Give Yourself a Gift for 2023

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We’re well into the traditional holiday gift-giving season; but what kind of a gift can you give yourself and your not-for-profit organization? In this article, I suggest five items that you can give yourself, your employees and your organization this season that will make 2023 a little less stressful.

It’s not that you can make these tasks go away, but addressing them, or at least establishing a plan to address them in advance can effectively eliminate the chances of these becoming a crisis in 2023. Hopefully you and your organization are on top of these already.  But if not, there is still time.

1. The Consolidated Fiscal Report – The CFR is on a new system with a new interface requiring new registrations for all users, both internal and external. Give yourself the gift of getting these registrations taken care of now, before your team wants to start preparing your CFR or CBR (Consolidated Budget Report).

Human service organizations funded by New York State agencies such as the Office of Mental Health, the Office of Addiction Services and Supports, the Office for People With Developmental Disabilities and the State Education Department must file a Consolidated Fiscal Report (CFR) annually. The CFR reports revenues and expenses of state funded programs, along with data on employees working in each program, people served and other information. Often this data is used by the state funding agency to help determine future reimbursement rates for these program activities.

In Fall 2022, the process by which the CFR and CBR are completed, submitted and certified was changed with the introduction of a new web-based tool. This change is covered by a new Consolidated Fiscal Reporting System User Guide issued by the state dated September 9, 2022, as well as accompanying communications from each state funding agency. For more information, see: https://omh.ny.gov/omhweb/finance/cfrs.htm.

A key element of the new CFR system is that users who need to access an organization’s CFR need to register on this new web tool. This means that every user, including staff who prepare the forms, the officer who signs the CFR on behalf of the organization once complete and for larger organizations, at least one representative of the audit firm that will ultimately certify the CFR, needs to establish a user profile in the new CFR system. Keep in mind that your external auditor/certifier may be involved in numerous other organizations’ CFRs and therefore coordination with your audit firm and specific individuals from that firm needs to be part of the process.

2. The New York State CHAR500 – Annual Filing for Charitable Organizations – This is also on a new system requiring new registrations for all users. This new system is being touted as a new online portal that “offers a streamlined process that allows uploading of all required documents, e-payments and e-signatures.” All of that is true.

However, this new system was designed in a manner that does not interact with tax filing software utilized by CPA firms or other tax preparers, or even by your own personnel. So, in practice, while your organization’s tax preparer can prepare and e-file the organization’s federal Form 990 for you, they cannot e-file the New York State Form CHAR500. With this new online tool, producing a paper copy of the CHAR500 for you to sign and mail in, is not allowed. Someone in your organization must now take the CHAR500 and submit it through the state’s new standalone online portal. Having your outside tax preparer do this for your organization is challenging because the payment of the required annual filing fee is directly “baked in” to the form preparation and submission process. Your tax preparer is probably not going to want to take responsibility for the payment of the amount due.

The new online interface is up and running at: https://www.charitiesnys.com/annual_filing.html. Establish a plan now to identify someone from your organization who will be responsible for this filing, familiarize themselves with the new process, get themselves and your organization registered on the new interface  and understand how the preparation and submission process will be executed.

For organizations with a December 31, 2022 year’s end, these forms are due May 15, 2023. Extensions are available, as they always have been, but those extensions also have to be done through the new portal, so you can’t put off registering. Don’t get caught in the rush next May; get your registrations done well in advance.

3. Lease accounting – The new accounting rules about leases were effective, for most organizations with a December 31 year-end, on January 1, 2022. The new lease rules, technically referred to as Accounting Standards Codification Section 842, establish new criteria for recording lease activity. Under this new rule, most lease obligations are to be accounted for as liabilities for the payment stream committed to under the lease, with a related asset representing the right to use the leased item. Lessees will no longer be able to simply record rent expense as they make rent payments for most leases. The rules themselves are rather complex, with the standard comprising hundreds of pages of text and examples.

Since this was effective January 1, 2022, you might wonder why it’s coming up now. The practical answer is, for many not-for-profit organizations the first time they will be forced to adopt the new lease accounting rules is when their external auditor conducts the year-end 2022 audit in early 2023. Getting in front of this accounting change before it becomes an audit issue is a great idea and it’s not too late.

The adoption of the lease rule can impact more than just the surface of the balance sheet. For example, to the extent you have debt arrangements with covenants that measure total liabilities, adding a new liability for leases might affect compliance. Don’t allow this kind of thing to be a late-breaking surprise.

4. LIBOR Sunset – LIBOR (London Interbank Offering Rate) was a commonly used variable interest rate on which many financial instruments were based, including many not-for-profit organizations’ loans and lines of credit. You are likely aware that LIBOR is being phased out. This has resulted in many borrowing arrangements being recast with a different reference rate, primarily SOFR (Secured Overnight Financing Rate) or the Prime Rate.

Many banks, credit unions and other lenders have been communicating with customers about this change and in fact many organizations are already converted away from LIBOR-based rates.

If your organization still has loans or other financial instruments utilizing LIBOR as a reference rate, it’s time to reach out to your lender about the conversion plan. Also, simply accepting whatever rate the lender makes available should not be assumed to be the best path. Objectively evaluating the new terms of loans and whether they make sense for your organization is important. Starting this process in a manner that gives you time to make decisions rather than simply accepting whatever your current lender offers is in the long-term best interest of your organization and will allow you to make an informed rather than a rushed decision.

5. The Inflation Reduction Act – The Inflation Reduction Act of 2022 includes provisions whereby tax-exempt organizations can receive the benefit of certain income tax credits as direct payments, opening up these tax credit programs to organizations that do not normally file income tax returns.

As a leader of a tax-exempt organization, you may not pay much attention to income tax credit programs on the assumption that they would not apply to your organization; however, if your organization’s plans for 2023 include the purchase, construction, or rehabilitation of a building, the purchase of vehicles, or other activities that are or could be considered related to environmental or clean energy usage projects, you should stay up to date on the programs initiated by The Inflation Reduction Act.

Final regulations are still in development for some of these programs. In fact, many of these provisions were opened up for public comment in October and the comment period recently ended, so the details are still being worked out at the federal level. For updates, start at the U.S. Department of the Treasury website: https://home.treasury.gov/news/press-releases/jy0993.

The gift of addressing these items before they become a late-breaking deadline issue in 2023 is worth considering. Some of these likely are of enough value to justify seeking assistance from your organization’s external advisors, auditors, etc. as well to ensure they are addressed appropriately.

Jeff Paille is a CPA and partner at the Bonadio Group and has consulted with tax-exempt organizations for almost 30 years.