Whether you use the IRS rate as your reimbursable amount or some other rate, here are some suggestions to manage these reimbursements:

1. Review the policies at least annually.
2. Ask staff how they interpret these policies, and address any ambiguities.
3. Usually organizations only reimburse employees for mileage in excess of the miles that would be driven to the place of employment. For example, a case worker drives directly to a client’s house, which is 10 miles from the employee’s house. Your office is 6 miles from the employee’s house. Typically, you would only reimburse the employee for 4 miles of travel.
4. As part of the hiring process, inform new staff of the organization’s policies and give examples of what is allowed and what is not.
5. Periodically review these policies at staff meetings.
6. Employees should keep a written log of the mileage, which should include at a minimum for each trip:  Date of travel, destination, purpose of trip, and miles driven.  If you receive federal or state grants, the granting agency may require you to keep more detailed records, such as odometer readings, address of the destination, or attach maps showing mileage.
7. Prior to reimbursement, the mileage logs should be approved by the employees’ supervisors who are knowledgeable of their activities. The logs should also be periodically reviewed for inconsistencies, errors, redundant trips, and abuse.

• Applicability of employment laws to nonprofit organizations
• Employee vs. Independent Contractor
• Preventive measures to avoid employee issues
• Application of overtime pay
• Nondiscrimination laws
• Employee handbooks

Speaker:
Frank Sommerville is a shareholder in the law firm of Weycer, Kaplan, Pulaski, & Zuber, P.C. in Houston and Dallas, Texas. He holds a license as a CPA and he is also Board Certified in tax law by the Texas Board of Legal Specialization. He is a member of the American Bar Association, The State Bar of Texas, Dallas Bar Association, Christian Legal Society, and the TSCPA.

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1. Determine if employee deferrals comply with current regulations (See limitations at: http://www.irs.gov/retirement/sponsor/article/0,,id=151925,00.html)
2. Determine if employee deferrals comply with the Plan’s maximum percentage requirements, if applicable (controls should be in place to ensure that employees are not allowed to elect to contribute more than the Plan’s elected maximum percentage as indicated in the Plan Document)
3. Controls should be in place to ensure that contributions are submitted to the Plan in a timely basis (Determine the who and the when to make sure it happens as required by law). Key – Timing should not be in excess of the number of days it takes an employer to transmit payroll taxes
4. Knowledgeable personnel should review and approve all loans and distributions made from the Plan . This knowledgeable person has read and fully understands the Plan document and requirements contained therein.
5. For loan approval – Understand the plan requirements for the following: loan amount complies; interest rate in loan agreement complies; condition for loan.
6. For distributions – Understand the following:  distribution complies with plan provisions and ensure all necessary documentation is retained (specifically for hardship distributions); distribution request includes the appropriate amount and the accurate amount of withheld taxes (10% and possibly an additional 20% if early distribution); ensure the appropriate vested percentage is utilized for employer contributions; determine if distributions required by law (required minimum distributions, etc) were completed during the year.

I hope the information is helpful in establishing a sound control environment for your organization’s employee benefit plan.  If there are areas that I have missed feel free to leave a comment to help out the other readers.  The controls that I have listed are coming from an auditor’s point of view and you may have insights related to your field of expertise that could be beneficial to others!

This is a very common question for all organizations, not just tax-exempt entities.

Here was my response for this very timely question:

“You are correct in that this summer there was some question regarding the continuation of the current policy to tax employees on their personal usage. The IRS requested comments and then shortly after comments started coming in the IRS Commissioner issued a statement on the subject.  Follow the link for the IRS statement. It is unclear whether Congress will agree with the Commissioner’s request but it would certainly seem reasonable. So at this point the rules haven’t actually changed – personal use of employer provided assets is still income to the employee. Should you change your procedures in light of the Commissioners statement? This could still be an issue upon IRS audit. If your policy is to monitor usage, the organization should track and document the usage of personal “minutes” and allocate a portion of the charges to those minutes, then tax them to the employee on their W-2. Similar to other employee use of employer-provided assets – if documentation is not provided and maintained all of the usage is considered personal.

1. Ensure all user control considerations included in the third party administrator’s (record-keeper, trustee, custodian, etc) Type II SAS 70 are in place at the Plan Sponsor
2. Analyze compliance testing results provided by the third party administrator and if the Plan failed any tests ensure that corrective action is taken in a timely manner (distributions or additional contributions to the Plan as necessary)
3. Determine if established internal controls are designed appropriately to catch errors or fraud that may occur during the processing of transactions related to the Plan. Consider conducting a brainstorming session with individuals involved in the Plan in determining what could go wrong and then determine if controls currently in place are adequate to address such risks.
4. If the census is prepared by the Plan Sponsor ensure that the total wages included in the census reconciles with the organizations payroll records (remember census must include all employees that received a paycheck during the year whether employed by the organization or not during the year); the census should also be reconciled with the record-keeper statements (employee contributions, employer contributions and loan repayments). Key point – A reconciled census that agrees with the Plan Sponsors audited financial statements and the record-keeper statements will save time and money during a benefit plan audit
5. Controls should be in place to ensure all information included on the participant statements (social security #, name, compensation, date of birth, date of hire and date of termination) is complete and accurate.  Inaccurate information could lead to:

• Allowing individuals to enter the plan when they were not eligible to do so or not allowing an employee into the plan that is in fact eligible.
• Inaccurate amounts being withheld for employee contributions and/or employer matching contributions.
• Inaccurate amounts being withheld or forfeited when an employee receives a distribution (early distribution tax penalties or issues related to utilizing the appropriate vesting percentage for employer contributions)

     6. Determine if the annual Form 5500 reconciles to the Plan’s financial statement’s

 Interested in refining your internal controls for benefit plan recordkeeping. More will come in a later blog post…

The above is a summary of an article titled “Nearly 30% of Nonprofit Leaders Took a Pay Cut This Year; Pay in 2008 Grew Quickly” from The Chronicle of Philanthropy authored by Noelle Barton and Ben Gose, which can be found at the following website: http://philanthropy.com/free/articles/v21/i22/22000107.htm.

Administrators of 403(b) plans do not need to treat annuity contracts and custodial accounts as part of the employer’s plan assets for purposes of ERISA’s annual reporting requirements (further, the employer is not required to count the individual as a participant under the plan for Form 5500 reporting purposes) provided that:

1. The contract/account was issued to a current or former employee before 1/1/09
2. The employer ceased to have any obligation to make contributions and has ceased making contributions to the contract/account before 1/1/09
3. All of the rights and benefits under the contract/account are legally enforceable against the insurer or custodian by the individual owner without any involvement by the employer
4. The individual owner of the contract account is fully vested

The Department will not reject a Form 5500 on the basis of qualified, adverse or disclaimed opinion if the accountant expressly states that the sole reason for such an opinion was because such pre-2009 contracts/accounts were not covered by the audit or included in the plan’s financial statements.

The above information obtained from Field Assistance Bulletin 2009-02.

Generally, a required minimum distributions is an annual amount that must be withdrawn from an IRA or an employer sponsored plan beginning with the year the account owner reaches 70 ½.

The IRS said that in many cases, because the law was signed so late in the year, and many individuals and plan sponsors were confused about how to comply with the new rules, IRA owners and plan participants received distributions they were not required to take or did not want.

Retirees who made a withdrawal from an IRA, 401(k) or other qualifying retirement plan have until 11/30/09, or within 60 days of the distribution, whichever is later) to put the money back in the plan tax-free.

Notice 2009-82 assures plan administrators that a plan will not be treated as failing to satisfy the requirement that it be operated in accordance with its terms merely because, during the period 1/1/09 to 11/30/09 it:

1. Did (or did not) make required minimum distributions to participants
2. Did (or did not) give beneficiaries the option to receive required minimum distributions
3. Did (or did not) offer a direct rollover option for required minimum distributions

 FYI – the IRS has NOT suspended the one-rollover-per-year rule of IRC Section 408(d)(3) and no more than one IRA distribution will be eligible for rollover under Notice 2009-82.

What changed? How is your T-E organization affected?

The final regulations require all 403(b) providers, including churches, to have a plan document in place no later than 12/31/08. Failure to adopt a written plan before 1/1/09 will render all subsequent contributions to the plan to be fully taxable. The plan document must address several issues, including:

• Employee eligibility, Contribution limits, Distributions, Benefits, Salary reductions, Investments, Loans, Hardship withdrawals, Allocation of compliance responsibilities to employers and fund providers (vendors)

The IRS has made available a sample plan document that can be used by tax-exempt organizations: see IRS Publication 2009-3.   If a plan is established directly through a mutual fund or other investment company most of these third-party vendors have created generic plan documents for use by their clients.

The final regulations also require “large” ERISA-covered 401(b) plans (generally plans with 100 or more eligible employees) to file audited financial statements along with their 2009 Form 5500.  Small 401(b) plans (generally fewer than 100 eligible employees) are eligible for a waiver of the audit requirement but are required to file the Short Form 5500 (5500-SF) which includes aggregate financial information related to the Plan.

Additional changes are discussed in detail at http://www.irs.gov/retirement/article/0,,id=172433,00.html

If you need help in understanding these new reporting requirements, please contact me.

Sen. Chuck Grassley (R-IA), ranking member of the Senate Finance Committee, has filed two amendments to the health care reform bill introduced by Senate Finance Chairman Max Baucus (D-MT) that directly impact tax-exempt organizations. These amendments were filed along with more than 500 others before the end of last week, and are being considered in the markup of the Baucus bill that got underway Sept. 22.

One of Grassley’s amendments would give the IRS statutory authority to require that tax-exempt organizations report governance and management information as part of their annual Form 990 reporting requirements. The IRS revised the Form 990 for the 2008 tax year to include a new section on governance, among other changes. The section asks filing organizations questions about board composition, governing body review of the 990, and whether certain policies are in place for conflicts of interest, whistleblower and document retention, as well as a process for determining executive compensation. In drafting the new section, the IRS acknowledged it lacked explicit statutory authority to scrutinize nonprofit governance practices, but included the section because it believes good governance leads to improved compliance.

Grassley’s amendment would protect the IRS from “wasteful” legal challenges by adding language to specifically mandate that the agency require governance reporting by tax-exempt organizations.

The second amendment proposed by Grassley is a revenue raiser that would remove the safe harbor providing tax-exempt organizations a “rebuttable presumption of reasonableness” in setting the compensation of its officers and directors. In explaining the amendment, Grassley cited studies by the IRS of executive compensation practices at charities and nonprofit hospitals. These studies showed very high salaries and little recourse for the government to challenge the reasonableness of compensation paid by the organizations in question. Many organizations were able to use rebuttable presumption procedures to demonstrate compensation was set comparable to executives in other organizations, even in some instances for-profit organizations.

Grassley’s amendment would adopt a 2005 recommendation by the Joint Committee on Taxation to remove the rebuttable presumption defense and require organizations to disclose in their annual 990 filings a summary of the comparable information used to determine an executive’s compensation. In a report this week, BNA quoted a Grassley spokesperson as saying the changes to existing compensation rules would apply only to Section 501(c)(3) and (c)(4) organizations.

ASAE is attempting to determine the intent of this amendment, and analyze its implications for tax-exempt organizations. Giving the IRS express authority to determine what is reasonable compensation and what are appropriate comparables would be viewed by many as a potentially dangerous extension of authority. ASAE will study this amendment closely, and report its findings.

Christi Stinson is a member of ASAE and Executive Director of the Funding Information Center in Fort Worth. The above was reprinted with permission from ASAE.