This year, Brown Edwards is hosting our first ever, virtual conference for higher education and not-for-profit organizations. On Friday, May 7, we kicked off the conference with attendees from 16 states ranging from Virginia to Arizona! The star lineup of presenters discussed the current state of private higher education, the VP of Finance & Finance Committee Chairperson relationship and recent tax updates.
Session 1: The Harsh Landscape for Higher Education in 2021
Presenter: Patricia McGuire, President of Trinity Washington University
According to Pat, you should never waste a good crisis. A crisis is a learning experience that provides an opportunity to evaluate your current state and make improvements. There are a great number of challenges that higher education will need to overcome in the near future, including racial justice, demographic challenges, change expectations, regulations, consumer price resistance and of course, the pandemic.
Despite the rough terrain ahead, Pat encourages higher education leaders to stay focused amid the turbulence. “Boards, Presidents, CFOs and Provosts must lead the community across the rough terrain and turbulent seas to find places of calm and focus.” Here are five tips to calming the seas.
1. Constant communication
“No surprises” is not enough. Leaders have to be fully transparent in all plans and actions and talk aloud to each other about options.
2. Leadership credibility
Truth is the sine qua non of leadership credibility. One lie can undo the entire relationship with colleagues and the campus community.
3. Be compassionate
Learn how to say the hard things with compassion and keep as few secrets as possible.
4. Sacrifice
Be the first to take the sacrifice. Never ask others to do something you are unwilling to do yourself and take nothing for yourself until you are sure all others are cared for.
5. Manage the money
Manage the money, but do not let the money manage the institution. Cutbacks are inevitable in hard times. Institutions that manage money well will get through the downturns. Share a philosophy of frugality in good times so that the hard times are not quite so hard.
Session 2: A Conversation Between a Chairperson and a VP of Finance
Presenters:
Ron Salluzzo, Former Audit and Finance Committee Chair
Phil Tahey, Former Controller for Johns Hopkins University
The relationship between a Finance/Audit Committee Chairperson and a VP of Finance is a valuable and necessary to help attain the mission and vision for the institution. During this session Ron, playing the role of chairperson, and Phil, playing the role of VP of Finance, held an open dialogue to discuss common matters and questions faced by senior college personnel in carrying out their duties.
Phil prefaced the conversation with an excerpt from Dragnet. “The stories used in the dialogue are based on true life events. Only the names have been changed to protect the innocent.”
The pair has a combined 90 years of industry expertise and they used their personal experiences working with more than 1,000 clients to shed light on several challenges faced by a chairperson and a VP of Finance.
The relationship between the President, VP and Chair is a beautiful and critical relationship and according to Phil, function like a three-legged stool, if they don’t work together, the process doesn’t work.
The Five Cs for Key Conversations:
1. Competency
Chair - The Finance Committee is a resource to be leveraged for their knowledge.
VP - Be open and honest with the Chairperson, asking for help when needed.
2. Correlation
Chair - The information presented needs to be relevant to the key issues of the college.
VP - Agree on what is important and what is not – reprioritize your tasks.
3. Communication
Chair - There needs to be an openness that allows free discussion of issues between meetings.
VP - Communicate frequently between meetings.
4. Consistency
Chair - The goals and objectives of the organization need to drive the discussions.
VP - Be open to change – learn from the chair.
5. Civility
Chair - There needs to be trust between the committee and financial leadership.
VP - You really work for the Board – but keep the President in the loop.
Words of advice:
If you run into a problem with a board member, face it head on. Like fish, it doesn’t get better with time!
Relationships solve problems, not the organizational chart. Be engaged with each other, talk in between meetings, keep the president in the loop and ask for help when you need it.
Session 3: Tax Update
Presenter: Mark Woolwine, CPA, Partner at Brown Edwards
Mark began the session with a refresher of the three requirements for an activity to be subject to unrelated business income tax (UBIT).
- The organization is conducting a trade or business for the production of income from selling goods or services.
- The trade or business is regularly carried on.
- The activity is “not substantially related” to the carrying out of the organization’s exempt purpose.
Income that is excluded includes:
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- Interest, dividends and similar income
- Royalties
- Rental income from real property (exceptions apply)
- Gains and losses from disposition of property
- Research income
Tip: Knowing there is a tax impact will influence the numbers. Don’t steer clear of it, just factor it into your analysis.
UBIT Silo’ing
Unrelated Business Taxable Income Calculated Separately
How to Silo
IRS Final Regulations under 512(a)(6)
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- Silos are based on the first two digits of the North American Industry Classification System (NAICS) code
- Track NOLs separately for each silo
- Investment activities are treated collectively and limited to qualifying partnership and S-corporation interests and debt-financed properties.
Employee Retention Tax Credit
The Employee Retention Credit (ERC) is a refundable payroll tax credit for wages paid and health coverage provided by an employer whose operations were either fully or partially suspended due to a COVID-19 related government order or who experiences a significant reduction in gross receipts.
The credit can be claimed quarterly to help offset the cost of retaining employees or federal tax deposits and can be claimed for up to three years from the date in which the quarterly payroll return was filed.
How the ERC and PPP interplay
The Consolidated Appropriations Act (CAA) of December 2020 retroactively eliminated the limitation imposed by the CARES Act that prevented PPP loan recipients from being eligible for ERC. However, you cannot use the same wages for ERC and PPP so planning is key! You can claim retroactively back to March 12, 2020 by amending Form 941 for the applicable quarter.
Which wages qualify for ERC?
Qualifying wages vary based on the size of the employer and the definition of “large employer” has changed for 2021. If you are claiming the ERC for wages in 2020, and have more than 100 full-time employees, you are considered a large employer. For 2021 claims, that number increases to 500 full-time employees.
So how do you determine if you qualify for Large Employer status?
Step 1: Count the number of full-time employees in each calendar month in 2019
Include only those employees who worked an average of at least 30 hours per week or 130 hours in the month.
Step 2: Add up each month’s employee count from step 1 and divide by 12.
Aggregation rules apply when determining the number of full-time employees. All entities are considered a single employer if they are
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- a controlled group of corporations
- under common control
- aggregated for benefit plan purposes
Part-time employees that work, on average, less than 30 hours per week are not counted in the determination of Large Employer status and may result in more nonprofit organizations being able to claim the ERC.
Employers who are not considered to be large, can claim the ERC on all wages paid to employees. While Large Employers can only claim the ERC for wages paid to employees for the time the employees are not providing service.
Tip: If you furloughed employees but continued to pay health insurance costs, you can claim the ERC for health care expenses paid.
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Summary of ERC Changes |
CARES Act |
CAA 2020 |
CAA 2020 |
|
Interplay with PPP Loan |
No ERC if a forgiven PPP loan was received |
Taxpayers that receive a PPP loan can claim the ERC, but double dipping is not allowed |
|
|
Maximum Creditable Wages per Employee |
$10,000 per year |
$10,000 per year |
$10,000 per quarter |
|
Maximum Credit |
50% of eligible wages, up to$5,000 per employee |
50% of eligible wages, up to $5,000 per employee |
70% of eligible wages, up to $7,000 per employee per quarter |
|
Threshold to be Considered a “Large Employer” (based on average full-time employees in 2019 and considering aggregation rules) |
More than 100 |
More than 100 |
More than 500 |
Considerations for Higher Education Gross Receipts
- Gross tuition is reported on Form 990, therefore, scholarships and awards are not netted against tuition for purposes of gross receipts calculation.
- HEERF Revenues are included.
- Contributions, gifts and grants are included.
- Unrealized gains and losses are not included.
COVID Relief Payments
COVID relief payments impact both the students and the institution. IRS IR-2021-70 clarifies that emergency financial aid grants to a student, due to COVID-19, are not included in the student’s gross income and they should not reduce the amount of qualified tuition and related expenses.
Higher Education institutions must include qualified tuition and related expenses paid by emergency financial aid grants awarded to students in Box 1 of Form 1098-T, but are not required to furnish Forms 1099-MISC and do not need to report the grants in Box 5 of Form 1098-T.
In summary, we had a great opening session for the 2021 Virtual Conference and look forward to the remaining three sessions. Registration for the remaining sessions is still available.
Click below to register and view the conference agenda.
