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UHY LLP pr ovi des sol ut i ons t o nonpr of i t f i r ms
i n account i ng, t ax and consul t i ng.
Did you know...?
By Jennine B. Anderson, Partner
I
touch a lot
of IRS Form
990s in a year.
I confess. I
enjoy reading
990s and I
think I know
more about
the form, its history and the rea-
sons for the questions than most
individuals. But, as with all topics,
I do not know everything.
Recently a colleague asked if I knew
why there is a question on the 990
asking Did the organization re-
ceive any payments for indoor tan-
ning services during the tax year?
I said that I did not knowthe reason
but guessed that it could be the
IRSs method to find tanning salons
that had inappropriately gotten ex-
empt status as health orgs. Wrong
guess! I had never focused on that
question as it did not apply to any
of my clients. In fact I saw it as one
box that did not require thought.
But now I was curious... .
What I discovered is that the ques-
tion is fairly new on the 990 and it
is there in response to provisions
of the Patient Protection and Af-
fordable Care Act (ACA). The ACA
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For more information,
please contact Jennine Anderson
at janderson@uhy-us.com
Nonprofit
Insider
October 2014 Vol. 5 No. 5
sented. This would require all con-
tracts that existed during the peri-
ods being presented to be in com-
pliance with the new standard.
There would also be a cumulative
effect on the beginning retained
earnings (net assets) and disclosure
of the reason for the change.
Modified retrospective ap-
proach only the most current
period is presented. This would re-
quire any contracts in existence as
of the effective date to be in com-
pliance with the standard, as well
as any new contracts. The cumula-
tive effects of the changes would
be reflected in the beginning re-
tained earnings (net assets). The
disclosure would require presenta-
tion of the current period as if pre-
pared with the current standard,
effectively requiring two sets of ac-
counting records for the year of
adoption.
The newstandard will significantly in-
crease required disclosures and change
howrevenue fromcontracts with cus-
tomers is recognized. Entities will have
to consider changes that might be nec-
essary to information technology sys-
I
n May 2014, the
FASB (Financial
Accounting Stan-
dards Board) and
the IASB (Interna-
tional Accounting
Standards Board)
issued Revenue
from Contracts
with Customers, ASC 606 and IFRS 15,
the converged standard for revenue
recognition. This news will affect
most entities: public, private and not-
for-profit.
The standard is effective for reporting
periods beginning after December 15,
2017, for U.S. GAAP nonpublic enti-
ties. Early adoption is permitted but
not earlier than periods beginning af-
ter December 15, 2016. The standard
is effective for public and IFRS entities
with reporting periods beginning af-
ter December 31, 2016.
Adoption of the newstandard may be
a challenge. There are two adoption
methods available:
Full retrospective approach (ex-
cludes practical expedience)
which applies to all periods pre-
UHY LLP
Mid-Atlantic
continued on page 2
The Great Revenue Convergence
How to Recognize Revenue
Deborah Crown, CPA, Senior Manager
Our firm provides the information in this newsletter as tax information and general business or economic information or analysis for educational purposes, and none of the information contained herein is intended to serve as a so-
licitation of any service or product. This information does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should
not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisors. Before making any decision or taking any action, you should consult a professional advisor who has been provided
with all pertinent facts relevant to your particular situation. Tax articles in this newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed
on the taxpayer. The information is provided as is, with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to war-
ranties of performance, merchantability, and fitness for a particular purpose.
UHY Advisors, Inc. provides tax and business consulting services through wholly owned subsidiary entities that operate under the name of UHY Advisors. UHY Advisors, Inc. and its subsidiary entities are not licensed CPA firms.
UHY LLP is a licensed independent CPA firm that performs attest services in an alternative practice structure with UHY Advisors, Inc. and its subsidiary entities. UHY Advisors, Inc. and UHY LLP are U.S. members of Urbach Hacker
Young International Limited, a UK company, and form part of the international UHY network of legally independent accounting and consulting firms. UHY is the brand name for the UHY international network. Any services de-
scribed herein are provided by UHY Advisors and/or UHY LLP (as the case may be) and not by UHY or any other member firm of UHY. Neither UHY nor any member of UHY has any liability for services provided by other members.
tems, processes and internal controls
to capture new data and address
changes in financial reporting re-
quirements. In the past there was in-
dustry-specific guidance. The new
standard provides a single, compre-
hensive revenue recognition model.
The underlying principle is that an en-
tity will recognize revenue to show
the transfer of goods or services to
customers at an amount that the en-
tity expects to be entitled in exchange
for those goods and services.
The revenue standard applies to all
contracts with customers, except for
the following:
Lease contracts;
Insurance contracts;
Financial instruments and
certain contractual rights or
obligations within the scope
of other standards;
Nonmonetary exchanges be-
tween entities in the same line
of business to facilitate sales to cus-
tomers; and
Certain guarantees within the scope
of other standards.
Please note that although contribu-
tions are not included in the excep-
tions listed above, contributions are
considered support and not revenue.
Contributions may contain restrictions
on use but there is no specific cus-
tomer receiving a good or service for
their financial exchange.
Entities will need to followa five-step
approach to apply the standard to
contracts with customers:
Step 1: Identify the contract with a
customer
Step 2: Identify the separate per-
formance obligations in the contract
Step 3: Determine the transaction
price
Step 4: Allocate the transaction price
to separate performance obligations
Step 5: Recognize revenue when or
as each performance obligation is
satisfied
The standard prescribes accounting
for an individual contract with a cus-
tomer, but allows for application of
the guidance to a group of contracts
with similar characteristics, if the en-
tity is consistent with its application.
It is anticipated that entities may
struggle with how to apply the new
standard to their particular situation.
The FASB and IASB have formed the
Joint Transition Resource Group
for Revenue Recognition
(TRG) to address these issues.
Some of the issues to be dis-
cussed at the first meeting
included gross versus net
revenue, sales-based
and usage-based royal-
ties in contracts with li-
censes and goods or services other
than licenses and impairment test-
ing of capitalized contract costs.
imposed an excise tax on indoor
tanning services as a method of
raising revenue. At one point a
similar tax was proposed on cos-
metic surgery but that was
dropped. The tax on indoor tan-
ning services is
10 percent of
the amount paid
for that service,
and it is paid by
the consumer, to
the provider,
which then remits the tax to the
federal government. The service
provider also must file quarterly
the Form 720, which is how one
reports all kinds of excise taxes.
The tax for indoor tanning serv-
ices is reported just below the re-
porting on arrow shafts ($.48 per
shaft).
So why is this on the 990? Well,
Part V of the 990 is where the IRS
questions you about your other
tax filings such as payroll tax filings
and the 990-T. It is possible that
990-filing organizations may pro-
vide tanning services and the IRS
wants to know if you are paying
the tax. There are provisions in the
lawabout allocating bundled pay-
ments to the tanning services. For
example, a college may have a stu-
dent activity fee covering many
services including tanning booths.
The instructions explain howmuch
of that fee is taxable.
So if your organization is providing
tanning services (or arrow shafts),
check out the instructions to Form
720. They may apply to you.
Did You Know?
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The Great Revenue Convergence
continued from page 1
$
FORM990
Stay tuned to upcoming issues
of our Nonprofit Insider newslet-
ter where I'll address the "Great
Revenue Convergence" and the
new five-step approach to apply
the standard to contracts with
customers.