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Alternative Investments for Nonprofits and Exempt Organizations: Avoiding Unforeseen Tax Consequences

Identifying Valuation Issues, UBTI, Foreign Reporting Requirements, and After-Tax Returns

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Tuesday, December 12, 2017

Recorded event now available

This course will provide tax advisers to exempt organizations with a thorough and practical guide to the reporting requirements and tax traps to avoid in holding alternative investments as part of the nonprofit’s funding and investment strategy. The co-presenters will discuss the planning considerations when entering alternative investment holdings, and will provide tools to identify potential unrelated business taxable income (UBTI) and other tax consequences. The panel will also address audit related considerations to discuss with your clients considering alternative investments.

Description

Nonprofit organizations continue to increase their holdings in alternative investments, defined for financial reporting purposes as assets that do not have a readily ascertainable and fair value. These investments present specific challenges to tax advisers and financial officers of nonprofit organizations and their auditors, from presentation of asset values on financial statements to identifying tax payment and reporting obligations.

In selecting alternative investments for an exempt organization, advisers to nonprofits must identify funds and other assets that could be UBTI. Officers of nonprofit organizations should discern whether the after-tax return on an alternative investment is worth the additional tax reporting and payment obligations that go along with UBTI-generating assets. The challenge increases with the implementation of the new IRS partnership audit rules, which allow the Service to impose tax assessments on partnerships at the entity level.

Another key consideration is whether an alternative investment contains foreign holdings that require additional reporting under the FBAR or FATCA reporting regime. Advisers should identify potential foreign requirements before investing in an alternative investment to avoid costly tax penalties.

Considerations with regard to financial reporting for alternative investments include additional due diligence and monitoring required for each investment, future funding obligations that may affect the liquidity of the nonprofit organization, additional disclosures in audited financial statements, and the increased complexity and cost of an external audit.

Listen as our panel of experienced nonprofit tax advisers and auditors provides a deep dive into the rules and reporting requirements governing UBTI for exempt organizations.

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Outline

  1. Alternative investment types
  2. Potential liquidity issues
  3. Tax implications of alternative investments for private foundations
  4. Valuation challenges
  5. Potential for UBTI requiring tax reporting and payment
  6. Impact of new partnership audit regulations on exempt organizations holding alternative investments
  7. Potential for foreign asset information reporting

Benefits

The co-presenters will discuss these and other important issues:

  • What are the financial statement reporting challenges in presenting alternative investments on a nonprofit’s balance sheet?
  • How will holding alternative investments affect the complexity, cost and time required for an external audit? What are the implications for internal financial reporting?
  • How to identify UBTI traps in alternative investments
  • Foreign information reporting requirements
  • Planning considerations to maximize after-tax returns

Faculty

Harris, Jennifer
Jennifer Becker Harris, CPA
Tax Shareholder
Clark Nuber

Ms. Becker Harris concdentrates her practice on tax-exempt organizations. Her practice primarily focuses on consulting...  |  Read More

MacLeod, Deby
Deby MacLeod, CPA, CGMA
Shareholder
Clark Nuber

Ms. MacLeod is an audit shareholder specializing in serving the firm’s not-for-profit clients with a focus on...  |  Read More