March, 2017 | RKL LLP
Posted on: March 28th, 2017

Unrelated Business Income: Two Common Examples for Nonprofits

Unrelated Business Income: Two Common Examples for NonprofitsFor nonprofit organizations heavily involved in fundraising and charitable activities, recognizing unrelated business income (UBI) and reporting it accordingly is critically important to maintaining tax-exempt status. In a previous post, we defined UBI and outlined the key exceptions. Now, we’ll take a look at two of the most common types of UBI and how to calculate them. 

Income from Debt-Financed Property

Debt-finance property is defined by the IRS as “any property which is held to produce income and with respect to which there is acquisition indebtedness at any time during the taxable year.” The same exceptions to general UBI also apply here, meaning property that derives its income from volunteer, convenience, donation, research or mission-driven activities is not considered debt-financed.

The amount included in UBI is proportionate to the debt associated with the property, and is calculated by this formula:

Gross receipts x Average Acquisition Indebtedness ÷ Average Adjusted Basis = Taxable Amount

“Average Acquisition Indebtedness” is the average amount of principal indebtedness on the property during the portion of the year the property is held. “Average Adjusted Basis” is the average of the adjusted basis of the debt-financed property on the first and last day of the year. Keep in mind, a proportionate amount of expenses associated with the rental may be claimed.

Here is a fictional example to demonstrate how the taxable amount of debt-financed income is calculated. Let’s say a not-for-profit organization owns a building, half of which is rented to a clothing store, which is unrelated to the nonprofit’s mission. The not-for-profit has debt of $100,000 on the property. The adjusted basis of the property is $200,000 and the rental income from the store is $20,000. Using the formula above, we calculate: $20,000 x ($100,000  $200,000) = $10,000 taxable income. Since it is over the $1,000 IRS threshold, this amount must be reported as UBI using Form 990-T.

Income from Controlled Entities

Normally, passive income is exempt from UBI. According to the IRS, however, interest, annuities, rents or royalties received from a controlled organization may constitute UBI. Dividends received from controlled entities are not considered UBI. The threshold for determining control is “more than 50 percent,” which means the tax-exempt organization owns more than 50 percent of the stock, profits or capital interest. Here are two examples to illustrate this concept:

  • Example #1: A §501(c)(3) educational organization licenses the right to use its name and logo to a taxable subsidiary that produces a television show. The subsidiary pays the organization $100,000 annually in royalties. The subsidiary had taxable income for the year of $900,000. The $100,000 royalty is considered UBI and must be reported as such.
  • Example #2: A not-for-profit organization owns a for-profit corporation to which it loans money. The for-profit corporation takes a deduction for interest expense on the loan, but the interest income to the not-for-profit is subject to UBI.

As with all taxation issues, specific circumstances and situations can impact the categorization or calculation of income as UBI. RKL’s Not-for-Profit Industry Group is here to help nonprofit leaders and financial executives determine UBI and file the necessary paperwork to preserve tax-exempt status. Contact one of our local offices today for assistance. 

Ruthann J. Woll, CPAContributed by Ruthann J. Woll, CPA, Principal in RKL’s Tax Services Group and member of the firm’s Not-for-Profit Industry Group. Ruthann has significant experience in tax planning and compliance and specializes in serving individual and not-for-profit clients.




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Posted on: March 21st, 2017

RKL Announces New Hire in Tax Services Group

Christian P. Pasquali, CPA, Manager in RKL's Tax Services Group


YORK, PA (March 21, 2017) – RKL LLP today announced that Christian P. Pasquali, CPA, has joined the firm as a Manager in its Tax Services Group, where his primary focus will be assisting clients with trust, estate and gift taxation matters.

With more than 15 years of public accounting experience, Pasquali brings a strong background in business, individual and nonprofit tax matters and compliance to RKL. He has experience serving a variety of industries, including real estate, construction and contracting, transportation, healthcare and nonprofits.

Pasquali is a Certified Public Accountant in Pennsylvania, and is a member of both the American Institute of Certified Public Accountants (AICPA) and Pennsylvania Institute of Certified Public Accountants (PICPA). He holds a B.S. in Accounting from Messiah College.

Pasquali lives in Loysville, PA. He enjoys high school and college football and wrestling, and outdoor activities with his family.


Posted on: March 16th, 2017

RKL Partner Recognized Among Lehigh Valley’s “Women of Influence”

Laurie M. Peer, CPA, CFP®, has been named one of Lehigh Valley Business' 2017 “Women of Influence."PRESS RELEASE

WYOMISSING, PA (March 16, 2017) – RKL LLP today announced that Lehigh Valley Business has named Laurie M. Peer, CPA, CFP®, one of its 2017 “Women of Influence,” in recognition of her professional achievements, leadership qualities and community involvement.

Peer serves as Executive Vice President of the firm’s investment advisory subsidiary, RKL Wealth Management LLC, where she leads the advisor group, steers client service focus and heads up business development efforts. She also assists clients and their families with individual tax planning and compliance as a Partner in RKL’s Tax Services Group.

“We’re proud to see Laurie recognized among the Lehigh Valley’s most accomplished and influential female leaders,” said RKL CEO Edward W. Monborne. “She is well-respected and trusted by colleagues and clients alike, and is deeply invested in improving her community.”

Peer has 25 years of specialized experience in individual taxation and financial planning. She joined RKL in 1992 and was named Partner in 2012. She played an integral role in the creation and growth of RKL’s investment advisory services, most recently blending the advisor team and developing an integrated service model when RKL united its two previous subsidiaries under the RKL Wealth Management name in January 2016.

An active member of the Berks area business community, Peer belongs to the Reading Chapter of the Pennsylvania Institute of Certified Public Accountants and serves as Board Member and Treasurer for the Berks County Estate Planning Council. She is equally engaged in philanthropic causes, currently serving as a Board Member, Treasurer/Secretary and Planning Giving Committee Member for the United Way of Berks County. Peer is a longstanding supporter of Altrusa International Inc. of Reading-Berks PA, where she co-chairs the group’s literacy efforts and takes part in volunteer events as a member of its women’s service club.

Peer holds a B.S. in Accounting from the Pennsylvania State University. She resides in Alsace Township with her husband, Alan, and their two sons, Ben and Adam.

The Lehigh Valley Business “Women of Influence” awards program recognizes 25 female leaders in the Greater Lehigh Valley for their contributions to their companies, industries and communities. Peer and her fellow recipients will be honored at a ceremony on Wednesday, May 10 at Cedar Crest College in Allentown. Click here for more information on LVB’s Women of Influence program.


Posted on: March 15th, 2017

Expenses Reporting Changes in Store for Nonprofits under FASB ASU 2016-14

RKL’s Not-for-Profit experts take a closer look at one of the ways recent accounting standard changes will impact investment returns and expense reporting. Last summer, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2016-14, Presentation of Financial Statements of Not-for-Profit Entities, which significantly alters the financial statements of nonprofits. As part of FASB’s comprehensive review of not-for-profit statement presentation, ASU 2016-14 is intended to increase reporting consistency by adjusting current requirements across a number of categories.

With an effective date of fiscal years beginning after December 15, 2017, now is the time for not-for-profits to familiarize themselves with each category of changes and what they mean for their organizations. In this post, we take a look at one of the components of this ASU: improved consistency related to investment returns and expense reporting.

Comparable measurement of investment returns

ASU 2016-14 requires that returns from investments (other than programmatic investments) be reported net of external and direct internal investment expenses. Not-for-profits are permitted, but no longer required, to disclose these netted expenses in the financial statement notes.

Programmatic investments are those directed at carrying out the not-for-profit’s mission, as opposed to investments in the general production of income or appreciation of an asset. An example of a programmatic investment is a loan made to lower-income individuals to promote home ownership.

Direct internal investment expenses are defined as costs of the direct conduct or supervision of strategic and tactical activities involved in generating investment returns. Examples include, but are not limited to, costs associated with the staff responsible for developing and executing investment strategy (salary, travel, etc.) and allocable costs associated with internal investment management or the supervision, selection and monitoring of an external investment management firm. These expenses do not include costs that are not associated with generating investment return, such as unitization and other such aspects of endowment management.

By requiring returns from investments to be reported net of external and direct internal investment expenses, ASU 2016-14 aims to provide a more comparable measure of investment returns across all not-for-profit entities, regardless of how investment activities are managed.

Additional expense allocation disclosure

Previously, only voluntary health and welfare entities were required to present a statement of expenses by both functional and natural classifications. ASU 2016-14 has removed that requirement for those organizations and now requires disclosure of an expense analysis by function and nature for all not-for-profit entities to be presented in one location, either on the face of the statement of activities, as a separate statement or in the notes to the financial statements. In addition to this analysis, all not-for-profits will be required to disclose the methods used to allocate expenses to the functional categories.

Expenses should be allocated to one of two functional categories: program services and supporting activities. Program services are those activities that result in goods or services being distributed to beneficiaries, customers or members that fulfill the organization’s purpose or mission. Supporting activities represent all activities outside these program services, such as management and general activities, fundraising activities and membership development activities.

Requiring additional disclosures related to the allocation of expenses improves the usefulness of information for users of the financial statements, helping them better understand the methods used for allocating costs among functional categories and the types of resources used in carrying out an organization’s activities.

Effective dates and next steps

ASU 2016-14 is effective for annual financial statements issued for fiscal years beginning after December 15, 2017, and for interim periods within fiscal years beginning after December 15, 2018. The amendments in this ASU should be applied on a retrospective basis; however, if presenting comparative financial statements, a not-for-profit has the option to omit the analysis of expenses by both natural and functional classifications (the separate presentation of expenses by functional classification and expenses by natural classification is still required). Organizations that have previously been required to present a statement of functional expenses do not have the option to omit this analysis and may present the comparative period information in any of the formats permitted in the ASU.

These are significant changes with considerable impact to the financial reporting practices of not-for-profits. Prior to the fiscal year in which ASU 2016-14 takes effect, organizations should review and digest these changes fully with their internal finance teams and external practitioners and develop a basis, or multiple bases, for the expense allocation and investment return changes.

For more information and questions on how to prepare for these reporting changes, please contact Douglas L. Berman, CPA, RKL’s Not-for-Profit Industry Group Leader.


Andrew D. Kehl, CPA, Manager in RKL's Audit Services GroupContributed by Andrew D. Kehl, CPA, Manager in RKL’s Audit Services Group. Andrew has accounting and auditing experience serving clients in a wide variety of industries including nonprofit, healthcare and government.




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Posted on: March 13th, 2017

RKL Continues Rise Among Nation’s “Top 100” CPA Firms

RKL rises to the 65th slot on Accounting Today’s 2017 Top 100 firms, and retains the rank of 14th largest CPA firm in the Mid-Atlantic. Regional professional services leader climbs two spots on annual Accounting Today list


LANCASTER, PA (March 13, 2017) – Thanks to its sustained growth and expanding capabilities, RKL LLP continues its rise among the nation’s leading CPA firms. Industry publication Accounting Today ranked RKL 65th on its “2017 Top 100 Firms” list, two spots higher than the previous year’s position.

RKL claimed the 65th spot due to its 9.12 percent growth, which also helped the firm retain its ranking as the 14th largest in the Mid-Atlantic region.

“Success at RKL means seizing more opportunities to serve our clients’ evolving needs and help them tackle new challenges,” RKL CEO Edward W. Monborne said. “This national ranking speaks to the trust our clients place in us as their strategic business advisors.”

RKL launched its 2020 Strategic Plan in early 2016 to outline the firm’s roadmap for continued growth and relevance. The strategic planning exercise set the tone for 2016 as another year of innovation and expansion for RKL. The firm emerged as a leading provider of risk management services for financial institutions, credit unions and businesses in the Mid-Atlantic with the October 2016 acquisition of Radnor, PA-based GTM Risk Management, which now operates as RKL Risk Management LLC.

2016 also saw the continued expansion and development of RKL’s advisory services lineup, uniquely positioning the firm to assist clients with complex challenges related to workforce management, mergers and acquisitions, business valuations for financial reporting and performance improvement. The firm also delivers business software, IT support and networking solutions to clients through its IT subsidiary, RKL eSolutions, which most recently expanded its nationwide footprint with the acquisition of Boston-based Sage reseller Baesis, Inc.


Posted on: March 7th, 2017

Here’s How Your Company Can Fight Alternative Payment Fraud

Here’s How Your Company Can Fight Alternative Payment FraudAlternative payment methods – like Square, PayPal, Stripe and Payoneer – represent a convenient and flexible way for businesses to accept payments from customers. On the flip side, however, allowing your employees to pay vendors through these methods can be a risky proposition.

Because these payment methods are still relatively new, there is often confusion around the unique risks associated with them. However, once you understand these risks and common fraud schemes, you can institute a few best practices to prevent your company from falling victim to alternate payment fraud.

Know who is receiving your payment

One of the most concerning aspects of alternative payment methods is the anonymity that these methods provide to the fraudster. While most companies have strong policies for cutting checks or making ACH payments, few have updated these policies to expand controls related to alternative payment methods. Fraudsters know this and are happy to exploit this weakness.

For instance, a standard component of credit card or ACH electronic transactions is the identification of the payee on the credit card or bank statement. Alternative payment methods usually mask these payment details. Instead, the processor name, such as “Square” or “PayPal,” will first appear on your bank statement. In some cases, however, the payee name will only appear on the statement if the vendor has set up their account to do so. In alternate payment schemes, the fraudster vendor will omit their name or use a misleading company name to hide the true payee identity.

To avoid falling prey to a crafty fraudster, companies should institute a policy of tracking down the supporting documentation relating to any payment that has been processed through an alternative payment method. The goal is to verify that the payment was properly approved and is being made to a legitimate vendor. Supporting documentation can include purchase orders or original invoices.

Restrict access to company accounts and cards

Another best practice concerning alternative payment methods includes restricting the number of employees that have direct access to company bank accounts and credit card numbers. Alternative payment method fraud relies upon the fraudster having access to the company accounts; otherwise, he’ll need to devise a different scheme. Restricting employee use of company accounts is also important in investigating any suspicious activity. With limited users, it is much easier to quickly uncover the fraudster and stop them in their tracks.

Monitor your vendor approval process

While alternative payment fraud is still relatively new, it has quickly gained popularity with enterprising fraudsters due to the ease of the scheme and the high dollars involved. RKL’s fraud and forensic accounting team recently investigated a significant fraud where an employee created a fake vendor and used both Square and PayPal accounts to divert company funds to his bank account. In that case, the fraudster was successful because he was able to circumvent the company’s process for approval of new of vendors, had access to the company credit card and was a “trusted” employee.

Time is on your side

Perhaps the best thing to remember is that sometimes it pays to not be on the cutting edge.  While these new payment technologies are exciting and can be great ways for smaller businesses to get paid, there is no need for most companies to pay their vendors through these methods. It is much safer to continue to use traditional payment methods (check, ACH or credit card) until you are comfortable that your policies and procedures are ready. In other words, don’t be afraid to take it slow.

It is also important to remember that as the customer, you hold all the cards during the vendor evaluation process. Specifically outlining accepted payment methods in your company’s vendor approval policy will help eliminate the possibility that a vendor will try and seek payment through an alternative processor, like Square.

Finally, it is important to remember how fast technology can change. For that reason, you will need to continually revisit your policies and procedures to ensure that you have controls in place over new payment methods as they are developed.

Whether it’s crafting stronger payment and vendor policies, strengthening internal controls or investigating suspicious payments, RKL’s team of fraud consultants and forensic accountants can help you protect your business against alternative payment method fraud. Contact your RKL professional or one of our local offices today for more information.


Jeremy L. Witmer, CPA, CVA, CFE, Senior Consultant in RKL’s Business Consulting Services GroupContributed by Jeremy L. Witmer, CPA, CVA, CFE, Senior Consultant in RKL’s Business Consulting Services Group. He provides forensic accounting, litigation support and business valuation services to companies and organizations across a number of industries. Jeremy’s expertise includes reconstruction of financial records, employee theft investigation, damage calculations for litigation purposes, and valuation of stock for gifting, buyouts and marital settlement. 


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Posted on: March 1st, 2017

RKL Names Four Partners to Firm Wide Leadership Positions


LANCASTER, PA (March 1, 2017) – RKL LLP today named four partners to service line leadership positions. Steven E. Fisher, CPA, has been named Audit Services Group Leader; Robert M. Gratalo, CPA, MST, has been named Tax Services Group Leader; Bethany A. Novis, CPA/ABV, CVA, CFE has been named Business Consulting Services Group Leader; and James H. Ostrowski, CPA, has been named Small Business Services Group Leader.

“Our focus on a service line approach is a key strategy identified in RKL’s 2020 Strategic Plan,” RKL CEO Edward W. Monborne said. “Our cross-firm operational structure will allow the service line leaders to develop approaches to hiring, growth, performance and innovation that benefit the entire firm.”

In their newly defined roles, Fisher, Gratalo, Novis and Ostrowski will be responsible for the leadership, growth and management of their respective service lines. Working in collaboration with partners from across the firm, RKL’s industry group leaders and firm management, each service line leader will drive efforts related to service offerings, client satisfaction, workforce development and quality control.

audit manufacturing distribution reading pa

Steven E. Fisher

In addition to his new role of Audit Services Group Leader, Steven E. Fisher, CPA, will continue to oversee operations for RKL’s Reading office as its Managing Partner. He joined RKL in 2011, and for more than 25 years he has served the accounting and auditing needs of family owned businesses as well as private equity and venture capital-backed companies. Fisher is an active member of the firm’s Manufacturing & Distribution Industry Group, due to his deep industry expertise and experience serving these privately owned commercial clients. He holds a B.S. in Accounting from Penn State University, and resides in Bernville with his wife.

Robert Gratalo CPA York PA

Robert M. Gratalo

Robert M. Gratalo, CPA, MST, most recently led the Tax Department in RKL’s York office. Since joining RKL in 2011, his focus has been on providing tax and business advice to privately held businesses in a variety of industries and their owners. With more than 20 years’ experience in public accounting, Gratalo helps clients resolve issues, tackle challenges and seize opportunities in areas like mergers and acquisitions, entity structure, tax accounting method optimization, succession planning, tax credit utilization, depreciation and capital recovery, business sales and divestitures and more. He earned a B.S. in Accounting from Elizabethtown College and a M.S. in Taxation from Widener University. Gratalo lives in York with his wife and three children.

Bethany A. Novis, CPA/ABV, CVA, CFE, partner in RKL’s Business Consulting Services Group

Bethany A. Novis

Bethany A. Novis, CPA/ABV, CVA, CFE, is a highly credentialed consultant with 25 years’ experience in fraud and forensic accounting, business valuation, risk management and litigation services. Since joining RKL in 2000, she has assisted clients with technical and sensitive matters including reconstruction of financial records, employee theft investigation, damage calculations for litigation purposes and valuation of stock for gifting, buyouts and marital settlement. Novis also served as Managing Partner of RKL’s Lancaster Office from 2011 to 2016. She holds a B.S. in Accounting from Indiana University of Pennsylvania, and resides in Lancaster with her husband and son.

James H. Ostrowski

James H. Ostrowski

James H. Ostrowski, CPA, is responsible for driving firm wide growth and managing client service and team member development for RKL’s Small Business Services Group. Throughout his more than 30-year career in public accounting with RKL, Ostrowski has experience serving the tax and assurance needs of clients in various industries including trucking, construction, wholesale, retail and service companies. He holds his B.S. in Accounting from Drexel University and resides in Lancaster with his wife.