Gifting vehicles to not-for-profit (NFP) organizations have grown more complex in recent years, causing various challenges from an accounting, tax and philanthropy standpoint. Crafting a comprehensive, yet easy-to-follow gift acceptance policy is paramount in guiding fundraising professionals and donors through an area of increasing sophistication. Failure to create and adhere to strong gift acceptance policies can lead to costly consequences from both a financial and a donor relations perspective.  In this article, Baker Tilly Partner Kevin O’Connell along with Rachel Decker, founder and president of Detroit Philanthropy LLC, highlight key issues that can be addressed through a robust gift acceptance policy. Valuation In the past, accounting teams have often struggled to value gifts of closely held stock and nonfinancial assets, such as real estate or intangible assets. The emergence of cryptocurrency as a rapidly appreciating asset has created an environment ripe for donors to gift these assets to not-for-profits. However, when there is not an active market for valuing an asset, the organization’s accounting team takes on the burden of having to determine the value of the asset on the date of donation, which could mean having to hire a valuation specialist. In addition, the organization may need further assistance at the end of each reporting period in which the asset has not been sold.  Liquidation The issues with accepting noncash gifts without an active market (e.g., real estate, closely held stock, intangible assets) do not end with obtaining a valuation on the date of donation. When there is no active market for an asset, it can create difficulties in liquidating the asset. Organizations may spend months or years preparing a nonmarketable asset for sale and finding the right buyer, which can lead to unanticipated costs and cause liquidity problems. Furthermore, it could strain the organization’s resources as it can take additional time and effort for team members who are not specialists in selling nonmarketable assets. Administration When it comes to administrative burdens, the issues are not limited to nonmarketable securities. Organizations should clearly define what types of restricted or conditional gifts they will accept. An organization that does not regularly receive gifts with restrictions or conditions should be prepared to spend time tracking these requirements. Moreover, certain donor-gifting vehicles, including split-interest agreements or endowments, could cause an undue administrative burden for organizations that do not regularly receive such gifts.  Having a well-thought-out and detailed gift acceptance policy will ensure donors are aware of the types of gifts your organization is prepared to accept. For instance, should a donor offer to gift you a parcel of land, you will need to have procedures in place for properly valuing the land, transferring the asset and either taking on the burden of holding the land or selling it to realize the gains. The policy should also define which party is responsible for the costs associated with these steps as well as what gifts staff are authorized to accept versus what requires approval from the board of directors. Saying “yes” to accepting the land without having this work done in advance can lead to misunderstandings with the donor, which may negatively affect your relationship.  Conversely, having a gift acceptance policy aligned with best practices allows your organization a polite way and formal reasoning for turning down a gift if it is determined accepting the gift is not in the organization’s best interest. Donors often believe that any gift from them has value and they may not have a strong sense of the work, costs and liability of accepting some gifts. Detailed policies that place at least some of the decision-making process on the board of directors can help ensure feelings are not hurt and the donor’s relationship with your organization is not soured. For instance, an individual may offer to donate works of art to your organization that they believe are highly valuable. In actuality, the art may have a limited resale market that restricts its value. Knowing this, the process of having the art appraised and auctioned may be too time intensive and costly for the organization to realize any meaningful gains. A policy that lays this out and that can be shared with the potential donor will minimize the possibility of the donors’ feelings being hurt by the organization declining the gift because it is not worth enough.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

Not-for-profits need to consider key accounting, tax and philanthropy issues to create a strong gift acceptance policy in order to avoid costly consequences.

Not-for-Profit

Higher Education

Gift acceptance: To accept or not to accept? That is the question.

After Senate Democrats failed to achieve consensus on the Build Back Better bill (BBB) by the end of 2021, what are its prospects for passage in 2022?  As the Senate resumes work in January, the BBB has been sent to the back burner for at least a few weeks, while the upper chamber prioritizes voting rights legislation. Senate Majority Leader Charles Schumer, D-N.Y., told members he expects some version of the BBB to pass eventually. Considering Sen. Joe Manchin, D-W.Va., rejected the $1.7 trillion House-passed package, it is widely accepted the bill will require a major rewrite before coming up for a vote. Schumer, however, remains adamant it will all work out in the end. Some Senate Democrats indicated they expect President Joe Biden to restart talks with Manchin after a “cooling-off” period that will extend until the Senate finishes debate on voting rights legislation and rules reform.  Earlier this week, Schumer echoed that expectation, stating he anticipates Biden and senior White House officials to resume negotiations with Manchin in the near future. “I believe the Biden administration will be having discussions with Manchin, with his cooperation and participation on BBB as we move forward,” he said. With that as a prelude, given Manchin’s opposition to numerous provisions, expect there will be a very significant reworking of the bill, including revisions to the state and local tax (SALT) cap, modifications to or removal of the expanded child tax credit plus numerous other changes. If Senate Democrats are able to come to an agreement, the BBB will still face the hurdle of proving acceptable to the progressive wing of the Democratic Party in the House of Representatives, as a Senate-changed BBB would require another vote in the lower chamber in order to become law.  Given this delay, we anticipate that if the BBB does pass, any changes to the SALT cap would no longer be retroactive to Jan. 1, 2021, and possibly take effect Jan. 1, 2022, instead. The effective date of most provisions in the BBB will likely depend on how quickly the Senate Democrats are able to reach a consensus; provisions could be effective anytime in the near future or possibly retroactive for the first of the year. We encourage you to connect with your Baker Tilly advisor regarding how the above may affect your tax situation.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

Senate Democrats are still holding out hope the Build Back Better bill will pass the Senate in some form. In order to get the votes, modifications are expected, but negotiations to change the bill aren’t anticipated to start again until later in January 2022.

Federal Tax

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Build Back Better – Act II in 2022?

When it comes to the mobility and transportation industries, supply chain disruption isn’t in the news.  It is the news. Everywhere you look these days are stories about supply chain issues impacting companies of every size, in every sector, in every state. Disruptions can result in delays, shortages of both goods and labor along with a variety of other issues. In the eyes of Baker Tilly, however, disruption can be used as a filter to recognize patterns of change. And once we recognize those patterns, we can address the disruption more proactively, more thoroughly and more effectively.  Recognizing the six D’s The first step in responding to disruption is being able to proactively recognize it. As part of the recognition process, the six D’s stand for: Deny: Companies that are faced with a disruption to their current model may recognize it but fail to acknowledge its significance. Perhaps they think it’s a non-issue, or a flash in the pan and opt to continue with their business, as is. Dismiss: Companies will make excuses for why they don’t need to be concerned about the disruption. Disparage: Companies will claim that the disrupting new product isn’t as good as theirs is, or that it is faulty in one way or another.  Destroy: Sometimes companies will acquire an emerging technology and then opt not to release it because doing so would actually disrupt the incumbent’s business model (or attempt to destroy). Decline: If the emerging technology is well developed, marketed and capitalized, it will begin to eat away at the incumbent’s share.  Die: Over time, companies or divisions of the companies will be forced to cease operations. There are lots of examples of the six D’s impacting real-life companies, including Netflix disrupting Blockbuster and the overall disruptive relationship between IBM, Compaq and Dell. In fact, sometimes when incumbents try to outmuscle each other, an emerging technology can gain ground and eventually dominate. Navigating the six D’s American economist Clayton M. Christensen dedicated much of his life to developing the following strategic empowerment framework that helps companies use modeling to anticipate what to do next. With this framework in mind, the first element to understand is that industry-based disruption generally follows a pattern. From the standpoint of the incumbent, they are focused on sustaining innovation to maintain and/or grow the (typically large) slice of their sector that they control.  Sustaining innovation is a natural and necessary evolutionary process. The best customers want more performance, so the newer innovations tend to reach the premium sector of the market. With these innovations at their fingertips, competitors rarely stand still. In turn, the technology raises the bar across all sectors of the market, enabling improvements and increasing expectations for performance.  One of the common disruptions occurs on the low-end. When the incumbents’ products are overshooting what some customers are looking for, a new entrant typically has room to enter the market (and a good chance to do well, for that matter).  Low-end entrants nearly always win by offering less performance at a lower price. They also benefit from having a structurally lower-cost business model. In this case, it’s common for the incumbents to willingly give up the low-end customers and flee upmarket. Meanwhile, the target of a new market disruption is finding the non-consumers and targeting what those people would buy if it became available, or determining what scenarios would result in these people buying that product.  In effect, a new market disruption creates an entirely new plane of measurement below the standard comparison breakdown of time versus performance. The advantages of this type of disruption are that the new entrants are competing against non-consumption and that it essentially creates a new class of customers. Related to this, incumbents often don’t even notice the loss of share because it was not tracking non-customers in the first place. Reflecting on the results of disruption So, why do companies have such a hard time disrupting themselves? Fully disrupting oneself is exceptionally difficult because of three primary categories of factors, known as RPPs: Resources: A company’s people, capabilities, tooling, capital, footprint, etc. All the things and people that make the machine run Processes: How a company operates, how it adds value to create an engine that provides economic returns Priorities: What the company values, how it makes decisions, how people get rewarded These factors are so entrenched in a company and so intertwined with each other that it becomes very difficult for a company to accept and embrace something like a disruption that is going to send all its RPPs into chaos.  That said, it is important to reflect. In looking at what customers the company does and does not serve – and the company’s capabilities as defined by the RPPs – it is important to consider the question: Can a company disrupt itself? The answer is that it’s very difficult. The two likely outcomes in that scenario are (1) that one company dominates while the other lags behind, or (2) that having two sets of RPPs creates significant turmoil.  In the end, sustainers need to leverage their existing RPPs in order to survive and thrive, while disruptors must build or acquire new RPPs in order to inflict change in the market. The strategic way  As depicted in the graphic below, there are four possibilities for determining the proper strategic direction to take in the face of a disruption. For an incumbent, if you are dominating the market and sustaining innovation, then your best bet is to crush it and win. For an attacker that wants to sustain innovation, it will be hard to beat the incumbents at their own game. It makes the most sense to extract performance, then sell. For an attacker that believes it truly has a disruptive innovation, that’s when you should go for it and win. For an incumbent that feels it has a disruptive innovation, we recommend choosing one of these four levers: 
First, create a separate unit from where you have been housing your disruptive innovation
Secondly, create a joint venture with a disruptive entity that has the RPPs you’re seeking
Third, perhaps a full-on acquisition is the best route to take
Fourth, we don’t encourage exit/abandon, because there usually is a way to evolve or adapt into becoming the type of company that has winning RPPs Implementing change in RPPs in response to disruption Change is necessary for survival, especially in the face of significant disruption. Yet, not all change is created equal. Change is relatively easy when capabilities reside in a company’s resources. It is more difficult when capabilities reside in its processes. And it is most difficult when capabilities reside in its culture.  In short, you need a culture that enables innovation.  A great culture is based on factors such as values, behaviors, beliefs, practices, norms and artifacts. With that said, we encourage you to view culture as an input, rather than an output.  The resources of a company must be embedded with the processes and the priorities in order to take on the challenge of a disruption and, ultimately, to win. Video Learn how Baker Tilly can help you “win” when faced with supply chain disruptions. Contact us for more information or to speak with one of our experienced professionals.  Sources:  Harvard Business School, Stephen P. Kaufman

Jeff Jorge spoke at the 2021 OESA conference to discuss the six deadly D’s of disruption in the supply chain industry. Read this article to learn how to your organization can navigate them in a proactive manner.

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Supply Chain Network Optimization

Distribution

Mobility & Transportation

Supply Chain Resilience

Supply Chain Analytic & Financial Solutions

Supply Chain Strategy, Planning & Optimization

Supply Chain & Manufacturing Consulting

How to navigate the six deadly D’s of supply chain disruption

After conducting an internal review, the Department of Defense (DoD) announced a major change to the Cybersecurity Maturity Model Certification (CMMC) program. According to the DoD, the updated framework, now called CMMC 2.0, will: Simplify the CMMC standard and provide additional clarity on cybersecurity regulatory, policy and contracting requirements Focus the most advanced cybersecurity standards and third-party assessment requirements on companies supporting the highest priority programs Increase DoD oversight of professional and ethical standards in the assessment ecosystem   Organizations are now asking - what is changing with CMMC requirements and what stays the same? What key questions still need to be answered? Much of CMMC remains the same; however, many contractors need to evaluate these five key changes:  Preparation and timeline – According to current guidance from the DoD, CMMC 2.0 will require 9-24 months of rulemaking. Organizations should use this time and their resources wisely by implementing NIST 800-171 (which is already present in contracts as DFARS 252.204-7012). Implementing NIST 800-171 will improve the self-assessment score you post to the DoD’s Supplier Performance Risk System (SPRS), for which the DoD indicates there may be incentives for improved scores and/or early adoption of CMMC 2.0.  Annual affirmation – CMMC 2.0 calls for an annual affirmation from a senior company official. This requirement is reminiscent of Sarbanes-Oxley (SOX) 302. Additionally, the Department of Justice (DOJ) announced an intent to hold entities or individuals accountable that knowingly misrepresent their cybersecurity practices. Organizations should begin evaluating their process for completing this affirmation, determine who will sign the affirmation and what basis is required to be comfortable signing. Plan of action and milestones (POA&Ms) and waivers – Only a small number of waivers will be granted, benefiting a limited number of contractors. POA&Ms will only apply to the minor requirements after an organization achieves a higher level of compliance,  Policies and procedures – While it is true that CMMC 2.0 eliminates the process requirements, NIST 800-171 requires 49 of the 110 items to be “defined,” which is typically in the form of a policy or procedure. Further, if you make claims about your organization’s cybersecurity environment annually to the DoD, it is beneficial to have rigor and structure to ensure those statements remain accurate.   Self assessments – While organizations pursuing CMMC Level 1 will benefit from self-assessments, most contractors who have concerns about CMMC were targeting the prior Level 3 (new Level 2) and above. In CMMC 2.0, most contractors that handle controlled unclassified information (CUI) will require a third-party assessment or DoD-led assessment if the associated programs “involve information critical to national security.” How widely or narrowly this is interpreted is important to watch. However, we anticipate the DoD will err on the side of caution, meaning many contractors will have at least one such contract and are not be eligible for self-assessment.  
How will CMMC 2.0 impact your organization? Review the decision tree and consult the notes below for further insight.   Note A – While the DoD may not require CMMC 2.0, some prime contractors (prime) are pushing their supply chain to comply. Doing so makes it easier for the prime. If all preferred providers are CMMC 2.0 Level 2 or higher, they have less to worry about when sharing CUI. This behavior can drive more organizations to require CMMC 2.0 certifications. Note B – Similar to Note A, if primes require C3PAO assessments and not self-assessments that may drive organizations to seek certification who otherwise would not. This again would make it easier for the prime because they would not need to make the distinctions or fulfill/address requirements in contracts to understand when a self-assessment is permitted. Note C – Waivers appear to be very rare. If you have multiple contracts or plan to have multiple contracts in the future, it is unlikely that all would be eligible for a waiver. Note D – POA&Ms will only apply to minor items. While this might save you from a failure if you do not have one item in place, it does not mean you can be certified without addressing some of the larger, more costly aspects of NIST 800-171.
The following topics remain unchanged in CMMC 2.0. Read below to understand the impact.
The following topics change as a result of CMMC 2.0. Read below to understand the impact.
Baker Tilly is a candidate CMMC Third-Party Assessor Organization (C3PAO), ready to help you achieve CMMC readiness or official assessment objectives. 

Gift acceptance: To accept or not to accept? That is the question.

Build Back Better – Act II in 2022?

How to navigate the six deadly D’s of supply chain disruption

CMMC 2.0: five key changes for government contractors

Gift acceptance: To accept or not to accept? That is the question.