist you with your potential transactions visit  This has been anther Thought Leader production brought to you by PKF Texas The Entrepreneur’s Playbook.

Details to Keep in Mind When Selling Investments

The tax consequences of the sale of an investment, as well as your net return, can be affected by a variety of factors. You’re probably focused on factors such as how much you paid for the investment vs. how much you’re selling it for, whether you held the investment long-term (more than one year) and the tax rate that will apply.

But there are additional details you should pay attention to. If you don’t, the tax consequences of a sale may be different from what you expect. Here are a few details to consider when selling an investment:

Which shares you’re selling. If you bought the same security at different times and prices and want to sell high-tax-basis shares to reduce gain or increase a loss to offset other gains, be sure to specifically identify which block of shares is being sold.

Trade date vs. settlement date. When it gets close to year end, keep in mind that the trade date, not the settlement date, of publicly traded securities, determines the year in which you recognize the gain or loss.

Transaction costs. While transaction costs, such as broker fees, aren’t taxes, like taxes they can have a significant impact on your net returns, especially over time, because they also reduce the amount of money you have available to invest.

If you have questions about the potential tax impact of an investment sale you’re considering — or all of the details you should keep in mind to minimize it — please contact us.

Tax Deductible Contributions in Not-for-Profits

Jen:  This is the PKF Texas Entrepreneur’s Playbook.  I’m Jen Lemanski, this week’s guest host, and I’m back again with Annjeanette Yglesias, one of our tax managers on our not for profit team.  Welcome back to the Playbook Annjeanette.

Annjeanette:  Thanks Jen, it’s nice to be here.

Jen:  So we’ve been talking the past few weeks about not for profits, it’s my understanding that 501C3 charitable organizations can receive tax deductible contributions.  Is that correct?

Annjeanette:  Yes, that’s correct.  501C3 organizations can receive charitable donations that are deductible by the donor.

Jen:  Okay, and do they have to do anything special to document those deductions or how does that work?

Annjeanette:  Yes actually.  When a charity receives a donation from a donor they’re required to provide a written disclosure statement.

Jen:  Does it have to include something special on it?

Annjeanette:  Basically the written disclosure statement has to provide the total amount of the payment that the donor made but also if the donor received any goods or services in connection with that donation the value of the goods and services also has to be stated on the disclosure statement.

Jen:  Now are there different brackets for the amount that someone gave?  Say somebody gave $10.00 versus somebody giving $1 million; are there different levels of documentation that someone has to have?

Annjeanette:  The requirement for the I.R.S. is any contribution over $75.

Jen:  Okay, perfect.  So that goes for both individuals giving donations, they have to make sure that they receive that documentation and then the not for profit has to make sure that they give that documentation.

Annjeannette:  That’s correct and the reason why it’s important for the donor is because the deductible amount of that payment that the donor makes to the organization is limited to the excess of the payment over the fair market value that’s stated on the disclosure.

Jen:  So that’s something they really need to pay attention to, probably gets you in the door to talk to them about.

Annjeanette:  Exactly.

Jen:  Awesome.  Well thank you so much for being here, we really appreciate it and we’ll get you back to talk about some of this stuff again.

Annjeanette:  Great.

Jen:  To learn more about how PKF Texas can help your not for profit visit  This has been anther Thought Leader production brought to you by PKF Texas The Entrepreneur’s Playbook.

A Guide for Not-for-Profits and Loan Borrowing

Debt is an integral part of many for-profit companies’ strategic plans, yet it has traditionally carried a stigma in the not-for-profit world. That view is changing, as more organizations borrow money for major capital purchases, new program funding and other reasons. But before your nonprofit borrows, it’s important to understand that it takes prudent financial management and reliable donor support to pay back a loan.

Exhaust other options

You may think your organization has a good rationale for borrowing, but that doesn’t mean lenders — or even your supporters — will agree. One of the primary criteria watchdog groups such as Charity Navigator and CharityWatch use to evaluate nonprofits is the percentage of available funds spent on programs. If a large portion of your budget is tied up in debt repayment, that likely affects how the public, including prospective donors, perceives your organization.

What’s more, lender covenants may prevent you from borrowing for other purposes — and thus limit strategic flexibility — until your existing debt is paid off. And debt makes periods of economic uncertainty that much more challenging. So it’s best to exhaust other funding sources before applying for a loan.

Getting prepared:

Even if you determine your nonprofit can handle the risks of borrowing, you need to make your case to lenders. Before approaching a lender, make sure you have:

  • A realistic repayment plan,
  • Current financial statements and up-to-date cash-flow projections,
  • Collateral to secure the loan,
  • A proven history of prudent financial management, and
  • The support of your board of directors.

The odds of qualifying for a loan are better if you have established relationships with lenders. Your reason for applying also plays a big part in the decision. Seeking money to make a major purchase or to stabilize cash flow (with a line of credit) is more likely to be successful than applying for a loan to start a new program.

Reasonable certainty

Borrowing may be a good option if you know how your organization will repay the loan. But to help ensure you avoid any negative consequences of borrowing, please contact us.

The Tax-Advantaged Way to Fund Elementary and Secondary School Costs

With school letting out you might be focused on summer plans for your children (or grandchildren). But the end of the school year is also a good time to think about Coverdell Education Savings Accounts (ESAs) — especially if the children are in grade school or younger.

One major advantage of ESAs over another popular education saving tool, the Section 529 plan, is that tax-free ESA distributions aren’t limited to college expenses; they also can fund elementary and secondary school costs. That means you can use ESA funds to pay for such qualified expenses as tutoring and private school tuition.

Other benefits

Here are some other key ESA benefits:

  • Although contributions aren’t deductible, plan assets can grow tax-deferred.
  • You remain in control of the account — even after the child is of legal age.
  • You can make rollovers to another qualifying family member.

A sibling or first cousin is a typical example of a qualifying family member if he or she is eligible to be an ESA beneficiary (that is, under age 18 or has special needs).


The ESA annual contribution limit is $2,000 per beneficiary. The total contributions for a particular ESA beneficiary cannot be more than $2,000 in any year, no matter how many accounts have been established or how many people are contributing.

However, the ability to contribute is phased out based on income. The phaseout range is modified adjusted gross income (MAGI) of $190,000–$220,000 for married couples filing jointly and $95,000–$110,000 for other filers. You can make a partial contribution if your MAGI falls within the applicable range, and no contribution if it exceeds the top of the range.

If there is a balance in the ESA when the beneficiary reaches age 30 (unless the beneficiary is a special needs individual), it must generally be distributed within 30 days. The portion representing earnings on the account will be taxable and subject to a 10% penalty. But these taxes can be avoided by rolling over the full balance to another ESA for a qualifying family member.

Would you like more information about ESAs or other tax-advantaged ways to fund your child’s — or grandchild’s — education expenses? Contact us!

Representation in a Joint Venture

Russ:  this is the PKF Texas Entrepreneur’s Playbook.  I’m Russ Capper, this week’s guest host, and I’m here once again with Brian Baumler, a Senior Vice President with Joint Ventures Strategic Advisors and an Audit Director with PKF Texas; Brian good to have you back again.

Brian:  Absolutely, thanks so much Russ.

Russ:  You bet.  So this Joint Venture Services that you guys offer here at PKF is kind of interesting to me because I think you’re most often, as you said, brought in for the non-operating partner.

Brian:  Yep, that’s correct.

Russ:  Because they’re looking at the other direction and wanting to make sure everything is okay, so do you just focus on their side and not pay attention to the other partner in the deal?

Brian:  That’s a great question because a lot of times there’s more than just the operator and a single non-operator, it’s really all parties can benefit from the result of our work.  We have a real example, this actually benefitted all parties to the arrangement, and we represented a company where when we actually did the audit we discovered that there were sales and use taxes being charged in a jurisdiction that didn’t allow for sales tax.  And because of that example, all parties were recipients of the benefit of a credit back to the services that were provided by those vendors.  So a great, great example where we do oftentimes look out for the best interest of the non-operating who engages us but in many cases, it can benefit all parts.

Russ:  Okay, that’s interesting.  Sometimes do you come in and you’re representing the non-operating partner and the operating partner goes and hires representation as well?

Brian:  Well typically we’re executing under our rights of joint audit, so because of that typically they have their own team of people that are in place to help with that service.  And the reason I bring that up because they have to cooperate; there isn’t a reason that they would have to engage anybody, they typically have teams of people in place that help if they’re the operator.  All non-ops have this right so it’s in their best interest to have those people in place.

Russ:  Okay, great.  Thanks, I really appreciate it.

Brian:  Thank you very much too.

Russ:  You bet.  For more about Joint Venture Services visit  This has been another Thought Leader Production brought to you by PKF Texas Entrepreneur’s Playbook.

Five Tips on Succession Planning for Not-for-Profits

Every not-for-profit organization needs comprehensive succession planning to ensure smooth leadership transitions. Here are five tips for making a written plan successful:

  1. Look within. It’s important to develop employees who can move up the ladder when an executive director or other senior manager leaves, but don’t rule out hiring an outsider. Promoting from within can be difficult for smaller organizations with limited “bench strength.”
  2. Maintain a strong board. A qualified, active board can conduct or assist in the search process and support the new executive during the transition period.
  3. Strengthen systems and procedures. Solid systems and well-documented procedures help you leverage organizational knowledge and keep your nonprofit running smoothly during leadership transitions.
  4. Expect the unexpected. Ideally, any succession plan will allow for time to identify and recruit a successor and move that person into the job. However, you also need to plan for sudden departures. Outline policies for communicating with donors, clients and the press if a leadership emergency arises, as well as steps your board should take to find a replacement in a timely manner.
  5. Think strategically. Don’t assume that your new executive should be as similar as possible to the outgoing one. Your nonprofit and its constituencies change over time. Succession planning provides a great opportunity to re-evaluate your strategies and identify new qualities that will be important going forward.

When a nonprofit organization loses its executive director or other leaders, it risks declining contributions, lowered employee morale and program disruption. Contact us for help creating a succession plan that will help minimize such risks.