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.

Tips on Valuing and Reporting Gifts In Kind and Donated Services

Not-for-profit organizations receive more than simple cash donations. Your support also likely comes in the form of gifts in kind and donated services. But even when such gifts are welcome, it can be challenging to determine how to recognize and assign a value to them for financial reporting purposes.

Recording gifts in kind

Gifts in kind generally are pieces of tangible property or property rights. They may take many forms, including:

  • Free or discounted use of facilities,
  • Free advertising,
  • Collections, such as artwork to display, and
  • Office furniture or supplies.

To record gifts in kind, determine whether the item can be used to carry out your mission or sold to fund operations. In other words, does it have a value to your nonprofit? If so, it should be recorded as a donation and a related receivable once it’s unconditionally pledged to your organization.

To value the gift, assess its fair value — or what your organization would pay to buy it from an unrelated third party. In many cases, it’s easy to assign a fair value to property, but when the gift is a collection or something that doesn’t otherwise have a readily determinable market value, its fair value is more difficult to assign. For smaller gifts, you may need to rely on a good faith estimate from the donor. But if the value is more than $5,000, the donor must obtain an independent appraisal for tax purposes, which will give you documentation for your records.

Recognizing donated services

The fair value of a donated service should be recognized if it meets one of two criteria:

  1. The service creates or enhances a nonfinancial asset. Such services are capitalized at fair value on the date of the donation. These types of services either create a nonfinancial asset (in other words, a tangible asset) or add value to an asset that already exists.
  2. The service requires specialized skills, is provided by persons with those skills and would have been purchased if it hadn’t been donated. These services are accounted for by recording contribution income for the fair value of the service provided. You also must record it as a related expense, in the same amount, for the professional service provided.

Beyond the basics

These are only basic guidelines to recognizing and valuing gifts in kind and donated services. For more comprehensive information about handling these gifts, contact us.

Is Your Not-for-Profit Board Following These Governance Practices?

Jen:  This is the PKF Texas Entrepreneur’s Playbook.  I’m Jen Lemanski, this week’s guest host, and I’m 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’ve heard you talk about Governance procedures; what does that all entail?  What do people need to know if they’re nonprofit for Governance procedures?

Nicole:  Really when we talk about Governance we’re talking about the processes and procedures in place with the Board of Directors.  Just like an organization needs to have good processes and procedures to make sure their operations flow and work well, the board needs to have processes and procedures in place to make sure that it governs properly and has great oversight over the organization so the organization can accomplish its mission.

Jen:  So when you go in and you advise a not for profit and you’re talking to them about these things what do you advise that the board pay attention to?

Nicole:  The 5 main things I would recommend first for the board to look at, the first thing is for the board to have an orientation and training program.  When you bring a new board member on you want to make sure that you get them up to speed as fast as possible so they can be a contributing member and you also don’t want to lose what the board members that are leaving know.

Jen:  Because they’re intellectual capital and that kind of thing.

Nicole:  Right, and as well you want the board members to get some annual training where they learn new regulations, new laws and just kind of touch base to make sure that they’re staying up to date on what’s going on with nonprofits.  The second thing I would say is boards have to keep minutes.  Transparency is so important these days with nonprofits, it really plays into their perception in the public, so keeping minutes of the board meetings and the committee meetings help to make sure that everything’s documented and that they’re able to have total transparency if anybody wants to know what’s going on.

Jen:  So they should post those on the website probably or somewhere in a public place?

Nicole:  That would be up to the organization whether they think that is necessary but somebody may ask for them and they want to have them available.  The third item I would recommend is having a conflict of interest policy and that the board review that annually; which means that if somebody has a brother that has a construction company and the organization is going to go after a bid because they’re going to build a building you want to make sure that the board members are aware of that as they’re evaluating those bids to make sure it’s fair and everybody keeps the organization’s best interest at heart.

Jen:  So have a good RFP kind of process?

Nicole:  Right.  And then fourth I would say your Executive Director needs to have an annual performance evaluation.  They are head of the organization and just like everybody else below them they need to know how they’re doing.  And as well their compensation needs to be evaluated and then documented how the board got there and whether or not it needs to be competitive but not excessive.

Jen:  And I think you said five think, what’s the last one?

Nicole:  The last one would be I recommend the board review the 990 form before it’s filed every year.  It’s filed with the IRS but it’s also available to the public so it’s important the board members know what’s in there and that it’s complete and accurate.

Jen:  Sounds good.  Well, we’ll get you back to talk about some more of this stuff in the future.

Nicole:  Thank you.

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

NEW DATE: Houston and Beyond: Will You Be at the Soiree?

In order to allow families and businesses to heal and recover after Hurricane Harvey, the 2017 Soiree is postponed until October 12, 2017.


Greater Houston Partnership’s premiere event of the season, the Soiree, is just around the corner. With the theme this year being “Houston and Beyond”, this event is sure to be out of this world. It will celebrate Houston’s interstellar legacy, the diversity of our global industries, and our future status as an innovative city propelling beyond barriers with advanced technology.

At this event, you will have the chance to mingle with Houston’s top business professionals in an upscale setting with food, drink, and conversation at the Hotel ZaZa.

Do you want to get involved? We don’t blame you! There are plenty of ways to access this VIP event while getting your company’s name out there. As the Menu Underwriter, PKF Texas knows the value of being involved in the Soiree! Take a look at the Soiree sponsorship opportunities or donate goods to the silent auction.

Term Limits on Your Nonprofit Board. Yes or No?

Term limits for not-for-profit board members can be a double-edged sword. They can allow you to easily let go of unsuccessful board members, but they also can cause you to lose the best sooner than you’d like. Consider some of the issues involved before making a decision.

Review the pros

Term limits allow you to remove inactive or difficult members politely and, hopefully, without hurting their feelings. They also can create an opportunity for new board members with fresh ideas and perspectives to come on board and provide flexibility as your organization grows. Suppose, for example, that a board member’s term is expiring and a key initiative is to replace outdated technology. This is an ideal time to add a new board member with IT expertise.

Term limits can help board members, too. By knowing in advance that their terms will be expiring, they can move on to other nonprofit boards without feeling guilty. And they can exit gracefully if age or life-changing situations affect their participation.

Recognize the cons

But in some circumstances, term limits do more harm than good. First, your organization may have to look for qualified and dedicated volunteers every couple of years — which can be difficult and time-consuming. Also, term limits require your board and organization to commit to an endless cycle of new member training. This can diminish your board’s return on its training investment — by the time a member becomes a valuable asset and is effective, his or her term may be up.

What’s more, you may sacrifice your most dedicated members. Although ideally, all board members contribute significantly and equally, nonprofits often have a few members that perform the bulk of the board’s work. Losing one of these key people can be devastating. Last, you may lose institutional knowledge and organizational history when founding and experienced members leave.

Other options

If term limits aren’t appropriate for your organization but you want to ensure board members are active and engaged, think about developing an advisory committee to evaluate members and assess their ongoing interest. To discuss your options, contact us.

Consider This Tax-Smart Medical Expenses Strategy

Various limits apply to most tax deductions, and one type of limit is a “floor,” which means expenses are deductible only if they exceed that floor (typically a specific percentage of your income). One example is the medical expenses deduction.

Because it can be difficult to exceed the floor, a common strategy is to “bunch” deductible medical expenses into a particular year where possible. If tax reform legislation is signed into law, it might be especially beneficial to bunch deductible medical expenses into 2017.

The deduction

Medical expenses that aren’t reimbursable by insurance or paid through a tax-advantaged account (such as a Health Savings Account or Flexible Spending Account) may be deductible — but only to the extent that they exceed 10% of your adjusted gross income. The 10% floor applies for both regular tax and alternative minimum tax (AMT) purposes.

Beginning in 2017, even taxpayers age 65 and older are subject to the 10% floor. Previously, they generally enjoyed a 7.5% floor, except for AMT purposes, where they were also subject to the 10% floor.

Benefits of bunching

By bunching nonurgent medical procedures and other controllable expenses into alternating years, you may increase your ability to exceed the applicable floor. Controllable expenses might include prescription drugs, eyeglasses and contact lenses, hearing aids, dental work, and elective surgery.

Normally, if it’s looking like you’re close to exceeding the floor in the current year, it’s tax-smart to consider accelerating controllable expenses into the current year. But if you’re far from exceeding the floor, the traditional strategy is, to the extent possible (without harming your or your family’s health), to put off medical expenses until the next year, in case you have enough expenses in that year to exceed the floor.

However, in 2017, sticking to these traditional strategies might not make sense.

Possible elimination?

The nine-page “Unified Framework for Fixing Our Broken Tax Code” that President Trump and congressional Republicans released on September 27 proposes a variety of tax law changes. Among other things, the framework calls for increasing the standard deduction and eliminating “most” itemized deductions. While the framework doesn’t specifically mention the medical expense deduction, the only itemized deductions that it specifically states would be retained are those for home mortgage interest and charitable contributions.

If an elimination of the medical expense deduction were to go into effect in 2018, there could be a significant incentive for individuals to bunch deductible medical expenses into 2017. Even if you’re not close to exceeding the floor now, it could be beneficial to see if you can accelerate enough qualifying expense into 2017 to do so.

Keep in mind that tax reform legislation must be drafted, passed by the House and Senate and signed by the President. It’s still uncertain exactly what will be included in any legislation, whether it will be passed and signed into law this year, and, if it is, when its provisions would go into effect. For more information on how to bunch deductions, exactly what expenses are deductible, or other ways tax reform legislation could affect your 2017 year-end tax planning, please contact us.

Due Diligence from Audit and Tax Perspectives

Jen:  This is the PKF Texas Entrepreneur’s Playbook.  I’m Jen Lemanski, this week’s guest host, and I’m back again with Chris Hatten and Martin Euson, two of the Directors on our Transaction Advisory Services team.  Guys welcome back to the playbook.

Chris:  Thanks, Jen.

Martin:  Thank you, Jen.

Jen:  Now I’ve heard you guys talk about due diligence, what is it?

Martin:  On the tax side Jen due diligence really comes down to a process of investigating and examining a target company’s tax filings and tax records historically to see if there’s anything in there that may present risk or exposure that the buyer wants to be aware of so they can take that into their decision-making ahead of time before learning about those things afterward.

Chris:  From the financial reporting side of things it’s more so an income statement approach because a lot of times the transaction is based off some multiple of earnings or revenue and so as the buyer you want to make sure that there are some reliability and predictability behind those numbers, and so we kind of go in and do a deeper dive on that.

Jen:  So it sounds like it’s usually the buyer doing the due diligence, is that?

Martin:  That’s correct Jen but oftentimes the seller will also due diligence on itself.  Diligence can be a disruptive process if you’re having multiple buyers come in and multiple bidders come in and going through that process, so that can be a little bit disruptive.  And it also gives the seller a chance to find out what, if any, skeletons are in their closet before a buyer comes in and does diligence and so it can occur on both sides.

Chris:  Definitely.  To further Martin’s point it is a very disruptive process and so they want to make sure that they’ve got all their historical records, their financial statements, everything else in order to add a little smoothness to the process.

Jen:  Perfect.  Well, I think we might need to dive into the sell side a little bit later, can I get you guys back?

Martin:  Absolutely.

Chris:  We can do that.

Jen:  All right, perfect.  To learn more about how we can assist you with potential transactions visit  This has been another Thought Leader production brought to you by PKF Texas The Entrepreneur’s Playbook.  Tune in next week for another chapter.

Investors: Avoid the Wash Sale Rule and Still Achieve Your Goals

A tried-and-true tax-saving strategy for investors is to sell assets at a loss to offset gains that have been realized during the year. So if you’ve cashed in some big gains this year, consider looking for unrealized losses in your portfolio and selling those investments before year-end to offset your gains. This can reduce your 2017 tax liability.

But what if you expect an investment that would produce a loss if sold now to not only recover but thrive in the future? Or perhaps you simply want to minimize the impact on your asset allocation. You might think you can simply sell the investment at a loss and then immediately buy it back. Not so fast: You need to beware of the wash sale rule.

The rule up close

The wash sale rule prevents you from taking a loss on a security if you buy a substantially identical security (or an option to buy such a security) within 30 days before or after you sell the security that created the loss. You can recognize the loss only when you sell the replacement security.

Keep in mind that the rule applies even if you repurchase the security in a tax-advantaged retirement account, such as a traditional or Roth IRA.

Achieving your goals

Fortunately, there are ways to avoid the wash sale rule and still achieve your goals:

  • Sell the security and immediately buy shares of a security of a different company in the same industry or shares in a mutual fund that holds securities much like the ones you sold.
  • Sell the security and wait 31 days to repurchase the same security.
  • Before selling the security, purchase additional shares of that security equal to the number you want to sell at a loss. Then wait 31 days to sell the original portion.

If you have a bond that would generate a loss if sold, you can do a bond swap, where you sell a bond, take a loss and then immediately buy another bond of similar quality and duration from a different issuer. Generally, the wash sale rule doesn’t apply because the bonds aren’t considered substantially identical. Thus, you can achieve a tax loss with virtually no change in economic position.

For more ideas on saving taxes on your investments, please contact us.

Martin Euson Explains Tax Structuring

Jen:  This is the PKF Texas Entrepreneur’s Playbook.  I’m Jen Lemanski, this week’s guest host, and I’m here again with Martin Euson, one of our tax directors on our transaction advisory services team.  Martin welcome back to the Playbook.

Martin:  Thank you, Jen.

Jen:  So we’ve been talking a lot about transaction advisory and we’ve been talking about due diligence and some of the other components, I’ve heard something about tax structuring; what is that?

Martin:  I think I can best explain tax structuring Jen by way of example.

Jen:  Okay.

Martin:  Let’s say I’ve got this case of mints here, this very valuable case of mints.  Let’s say that you and I engage in a transaction and I’m going to sell you these mints for $100.00.  When it comes to the amount of tax I’m going to have to pay out of this sale I can either pay 0.

Jen:  I like 0.

Martin:  0 is good.  I could possibly pay $23.00/$24.00 in tax or I could possibly pay $50.00 or slightly higher.  So all of that – the amount of tax that I’m going to pay on the sale is directly related to how the transaction is structured from a tax perspective.  That’s the impact of tax structuring.

Jen:  So you’ve sold me these mints, you’ve told me that you have to pay tax on it – anywhere from 0 to $60.00 – that’s a broad range.  What goes into that?

Martin:  That comes down to how the transaction is structured, Jen.  You have three different variations; you could have an asset sale, you could have a stock sale and you could have a so-called tax-free reorganization and that’s what results in the lower tax of 0.

Jen:  Sounds like that’s a little complex and that somebody would need to get a tax professional in there to help them out with that.

Martin:  I agree, it can get very complex.

Jen:  All right, perfect.  Well, we’ll get you to talk a little bit more about that and we can delve a little bit deeper into each one later.  Can we get you back?

Martin:  Thank you, yes.

Jen:  Perfect.  To learn more about how we can assist you with potential transactions visit  This has been another Thought Leader production brought to you by PKF Texas The Entrepreneur’s Playbook.  Tune in next week or another chapter.

What a Smart Endowment Spending Policy Can Do for Your Nonprofit

Income from endowment funds may be able to help your not-for-profit meet operating expenses, ease cash-flow problems and supplement next year’s annual budget. But you need to pay attention to several factors, including investment performance, inflation, operational changes and — the only factor you can truly control — your nonprofit’s spending policy.

Know your restrictions

If endowment funds contain donor-imposed restrictions, your spending policy needs to defer to those. But assuming funds aren’t restricted, nonprofits in every state except Pennsylvania must conform to provisions of the Uniform Prudent Management of Institutional Funds Act (UPMIFA). Among other things, UPMIFA:

  • Allows nonprofits to include appreciation of invested funds as part of what is “spendable” in addition to realized gains, interest and dividends,
  • Provides guidance for “prudent” decisions, suggesting that spending more than 7% of an endowment in any one year isn’t prudent, and
  • Makes it easier for nonprofits to identify new uses for older and smaller endowments that may be dedicated to obsolete or impractical purposes.

Because UPMIFA is complex, consult your financial advisor on how it affects your organization.

Define your percentage

Your spending policy should define how much of your endowment fund’s income can be spent on operations each year. Generally, this is defined as a percentage (between 4% and 7%) of a rolling average of endowment investments. A rolling average helps even out the ups and downs of market returns and prevents the endowment’s contribution to any one budget year from being significantly lower than contributions to other years.

However, this approach doesn’t address whether your endowment fund will be able to maintain a similar level of funding for future operations. Also, because investment returns usually don’t correspond to the inflation rates that affect your operating budget, your spending policy should be based on more than recent returns.

To factor inflation into your spending policy, you might start with a relatively conservative, inflation-free investment rate of return. Then adjust it for inflation to arrive at a spending rate you can apply on a year-by-year basis

Increase spending power

A smart endowment spending policy can allow your asset base to grow and, therefore, increase your fund’s chances of maintaining or growing real spending power for future years. Contact us for more information.