IRS Changes Mileage Rates for Second Half of 2022

As they do annually, in late 2021, the IRS released the standard mileage rates for 2022. Prior to the
beginning of any given calendar year, it is a good idea to update your various polices, guidelines,
worksheets, and templates to reflect the new rates.

The original 2022 rates were as follows:
* 58.5 cents per mile for business purposes
* 18 cents per mile for medical purposes (the moving deduction is not available for 2022)
* 14 cents per mile for charitable purposes (set by statute, thus does not change annually)

However, in a rare – but not unprecedented – move, the IRS has increased the standard mileage rates for
the second half of 2022. These new rates “kicked in” as of July 1, 2022. Both the business mileage rate
and medical mileage rate increase by 4 cents per mile greater than the original 2022 posted amounts. The
details may be found in IRS Announcement 2022-13, issued June 9, 2022.


Beginning July 1, 2022, the standard mileage rates for cars, vans, pickups, and panel trucks increases to
62.5 cents per mile for business purposes, 22 cents per mile for medical or moving purposes, and 14 cents
per mile for charitable purposes.


The updated 2022 rates were as follows:
* 62.5 cents per mile for business purposes
* 22 cents per mile for medical purposes (the moving deduction is not available for 2022)
* 14 cents per mile for charitable purposes (set by statute, thus does not change annually)


Consistent with the past few years (following the 2017 TCJA), the rates cannot be used to claim an
itemized deduction for unreimbursed employee travel expenses or for moving expenses (except for
certain members of the U.S. Armed Forces).

Written by
David C. Moja, CPA www.mojacompany.com
The information provided herein presents general information and should not be relied on as accounting,
tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions
regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel
about the facts and laws that apply.

Does Your Institution have “Laundry Operations?”

Here’s a question we get occasionally: Our school has coin-operated washing machines and
dryers are used by resident students to wash linens, clothing, etc.  Do the revenues from the
Laundromat constitute unrelated business income? What if the Laundromat is open to the general
public for their use as well as use by students?


Let’s start with the student use and answer “No” – generally due to the “convenience exception”
(see below).


If, however, there is use by the general public – beyond the obvious security risks (and that’s an
“Enterprise Risk Management” (ERM) discussion) – potential unrelated business income issues
would generally depend upon the percentage of public use. For the fun of it, let’s say that the
Finance Team at this college has done some analysis and 27% of their laundry revenues come
from the general public (not students nor staff).

From IRS Publication 598:

Convenience of members.  A trade or business conducted by a 501(c)(3) organization or by a
governmental college or university primarily for the convenience of its members, students,
patients, officers, or employees is not an unrelated trade or business. For example, a laundry
operated by a college for the purpose of laundering dormitory linens and students’ clothing isn’t
an unrelated trade or business. (Color added for emphasis.)

The laundry is clearly for the convenience of the college’s students.


So, would this college be safe (in the UBIT sense) in operating a laundry facility where 27% of
revenues came from the non-student public?  Hmmm. I would suggest that the “public” limit
would be closer to 15%, based upon other UBIT provisions in the Code. And, if the college
actively advertised the laundry to the public and/or competed with for-profit, local laundries in
other ways, the IRS might deem the income from the general public to be unrelated business
income and subject to tax. Note that the college could deduct direct and allocable expenses
against this income when the filed Form 990-T each year. Also, the college would need to
ascertain which “silo” (from NAICS two-digit codes) their “laundry operations” fit into for
completing Form 990-T, Schedule A – but that is another topic…


Written by: David C. Moja, CPA www.mojacompany.com

The information provided herein presents general information and should not be relied on as accounting,
tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions
regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel
about the facts and laws that apply.

Raffles and Other Gaming Activities

These days, post-COVID, many colleges are looking toward new fundraising ventures in order to raise
much-needed dollars. One opportunity may be in the form of “raffles.” Institutions should diligently
research and ensure that they are staying within the law when it comes to “gaming” activities.
The glossary of the Form 990 instructions (2021) defines gaming as:

Includes (but isn’t limited to): bingo, pull tabs/instant bingo (including satellite and progressive or
event bingo), Texas Hold-Em Poker, 21, and other card games involving betting, raffles, scratch-
offs, charitable gaming tickets, break-opens, hard cards, banded tickets, jar tickets, pickle cards,
Lucky Seven cards, Nevada Club tickets, casino nights/Las Vegas nights (other than events not
regularly carried on in which participants can play casino-style games but the only prizes or
auction items provided to participants are noncash items that were donated to the organization,
which events are fundraising events), and coin-operated gambling devices. Coin-operated
gambling devices include slot machines, electronic video slot or line games, video poker, video
blackjack, video keno, video bingo, video pull tab games, etc. See Pub. 3079, Tax-Exempt
Organizations and Gaming.


Recently, the IRS published a new “Issue Snapshot” entitled, “Gaming and Unrelated Business Taxable
Income.”
“Issue Snapshots” – according to the IRS – “provide an overview of an issue and are a means for
collaborating and sharing knowledge among IRS employees. Issue Snapshots may not contain a
comprehensive discussion of all pertinent issues, law or the IRS’s interpretation of current law.”


Here are some other gaming resources:
– IRS Publication 3079, “Tax-Exempt Organizations and Gaming” at:
https://www.irs.gov/pub/irs-pdf/p3079.pdf
- Schedule G (Form 990) – Instructions, at:
 https://www.irs.gov/pub/irs-pdf/i990sg.pdf
- The IRS webpage – “Exempt Organization Gaming and Unrelated Business Taxable Income”
may be found at:
Exempt Organization Gaming and Unrelated Business Taxable Income | Internal Revenue Service
(irs.gov)

Excerpt from IRS Exempt Organization Issue Snapshot, “Gaming and Unrelated Business Taxable
Income”:

Gaming is a recreational activity and, if conducted for a profit, a trade or business. Gaming includes
bingo, beano, raffles, lotteries, pull-tabs, scratch-offs, pari-mutuel betting, Calcutta wagering, pickle jars,
punchboards, tip boards, tip jars, certain video games, and other games of chance.

Gaming is also a common type of fundraising engaged in by tax-exempt organizations. In addition, many
types of organizations conduct gaming in furtherance of social or recreational purposes. Gaming is
normally regulated by state and local law in the jurisdiction in which the activity occurs.
Most gaming, if regularly carried on for profit, is an unrelated trade or business activity, which may
produce unrelated business taxable income (UBTI).  As with other unrelated trade or business activities,
the fact that an organization uses the proceeds from its gaming to pay for its exempt purpose programs
does not make the gaming activity related to its exempt purposes.  Therefore, gaming income received by
exempt organizations is treated as UBTI, unless a specific exception applies.

Audit Tips:

  •  Determine whether gaming is an unrelated trade or business. Factors to consider:
  •  The frequency of the activity,
  •  The length of time it has continually been conducted,
  •  How the organization promotes the activity, and
  •  How nonexempt businesses conduct similar activities. 
  •  Determine the organization’s meaning of “membership.”
  •  Distinguish guest income from income from members of the general public
  •  Determine whether the organization’s gaming activities are regulated by state or local law.
  •  All workers involved in the operation of the gaming activities must be taken into account in determining if substantially all of the work is performed without compensation.
  •  Bingo dauber sales and food/beverage sales don’t meet the bingo exclusion and are unrelated business income unless one of the IRC Section513(a) exceptions applies or bingo is conducted with members only (as applicable).
  •  Determine if gaming activity is primary activity and/or if receipts are substantial which may affect foundation classification (for IRC Section 501(c)(3) organizations) and/or exemption status. 


There are really two issues with gaming activities. First, is it gaming for Form 990 purposes. Second,
might the activity be considered an unrelated business activity. As to gaming, we should look at the
definition in the glossary of the Form 990 instructions. With the UBIT issue, the IRS actually released an
‘Issue Snapshot’ on gaming a few years ago. Also, remember that ‘gaming’ activities will generally need
to be reported at Form 990, Part VIII, Line 9 and on Schedule G (Form 990), Part III.
Take care to gather data and obtain great counsel when it comes to gaming activities.

Written by
David C. Moja, CPA www.mojacompany.com
The information provided herein presents general information and should not be relied on as accounting,
tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions
regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel
about the facts and laws that apply.

The New Lease Standard, Part I

Starting in 2016, the Financial Accounting Standards Board (FASB) began releasing new “lease
rules.” After several “exposure drafts” and much discussion, we now have Topic 842, Leases.
These new rules will mean a huge change in accounting for leased assets and the associated
liabilities.
Generally, for “our size” institutions, these new standards will be required to be implemented for
fiscal years beginning after December 15, 2021. This means that – for schools with a June 30
year-end – your June 30, 2023 audit report will be the first affected. For institutions on a
calendar year, it will be December 31, 2022. All this means that you are already – or soon will
be – under the new rules.
As an overview of the new standards, let’s take a look at some “key concepts.” We will break
several of these down further in upcoming installments of “Finance Lab.”
Leases (defined): “A contract, or part of a contract, that conveys the right to control the use of
identified property, plant, or equipment (an identified asset) for a period of time in exchange for
consideration.” The leases that will be the focus of the new standards are those greater than 12
months in length. However, there are several factors – such as are the agreements “extendable”
– that may affect the analysis.
Then, under Topic 842, there are two types of leases: 1) Operating leases; 2) Financing leases.
One of the provisions of this new standard is that all leases must be recognized on a company’s
balance sheet.
For operating leases, ASC 842 requires recognition of a right of use asset (ROU) and a
corresponding lease liability upon lease commencement. Then, as you make lease payments,
those will be recorded as an expense and a reduction to the ROU(s).
Leases/contracts/agreements that qualify as financing leases under the new rules will be recorded
on your institution’s books of account (at the present value of lease payments, with potential
adjustments) as “ROUs.” Correspondingly, the liabilities associated with those ROU’s will be
recorded as a “payable.” Future effects on your Statement of Activities will include
Amortization expenses and Interest expenses – much like entries to record payments on bank
loans.
When the rubber meets the road, for most of us, this will mean lease agreements/contracts with
respect to copiers, audio/visual equipment, vehicles, internet equipment, etc. Contributions or
donations of facilities or other items would generally not be considered subject to a “lease” under
the new rules as they do not involve “consideration.”
For now, it is time to “inventory” all of the agreements and/or contracts that your institution is
party to. Then, there is a five-step process to analyze with of these contracts might require the
new treatment.

  1. Identify all leases
  2. Measure the term and consideration of each lease
  3. Classify Leases: separate “operating leases” from “financing leases”
  4. Disclose leases
  5. Separate leases and contributions.

Further, as you “inventory” your leases, you need to be looking for “embedded leases.” These
would be agreements/contracts that are ultimately classified as leases even though they are part
of another agreement.
We will continue to unpack this new standard in future installments. For now, get busy on the
“inventory” of your institution’s “leases.”

Written by
David C. Moja, CPAwww.mojacompany.com

The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.

Fringe Benefits: Bicycle to Work?

As Spring begins to bloom around our country, we tend to get “outdoor” tax questions.  Recently, we were asked about the “bicycle to work” fringe benefit.

Internal Revenue Code section 132(f)(1)(D) historically has contained a pretty nice opportunity for workers who choose to make their commute into a bike ride.  Prior to the enactment of the 2017 Tax Cuts and Jobs Act (TCJA), “qualified bicycle commuting reimbursements” of up to $20 per qualifying bicycle commuting month were excludible from an employee’s gross income. 

HOWEVER, the TCJA “suspended” this benefit through December 31, 2025.  Here’s the precise wording from the TCJA…

SEC. 11047. SUSPENSION OF EXCLUSION FOR QUALIFIED BICYCLE COMMUTING REIMBURSEMENT.

(a) IN GENERAL. – Section 132(f) is amended by adding at the end the following new paragraph:

‘‘(8) SUSPENSION OF QUALIFIED BICYCLE COMMUTING REIMBURSEMENT EXCLUSION. – Paragraph (1)(D) shall not apply to any taxable year beginning after December 31, 2017, and before January 1, 2026.’’.

Bike Bummer!

So, for now, we have to wait until 2026 to have this benefit be non-taxable (pre-tax) once again.

A qualifying bicycle commuting month was any month during which the employee regularly used the bicycle for a substantial portion of travel to a place of employment and during which the employee does not receive transportation in a commuter highway vehicle, a transit pass, or qualified parking from an employer.

Reasonable expenses were those incurred in a calendar year for the purchase of a bicycle and bicycle improvements, repair, and storage, if the bicycle was regularly used for travel between the employee’s residence and place of employment.

If your institution has continued to pay workers this benefit (or desires to begin paying it), note that the qualified bicycle commuting reimbursement would be taxable to the worker through 2025.

Written by
David C. Moja, CPAwww.mojacompany.com

The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.

Donations of Labor or Services

With April 15th looming, a question we get several times a year goes something like this: Are donated services/labor tax deductible on the “donors” tax return per IRS rules?

Example:

College A is in the process of making budget cuts. A few of their current adjunct professors have decided to forego being paid for the remainder of the semester. College A plans to write these employees a letter thanking them for donating their time to the college. Can those adjuncts claim the value of their donated labor as a contribution for a tax deduction on their tax return?

It is a good question.  But the short answer is no. You cannot claim the value of donated services as a tax deduction (generally because the “donor” never included the income from those services as taxable income). Remember that unpaid “workers” essentially become volunteers, so there can be some legal considerations also.

However, as “volunteers”, the adjuncts may be able to deduct certain expenses related to their “donation” of labor/services.


IRS Publication 526 (Charitable Contributions) states:  “Although you cannot deduct the value of your services given to a qualified organization, you may be able to deduct some amounts you pay in giving services to a qualified organization. The amounts must be:

• Unreimbursed,

• Directly connected with the services,

• Expenses you had only because of the services you gave, and

• Not personal, living, or family expenses.”

Q&A (Publication 526, Table 2):
*I volunteer 6 hours a week in the office of a qualified organization. The receptionist is paid $10 an hour for the same work. Can I deduct $60 a week for my time?
No, you cannot deduct the value of your time or services.

*The office is 30 miles from my home. Can I deduct any of my car expenses for these trips?
Yes, you can deduct the costs of gas and oil that are directly related to getting to and from the place where you volunteer. If you do not want to figure your actual costs, you can deduct 14 cents for each mile.

There are numerous misconceptions when it comes to donated services. In many cases, the service providers misunderstand the “non-deductibility.”  On the other hand, they often are not aware of the opportunity to deduct certain related expenses. If your college acknowledges this type of donation in writing, be sure to be thankful, but – as with all non-cash contributions – never include a value in the acknowledgement letter. It can be a blessing to your college if workers forego wages, but you should also carefully consider any legal implications that may arise from this type of arrangement.

Written by
David C. Moja, CPA www.mojacompany.com

The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.

Employee Retention Credit Potential “Snare”

As we move into 2022, one of the top things Bible Colleges and Seminaries should be looking into is whether you qualify for the ERC (Employee Retention Credit).  Actually, there are two credits here: ERC 2020 and ERC 2021 – they ARE different.

See NOTE below!

For both credits, your institution may be eligible in a given quarter in one of two ways:

  1. the operation of the institution’s trade or business is fully or partially suspended due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to the coronavirus disease COVID-19, or 
  2. the institution experiences a decline in gross receipts.

The ERC’s are calculated on a quarter-by -quarter basis from March 13, 2020 through September 30, 2021.

For ERC20, the requirement is a drop in gross receipts of more than 50% comparing the 2020 quarter with that of 2019.  For ERC21, the required decrease is more than 20% in a Q1, Q2, or Q3 of 2021 compared to the corresponding quarter in 2019.

ERC20 offers a 50% credit on a maximum of $10,000 per employee per year.

ERC21 contains a 70% credit on a max of $10,000 per employee per quarter.

If your institution is eligible for ERC20 or ERC21, use Form 941-X to claim the credit.  We are seeing refunds take at least 6 – 9 months for employers to receive

**Remember: No “double dipping” – if you used payroll amounts for PPP1 or PPP2 forgiveness or for  HEERF expenditure reimbursements, you must exclude those amounts from the wages used in calculating the ERC’s.

The IRS has great sets of FAQs regarding the ERC’s.  The most recent guidance for ERC21 is IRS Notice 2021-65.

NOTE:  When filing Form 941-x for various quarters to apply for the Employee Retention Credit (ERC), be VERY DILIGENT to read and follow the instructions.  Carefully ensure that the amounts in Part 3, Column 4 are NEGATIVE amounts.  Otherwise, you could wait 8 or 9 months and receive a notice from the IRS stating that you OWE the amount of what you thought was a credit!

For Form 941-X – The amounts in Columns 1, 2, and 3 of each of the affected lines (i.e. 18a and 26a) should be positive.  Only Column 4 should be negative.  (It is not very sensible.)  Also, REMEMBER to complete Part 4, Line 43.

From the 941-X instructions:

Copy the amount in column 3 to column 4. However, to
properly show the amount as a credit or balance due item,
enter a positive number in column 3 as a negative number
in column 4…

Here is the IRS’ “Example” for how to complete Form 941-X, Part 3 (using Line 17):

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Written by
David C. Moja, CPA www.mojacompany.com

The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.

Spear Phishing Expeditions


It is important to stay up on cybersecurity issues. Have you heard about “spear phishing?”
Generally, Spear phishing involves a malicious email “spoof” attack that targets a specific organization or
individual, seeking unauthorized access to sensitive information. Spear phishing attempts are not typically
initiated by random hackers, but are more likely to be conducted by perpetrators out for financial gain.
One possible scenario might involve an email sent to you (CFO, Controller) or your institution’s
President that looks very official, has the IRS logo and a valid U.S. Treasury mailing address, and states
something like:

“IMMEDIATE ATTENTION – Action Required: Your account has now been put on hold.”
“Your organization recently received a Paycheck Protection Program Loan through the SBA in
the amount of $110,650. Recently released regulations have deemed a portion of these forgiven
loans to be subject to federal taxes. You owe past due taxes in the amount of $11,065. In order
to avoid penalties, interest, and/or a lien on your accounts, you must remit this tax amount in the
next 10 days. You may pay by credit card or ACH (please send us the account number and
routing number for the account to be charged).”

The IRS discusses this in News Release IR-2022-36 and says, “The latest phishing email uses the IRS
logo and a variety of subject lines such as “Action Required: Your account has now been put on hold.”
The IRS has observed similar bogus emails that claim to be from a “tax preparation application provider.”
One such variation offers an “unusual activity report” and a solution link for the recipient to restore their
account. The IRS has observed similar bogus emails that claim to be from tax software providers. The
scam email will send users to a website that shows the logos of several popular tax software preparation
providers. The IRS warns tax professionals not to respond or take any of the steps outlined in the email
which also may include malicious links or attachments.”
Are your cybersecurity policies, procedures, and risk mitigation systems positioned to protect your
institution from “spear phishing” attacks such as this? It is certainly something to talk about!


Written by

David C. Moja, CPA www.mojacompany.com

The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.