New Tax Implications for Country Clubs
By: Monica Duarte, CPA, Osborne Rincon CPAs
Country clubs offer a highly-desired lifestyle here in the Coachella Valley, and if you are affiliated with the management of one of them, there are new disclosures regarding liquidity of a nonprofit organization requiring presentation of functional expenses.
Most country clubs are organized as 501c7 organizations exempt from income tax, but in the past, did not present traditional nonprofit financial statements. However, all clubs with fiscal years after 12/15/18 (upcoming 6/30/19 entities) will be forced to conform to the new method.
The Financial Accounting Standards Board (FASB) issued ASU 2016-14 (ASU) altering the manner in which nonprofits present donor restrictions within their financial statements. Some key changes were made that may affect your country club.
1) New financial statement categories
a. Unrestricted assets are now assets without donor restriction.
b. Temporarily and permanently restricted assets have been combined into assets with donor restriction. The purpose of this change was to ensure users understood the use of the term restriction which always applied to donors only and not to certain loan covenants or other agreements which could limit the use of assets.
c. Clubs will now be required to identify these categories within their financial statements, regardless of whether there are donor restrictions or not.
i. Clubs with Board-designated funds, usually which are set aside for specific capital projects, will show those amounts within the assets without donor restrictions.
a. Additional information about the club’s ability to convert and pay for obligations from current assets and cash.
b. Discussion of the limitations on the club from debt covenants and similar arrangements.
3) Functional Expenses
a. To improve comparability between entities, all non-profits, Clubs are now required to divide expenses between program and supporting expenses.
b. Many clubs were previously provided detailed information related to expenses for their different areas – golf, tennis, food & beverage, and administration to name a few. For those clubs that did not provide this detailed information, a review will be required to determine what expenses will be allocated to the different programs and what will be allocated to the support services. Entities have the option of presenting this information either as a separate financial statement or within the note disclosures themselves.
Seem complicated? It doesn’t have to be! Osborne Rincon can help you with your implementation.
For more information call Osborne Rincon CPAs at 760-777-9805.