Recent activity by the federal government suggests that increased scrutiny will be placed on nonprofit entities. This increased scrutiny includes an increase in the number of audits. Many smaller nonprofits may shrug off this recent development as an issue that does not apply to their organization. The assumption, “we’re too small to be noticed”, would be wrong.
The IRS is currently beefing up their Tax Exempt and Governmental Entities (TE/GE) Division with 155 new employees. 100 of these will work in examinations. What does this mean for your organization? You have a greater chance of receiving an inquiry or being audited. The TE/GE Division expect to conduct around 500 audits of randomly selected exempt organizations.
So, rather than sitting back on your haunches and waiting to see if your entity is unlucky enough to draw the short straw, get proactive! Be audit ready. Below are a few practical measures to consider now.
Organizational documents. Articles, bylaws, determination letters, and other formal documentation will be requested during the audit. Make sure you can put your hands on these and that your organization is operating within the standards set forth in the documentation.
Minutes of meetings. Make sure the minutes reflect all actions of the organization’s governing body and of any committee having the power to bind the organization.
Payroll information. For all employees, make sure you have an employee file containing W-2s, copies of the Social Security card and driver’s license, and insurance documentation. If you have any contract labor, make sure that the contract labor classification is defensible. For descriptions on employment status, see the February 2010 issue of The PPC Nonprofit Update.
Financial records. Ensure that you have good record of all financial statements, receipts, invoices, check registers, bank statements, expense reports, and any other financial documentation that supports your books.
Nonprofits of ALL sizes should be aware of the potential for an IRS audit. Be prepared by following the above suggestions
Tuesday, August 31, 2010
Thursday, August 26, 2010
The IRS…………..friend or foe?
The IRS just sent out another round of collection letters. Their computer spits these letters out every 30 days. The letters come with varying degrees of venom. Generally, when you get the letter that threatens to place liens on your bank accounts and other properties, it is time for you (the taxpayer) to take some form of positive action. Don’t shred this letter.
The Internal Revenue Service is the collection branch of the United States government. The IRS does not make tax law. Your elected Congressmen make the laws. If you do not like the tax laws, the collection laws or any other law, call your Congressman.
So when you call your CPA and vent about the IRS and the unfairness of tax laws, fines, penalties, interest and collection procedures, you are complaining to the wrong person about the wrong group. Call your Congressman.
ON THE OTHER HAND, if you want to complain about the quality of service provided by the IRS, call the IRS. We need to let IRS management know that they have issues. I have been a practicing CPA for 27 years. In the “good ole days” you could take your client’s power of attorney, go to the local IRS office and work out every problem in a face to face meeting. The process was simple and effective. You can’t do that any longer.
Today virtually all issues are handled by IRS telephone call centers and correspondence. Your ability to resolve an issue often rests with the “luck of the draw”. If you get a well trained, experienced agent on the phone, you may get your issues resolved quickly. Please be aware that the call centers are staffed by the lower level, less experienced agents, so there is a very good chance that your issue will not be resolved.
In the meantime, the IRS computer is sending out collection letters every 30 days. It is not at all uncommon for an issue to be resolved or in the process of being resolver via the phone agent only to have an IRS collection letter generated via computer.
Here is an actual case on this point. We filed an amended income tax return for a client. The amended return reduced the client’s liability substantially. A week or so ago, the client received a letter stating that due to the unpaid taxes, the IRS was going to attach liens on their bank account and their home. Needless to say our client was hot. We called the IRS. Their response to our call was that amended returns take 6 to 9 months to process. They showed receipt of the amended return but we could not give a date for processing. Their solution was to put a 30 day hold on the account. Yes, a 30 day hold on an issue, that by their own admission may take as much as 9 months. So we, the taxpayer, have to call the IRS every 30 days to get them to extend the “hold” every 30 days until the issue is resolved.
I am sure that the practitioners that you use can regale with similar stories. Here is my point. The number of returns being processed by the IRS is growing at a ridiculous rate. Congress has not mandated the adequate funds to increase staff and equipment to keep up with the filing growth. The problem is only going to get worse. So don’t shoot the messenger!
The Internal Revenue Service is the collection branch of the United States government. The IRS does not make tax law. Your elected Congressmen make the laws. If you do not like the tax laws, the collection laws or any other law, call your Congressman.
So when you call your CPA and vent about the IRS and the unfairness of tax laws, fines, penalties, interest and collection procedures, you are complaining to the wrong person about the wrong group. Call your Congressman.
ON THE OTHER HAND, if you want to complain about the quality of service provided by the IRS, call the IRS. We need to let IRS management know that they have issues. I have been a practicing CPA for 27 years. In the “good ole days” you could take your client’s power of attorney, go to the local IRS office and work out every problem in a face to face meeting. The process was simple and effective. You can’t do that any longer.
Today virtually all issues are handled by IRS telephone call centers and correspondence. Your ability to resolve an issue often rests with the “luck of the draw”. If you get a well trained, experienced agent on the phone, you may get your issues resolved quickly. Please be aware that the call centers are staffed by the lower level, less experienced agents, so there is a very good chance that your issue will not be resolved.
In the meantime, the IRS computer is sending out collection letters every 30 days. It is not at all uncommon for an issue to be resolved or in the process of being resolver via the phone agent only to have an IRS collection letter generated via computer.
Here is an actual case on this point. We filed an amended income tax return for a client. The amended return reduced the client’s liability substantially. A week or so ago, the client received a letter stating that due to the unpaid taxes, the IRS was going to attach liens on their bank account and their home. Needless to say our client was hot. We called the IRS. Their response to our call was that amended returns take 6 to 9 months to process. They showed receipt of the amended return but we could not give a date for processing. Their solution was to put a 30 day hold on the account. Yes, a 30 day hold on an issue, that by their own admission may take as much as 9 months. So we, the taxpayer, have to call the IRS every 30 days to get them to extend the “hold” every 30 days until the issue is resolved.
I am sure that the practitioners that you use can regale with similar stories. Here is my point. The number of returns being processed by the IRS is growing at a ridiculous rate. Congress has not mandated the adequate funds to increase staff and equipment to keep up with the filing growth. The problem is only going to get worse. So don’t shoot the messenger!
Wednesday, August 25, 2010
Employee Termination 101
One reality of running a business is that occasionally an employee needs to be terminated. Whether it be performance, incompatibility, or any number of other issues, there will come a time when a business owner is faced with this challenge. Preparation is key to firing an employee and avoiding facing legal problems down the road.
Documentation, Documentation, Documentation
You can NEVER have too much documentation. What location is to real estate, documentation is to termination. Document the employee’s performance over time and provide feedback in full detail. Make sure you have an employee handbook and you follow the guidelines with each employee equally. If you document everything, there will be no questions in the end.
Is that your final answer?
You have thought long and hard about your decision to fire an employee. There will be a rush of emotion when you tell them the news. Grief and anger are a few to name BUT hold your ground. Give honest answers while avoiding any and all debatable issues. Do not apologize for your decision but offer explanations of the termination without creating a long discussion. Misleading the employee into thinking they have one last chance will only cause you more of a headache in the end.
Firing via Social Media or Text
Face-to-face is the best and ONLY way an employer should terminate an employee. Trash any and all electronic methods of termination (i.e. Facebook or text messaging). When you fire an employee, give them the courtesy you would extend to any other person and avoid any and all accusations of defamation. You might want to scribble this one down for break-up tips as well.
Firing without Warning
Firing without warning can be one of the biggest downfalls for an employer. As said earlier, documentation is key to firing and can become your biggest defense in a legal issue. Blindsiding your employee with a surprise can lead to an overwhelming amount of emotion that you do not want in your work place.
Can I get a witness?
Employment termination is a hot topic in court these days and definitely not the place you want to find yourself. ALWAYS have a witness in the room with you before you begin the termination process. Most employers would rather have an employee from HR, but any witness is better than no witness. Keep in mind that anyone can sue anyone these days and your witness’ testimony for the events of the meeting could quite possibly be your defense in court.
What’s mine is mine and what’s yours is yours.
During the termination meeting, ask that the employee hand over all company property from cell phones to passwords. Accompany the employee to their desk in order to gather necessary items. If the employee has company property outside of the workplace, make documented and solid plans for when you expect them returned. Give the employee an explanation of how long they have to gather their personnel belongings and leave the premises. Following the termination, minimize the contact the former employee has with other employees at the work site. If the former employee is upset, schedule another time for them to come in and get their personal belongings.
Confidentiality
Keep all employee records and termination paperwork private. It is appropriate to let the company know the employee has left, but make sure to reassure them that their jobs are not in danger. Keep all conversations about the employee’s termination confidential as well.
Reflect
After the termination, review and reflect over the process. Was everything documented appropriately? Were all termination policies followed according to your company’s standards? Do any alterations need to be made for a smoother transition? All of these are things you should ask yourself.
Cover each base by documenting everything and preparing an appropriate termination process that your company can follow. Be consistent and remember: Documentation, Documentation, Documentation!
Documentation, Documentation, Documentation
You can NEVER have too much documentation. What location is to real estate, documentation is to termination. Document the employee’s performance over time and provide feedback in full detail. Make sure you have an employee handbook and you follow the guidelines with each employee equally. If you document everything, there will be no questions in the end.
Is that your final answer?
You have thought long and hard about your decision to fire an employee. There will be a rush of emotion when you tell them the news. Grief and anger are a few to name BUT hold your ground. Give honest answers while avoiding any and all debatable issues. Do not apologize for your decision but offer explanations of the termination without creating a long discussion. Misleading the employee into thinking they have one last chance will only cause you more of a headache in the end.
Firing via Social Media or Text
Face-to-face is the best and ONLY way an employer should terminate an employee. Trash any and all electronic methods of termination (i.e. Facebook or text messaging). When you fire an employee, give them the courtesy you would extend to any other person and avoid any and all accusations of defamation. You might want to scribble this one down for break-up tips as well.
Firing without Warning
Firing without warning can be one of the biggest downfalls for an employer. As said earlier, documentation is key to firing and can become your biggest defense in a legal issue. Blindsiding your employee with a surprise can lead to an overwhelming amount of emotion that you do not want in your work place.
Can I get a witness?
Employment termination is a hot topic in court these days and definitely not the place you want to find yourself. ALWAYS have a witness in the room with you before you begin the termination process. Most employers would rather have an employee from HR, but any witness is better than no witness. Keep in mind that anyone can sue anyone these days and your witness’ testimony for the events of the meeting could quite possibly be your defense in court.
What’s mine is mine and what’s yours is yours.
During the termination meeting, ask that the employee hand over all company property from cell phones to passwords. Accompany the employee to their desk in order to gather necessary items. If the employee has company property outside of the workplace, make documented and solid plans for when you expect them returned. Give the employee an explanation of how long they have to gather their personnel belongings and leave the premises. Following the termination, minimize the contact the former employee has with other employees at the work site. If the former employee is upset, schedule another time for them to come in and get their personal belongings.
Confidentiality
Keep all employee records and termination paperwork private. It is appropriate to let the company know the employee has left, but make sure to reassure them that their jobs are not in danger. Keep all conversations about the employee’s termination confidential as well.
Reflect
After the termination, review and reflect over the process. Was everything documented appropriately? Were all termination policies followed according to your company’s standards? Do any alterations need to be made for a smoother transition? All of these are things you should ask yourself.
Cover each base by documenting everything and preparing an appropriate termination process that your company can follow. Be consistent and remember: Documentation, Documentation, Documentation!
Thursday, August 12, 2010
Is It Time To Expand Or Stand Pat?
Interest rates are at the lowest levels in my lifetime. The economy is at the lowest level in my lifetime. So, is this the time to recognize opportunity or just buy my few remaining dollars in the backyard?
This is the question that I get repeatedly. To some extent your decision will depend on your risk tolerance level. We had a client in the office this week that is convinced that we are headed for another Great Depression. They are liquidating and holding the cash. Yesterday, I met with a client whose business is growing so fast that their concern is that it is out of control.
My home is Galveston. The richest family in town is the Moody’s. The original Mr. Moody made a significant amount of money in the cotton business after the Civil War. It was Grandpa Moody, however, that made the fortune. He made that fortune during the Great Depression by buying grossly undervalued businesses and later selling those businesses. At one point, he was the largest landholder in Texas. He bank rolled such notables as Baron Hilton (Paris’ grandfather) and many others. He created a banking and insurance empire by guaranteeing returns. The old bank in Galveston sported a large 1% painted on the front door.
My point is this, protect your assets, but don’t be afraid of the future. Invest your business in tomorrow, but invest wisely. Put your business in a position to be a leader in your industry. The economy runs in cycles. Money is extremely cheap right now. Consider investing in your company’s infrastructure. The Boy Scout motto is “Be Prepared”. Our business motto is “Be Ready”.
Other Tidbits…
Senator John Kerry, Democrat from Massachusetts has agreed to pay the state of Massachusetts $500,000 in state taxes that he attempted to avoid by docking his $7 million yacht in Rhode Island. Come on! Screwing the state that elected you!
Chris Tucker is facing tax liens from the IRS of $11.5 million. Ouch. Who was his CPA?
I know most of my readers are into RAP, so here is the update on Lil Wayne. The IRS slapped a $1.1 million tax lien on our man. Apparently he intends to address this issue as soon as he gets out of jail on the weapon charge.
This is the question that I get repeatedly. To some extent your decision will depend on your risk tolerance level. We had a client in the office this week that is convinced that we are headed for another Great Depression. They are liquidating and holding the cash. Yesterday, I met with a client whose business is growing so fast that their concern is that it is out of control.
My home is Galveston. The richest family in town is the Moody’s. The original Mr. Moody made a significant amount of money in the cotton business after the Civil War. It was Grandpa Moody, however, that made the fortune. He made that fortune during the Great Depression by buying grossly undervalued businesses and later selling those businesses. At one point, he was the largest landholder in Texas. He bank rolled such notables as Baron Hilton (Paris’ grandfather) and many others. He created a banking and insurance empire by guaranteeing returns. The old bank in Galveston sported a large 1% painted on the front door.
My point is this, protect your assets, but don’t be afraid of the future. Invest your business in tomorrow, but invest wisely. Put your business in a position to be a leader in your industry. The economy runs in cycles. Money is extremely cheap right now. Consider investing in your company’s infrastructure. The Boy Scout motto is “Be Prepared”. Our business motto is “Be Ready”.
Other Tidbits…
Senator John Kerry, Democrat from Massachusetts has agreed to pay the state of Massachusetts $500,000 in state taxes that he attempted to avoid by docking his $7 million yacht in Rhode Island. Come on! Screwing the state that elected you!
Chris Tucker is facing tax liens from the IRS of $11.5 million. Ouch. Who was his CPA?
I know most of my readers are into RAP, so here is the update on Lil Wayne. The IRS slapped a $1.1 million tax lien on our man. Apparently he intends to address this issue as soon as he gets out of jail on the weapon charge.
Tuesday, August 10, 2010
“Dos” and “Don’ts” of Staying Motivated as an Entrepreneur
There comes a time in every business owner’s career where they find themselves lacking motivation. After all, it isn’t every day that we fully expect our grand ideas to change the world as we know it. Sometimes, the fire just dwindles and it is all we can do just to go through the motions. Here are five tips on things an entrepreneur can do to stay motivated and five things to avoid doing that will drain the creative juices that entrepreneurs thrive on.
Do:
1. Avoid tasks that are overly routine or repetitive. The mind of the entrepreneur thrives on performing a variety of activities and the desire to constantly face new challenges. As such, settling into too much of a routine can be draining. If these types of tasks must be done regularly, hire someone else to do them.
2. Set deadlines – and keep them. Nothing motivates activity like facing a hard deadline for the completion of a task.
3. Network. No one “gets” an entrepreneur like another entrepreneur. Networking provides a perfect opportunity to share thoughts and experiences and discuss challenges facing the business. The fact that most networking events tend to be fun doesn’t hurt.
4. Surround yourself with people who buy into your vision. No one wants to be surrounded by “yes-men” but the successful entrepreneur will hire people who see the vision for the business and believe in it. After all, if the staff doesn’t believe in the business, how will the customers ever be able to?
5. Recharge the batteries. It’s true that the business depends on the entrepreneur. However, it’s also true that no one can go indefinitely without rest and relaxation from time to time. Take some time off occasionally. Start a hobby. The business will benefit from the entrepreneur being refreshed and relaxed.
Don’t:
1. Give up. No one likes to be rejected, but the entrepreneur is especially susceptible to disappointment because they live for their ideas. Remember, some of the greatest ideas in human history came about only after several tries. Personal computers? Television? Both ideas that were initially rejected.
2. Linger on the negatives. Everyone has bad days. The key to maintaining focus as an entrepreneur is not letting bad days turn into bad weeks or even bad months. Each day must be looked at as a fresh opportunity. In sports, we used to say “That play is over; now it’s time for the next one”. Entrepreneurs can apply that logic to their businesses as well.
3. Lose sight of the goal. Every entrepreneur has a long-term plan for their business. In many cases, the long term plan was the first thing that they came up with and everything else was just details on how to get there. The successful entrepreneur will take time to revisit that long-term goal and evaluate how they are doing. Doing so keeps them from feeling like they are “lost in the wilderness.”
4. Suppress your feelings. While screaming at employees or family members when there is business-related stress isn’t advisable, it is healthy to freely express your emotions. When the big deal didn’t materialize or the company didn’t land that big contract, don’t stew. Find a trusted companion who you can vent to. In the electronic age, venting online through a blog can also be therapeutic. Keeping the pressure off periodically prevents a major explosion down the road.
5. Ignore your health. Too often, entrepreneurs eat poorly or don’t exercise because they “don’t have time”. A healthy body will not only provide more energy to get work tasks done, but exercise can also be a great stress reliever.
Do:
1. Avoid tasks that are overly routine or repetitive. The mind of the entrepreneur thrives on performing a variety of activities and the desire to constantly face new challenges. As such, settling into too much of a routine can be draining. If these types of tasks must be done regularly, hire someone else to do them.
2. Set deadlines – and keep them. Nothing motivates activity like facing a hard deadline for the completion of a task.
3. Network. No one “gets” an entrepreneur like another entrepreneur. Networking provides a perfect opportunity to share thoughts and experiences and discuss challenges facing the business. The fact that most networking events tend to be fun doesn’t hurt.
4. Surround yourself with people who buy into your vision. No one wants to be surrounded by “yes-men” but the successful entrepreneur will hire people who see the vision for the business and believe in it. After all, if the staff doesn’t believe in the business, how will the customers ever be able to?
5. Recharge the batteries. It’s true that the business depends on the entrepreneur. However, it’s also true that no one can go indefinitely without rest and relaxation from time to time. Take some time off occasionally. Start a hobby. The business will benefit from the entrepreneur being refreshed and relaxed.
Don’t:
1. Give up. No one likes to be rejected, but the entrepreneur is especially susceptible to disappointment because they live for their ideas. Remember, some of the greatest ideas in human history came about only after several tries. Personal computers? Television? Both ideas that were initially rejected.
2. Linger on the negatives. Everyone has bad days. The key to maintaining focus as an entrepreneur is not letting bad days turn into bad weeks or even bad months. Each day must be looked at as a fresh opportunity. In sports, we used to say “That play is over; now it’s time for the next one”. Entrepreneurs can apply that logic to their businesses as well.
3. Lose sight of the goal. Every entrepreneur has a long-term plan for their business. In many cases, the long term plan was the first thing that they came up with and everything else was just details on how to get there. The successful entrepreneur will take time to revisit that long-term goal and evaluate how they are doing. Doing so keeps them from feeling like they are “lost in the wilderness.”
4. Suppress your feelings. While screaming at employees or family members when there is business-related stress isn’t advisable, it is healthy to freely express your emotions. When the big deal didn’t materialize or the company didn’t land that big contract, don’t stew. Find a trusted companion who you can vent to. In the electronic age, venting online through a blog can also be therapeutic. Keeping the pressure off periodically prevents a major explosion down the road.
5. Ignore your health. Too often, entrepreneurs eat poorly or don’t exercise because they “don’t have time”. A healthy body will not only provide more energy to get work tasks done, but exercise can also be a great stress reliever.
Tuesday, August 3, 2010
Hiring an Accountant for Your Small Business
Why do you need an accountant? Why won’t a bookkeeper do? While there are several good answers to these questions, the simplest one is this: a good small business accountant does much more than just record transactions and generate documents – a good accountant analyzes, interprets, and translates data into useful information.
The key is, you must select an accountant that fits your needs. What’s important to you and your business? Personalization? Technological savvy? Understanding your industry? Consider raising the following questions in your quest to find a suitable accountant:
What services do you provide to small businesses?
There are several areas that accountants can work or specialize in. These can include audit, tax, bookkeeping, consulting, payroll, and financial planning. Find out which areas could help your business and make sure the accountant you choose has experience fulfilling those needs.
Do you have knowledge about my industry?
In many cases, the more experience an accountant has with a certain industry, the more insight they’ll be able to provide to your business. However, with areas such as payroll, industry knowledge may not be essential.
What types of services do you provide to others in my industry?
This question may open up other possibilities for your business. Other entity’s in the same industry may be receiving services that could be beneficial, but that you hadn’t thought of. This also gives you an idea of the accountant’s background and knowledge.
What type of technology do you use and how will that benefit my business?
Does the accountant keep a paperless office? Will your files be accessible through a portal? How can I access my financials? Exactly what role will the Internet play in data interchange? These are all important questions that need to be addressed prior to retaining an accountant.
How do you calculate your fees?
Most accountants have both hourly rates and fixed fees. If you plan on being a monthly or quarterly client, ask about the fee structure to see if you could qualify for a fixed fee. This saves you from paying separately for quick e-mails, faxes, or brief phone calls.
The key is, you must select an accountant that fits your needs. What’s important to you and your business? Personalization? Technological savvy? Understanding your industry? Consider raising the following questions in your quest to find a suitable accountant:
What services do you provide to small businesses?
There are several areas that accountants can work or specialize in. These can include audit, tax, bookkeeping, consulting, payroll, and financial planning. Find out which areas could help your business and make sure the accountant you choose has experience fulfilling those needs.
Do you have knowledge about my industry?
In many cases, the more experience an accountant has with a certain industry, the more insight they’ll be able to provide to your business. However, with areas such as payroll, industry knowledge may not be essential.
What types of services do you provide to others in my industry?
This question may open up other possibilities for your business. Other entity’s in the same industry may be receiving services that could be beneficial, but that you hadn’t thought of. This also gives you an idea of the accountant’s background and knowledge.
What type of technology do you use and how will that benefit my business?
Does the accountant keep a paperless office? Will your files be accessible through a portal? How can I access my financials? Exactly what role will the Internet play in data interchange? These are all important questions that need to be addressed prior to retaining an accountant.
How do you calculate your fees?
Most accountants have both hourly rates and fixed fees. If you plan on being a monthly or quarterly client, ask about the fee structure to see if you could qualify for a fixed fee. This saves you from paying separately for quick e-mails, faxes, or brief phone calls.
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