My Spouse Didn’t Sign Our Tax Return—Now What?

You’ve just received a letter from the Internal Revenue Service (IRS) saying your joint tax return has been determined incomplete. Your spouse, it turns out, didn’t sign the form. What happens now?

If you have a tax preparer who is also a CPA and an IRS enrolled agent, you may have some help clearing the issue up rather easily. If not, you’re on your own, and it may not be a pleasant place to be.

Signatures Are Important

When filing a joint tax return, the IRS considers both spouses equally responsible for all taxes due. They also require both spouses to sign the return, otherwise it’s an incomplete filing and you get that sweet letter from the IRS.

In defending yourself against any penalties leveled against you by the IRS, you may show intent to file, pointing to your prior filing history that indicates intent to file jointly. The IRS is just as likely to point to the spot on the return that states, “If a joint return, both must sign.”

There are two allowed exceptions to this. First, a spouse may sign for the other if they have power of attorney specifically for that purpose. The other is if the non-signing spouse gave oral permission for the spouse to sign as “By Husband/Wife” due to disease or injury physically incapacitating them. An explanation of the reason must be attached to the return in this case.

Why They Are Important

Signatures seem like such a small thing to make such a big fuss over, but the IRS isn’t just looking out for itself, it’s looking out for you, too.

The signatures serve to verify that the return was filed by the person(s) named and certifies that everything contained in the return is true and accurate (under penalty of perjury).

If the IRS determines you failed to file a timely return, you will most likely get slapped with penalties of five percent per month, up to a maximum of 25 percent. This can add up very quickly and become quite expensive.

Two Unlikely Escape Hatches

There are two more arguments that can be made for the missing signature—the substantial compliance doctrine and the tacit consent doctrine. The substantial compliance doctrine basically says that a return does not need to be perfect in order to be valid.

This doctrine requires that the return meet four elements to be a valid return: it has sufficient data to calculate tax liability; it is intended to be a return; it was filed in an honest and reasonable attempt to satisfy the law; and it’s filed under the penalties of perjury.

In a U.S. Tax Court case in the early 2000’s, they ruled on a case that tried the compliance doctrine route and dismissed it saying that while tax law may be complex and confusing, the signature requirement isn’t.

In the same case, the court also shot down the tacit consent, noting that intent to file a joint return is distinctly separate from signing a document under penalty of perjury.

Other Considerations

The IRS provides allowance for electronic filing of returns and signatures on those are done through use of a pin and use of Form 8879. The pins are given to each individual when filing from home or given to the electronic return originator (tax preparer) to be used after signing Form 8879.

If you are found to not have filed a valid tax return, you will be facing nonfiling, nonpaying penalties. There are three situations where this occurs: not paying what’s owed; not filing a tax return; or not paying enough tax throughout the year.

For help sorting through any complex tax-related issue, or to engage with our qualified tax preparer services, be sure to contact Klein Hall CPAs.

 

How to Handle a Growing Company

Growth is a primary objective for many small businesses, especially those with sights set on sustainable success. However, hoping for growth and successfully navigating the growth period are two very different things.

How to Handle a Growing CompanyAs many companies come to learn, scaling isn’t always as easy as it sounds. The process of developing rapidly requires a thorough understanding of business finance, recruiting, managerial skills, and so much more. Without a proper approach to setting goals and staying organized, it’s entirely possible for your company to spiral away from you.

Here’s what you need to know to make it through a growth period unscathed – and stronger than ever.

Set Reasonable Goals

Most businesses have long-term goals and short-term goals but what about goals that fall in the middle? Setting objectives for the not so distant future can make it much easier to manage what’s going on in the present.

In addition to the objectives outlined in your business plan, set goals that extend one, three, and five years into the future that can accommodate growth. A downfall of many fast-moving companies is the propensity to continually change and bypass goals, so determine what you need to accomplish and guide growth in this direction.

Focus on Customer Satisfaction

When growth is picking up speed, it’s easy to focus on what’s going on internally instead of externally. As your customer numbers are picking up, you may think losing a few customers here and there is inconsequential, but this couldn’t be further from the truth.

No matter how big or how powerful your company may be, your sales base needs to come first. After all, serving your customers is why you’re in business in the first place, and losing sight of this can stop your progress cold.

Invest in Human Capital

Growth, while desirable, can be expensive. Investing in a larger office, more equipment, more locations, or further research and development can be extremely costly, forcing companies to make tough calls about who and what to fund. And, unfortunately, employees often lose.

While understandable – salaries are negotiable, prices for things like rent or computer equipment are arguably less so – skimping on quality talent can sink a ship faster than almost anything else. Top employees can keep a company afloat in even the toughest of periods, helping you to sustain growth and stay focused.

Don’t Be Afraid to Subtract

Most entrepreneurs are dedicated to developing best practices in the early days of business, from accounting systems to marketing methods. When your startup is small, it’s easy to stay committed to these resources, but failing to evolve appropriately can stunt your growth.

Instead of sticking to the solutions you implemented in your first days or weeks, learn to be flexible. As you outgrow areas of your business, don’t be afraid to utilize new alternatives that are better suited for your expanding operations.

Running an effective business is a huge challenge, especially in periods of rapid growth. However, an inappropriate perspective can hamper potential expansion. With the right attitude toward your future, it’s possible to ensure stable, ongoing success for years to come.

Want to do right by your business? We can help. Contact Klein Hall CPAs today to learn more.

Choosing a CPA Tax Accountant

Klein Hall AwardWhether you love it or hate it, tax is an unavoidable part of life. From federal filings to state and local tax, there’s plenty to know about corporate and individual tax obligations, posing a big hurdle for families and entrepreneurs alike.

Instead of spending weeks on end dutifully filling out forms, a CPA tax accountant can ensure you never miss a beat. Here’s what you should look for when choosing a pro to simplify this year’s tax season.

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Verify Qualifications

Anyone can call themselves a tax accountant, so be sure the team you choose carries the proper accreditation. In general, any tax preparer you hire should be a Certified Public Accountant or an IRS Enrolled Agent. These challenging certifications take years of study and numerous tests, guaranteeing you preparation services from a professional who knows the ins and outs of tax law. Steer clear of the well-known tax firms; these resources generally don’t have the knowledge and certifications a successful tax return requires and may end up making critical, costly mistakes.

Consider Experience

Not all accountants are made equal. When considering professional assistance for your taxes, be sure you choose someone who has experience in the tax forms you must submit, understands your industry, and is prepared to handle the unique aspects of your financial situation. You’re not obligated to choose the first person you meet with, so shop around to make sure the tax preparer you’re considering is best suited to your needs.

Ask About Fees

While it would be nice if tax services were free, that’s rarely the case. However, that doesn’t mean you should be paying an arm and a leg. Before signing an agreement, be sure you understand the expected expenses and determine whether you’re getting your money’s worth. Fees are often based on your specific tax needs, so ensure the rate you agree to fits the time required to prepare a correct return. Keep in mind that a good tax professional is an investment: the right fit can both help you save today and plan for the future, significantly reducing your tax obligations over time.

Be Sure You’re Covered – No Matter What Comes Up

If you get a simple matching notice or end up the subject of a full-blown IRS audit, will you know how to act? More than likely, the answer is no. A good accountant will have your back when the government comes calling, helping you to understand what the IRS is looking for, prepare correspondence, provide backup of your claims, and stay afloat in tax court should something serious come to pass. Instead of leaving you in the dark if disaster strikes, be sure the accountant you hire will stay with you for the long run.

When you want to make this year’s tax season easier than ever, Klein Hall CPAs is here to help. Providing tax preparation services for businesses, governments, not-for-profits, and individuals, we can offer you everything you need to save as much as possible. Contact us today for a custom tax preparation quote!

When Do You Need to Hire an Accountant?

When Do You Need to Hire an Accountant?The early days of a small business can be very exciting, providing an amazing outlet for your entrepreneurial spirit. Creating a brand identity, marketing your products or services, and establishing a reputation can be part of the fun of a new operation, but you won’t be able to work independently for long. Sooner or later, despite the added expense, it will be necessary to invest in additional resources, like an HR team, lawyers, or a professional accountant.

Accounting is a big part of ongoing operations for any successful company, but the early days of transactions (and the early days of your budget) don’t always allow for the support of an expert in accounting and tax rules and regulations. However, sooner or later, help will become imperative. Here’s when you need to hire an accountant.

When It’s Time for a Business Plan

A business plan is an important asset for virtually any company, but drafting one single-handedly leaves plenty of room for mistakes. An accountant can provide significant assistance here, helping to create financial projections that will go hand in hand with your strategic objectives. Rather than relying on rough numbers that may or may not be right, an experienced accountant can verify the accuracy of your expectations, devise reports and charts, and help you create a plan that’s realistic, and more likely to succeed.

When Your Business Ramps Up

It’s easy to track a few sales and expenses in Excel, but as your business grows, it will be harder to stay properly organized. Over time, especially as you build relationships with vendors and grow your customer base, the sheer volume of transactions you have to work with may exceed your own abilities. An accountant can keep your books balanced, verify invoices and payroll, reconcile revenue and expenses, and keep your business on the right track.

When It’s Tax Time

Small business taxes can be a challenge for those without experience and education in corporate taxation. Tax laws and regulations are frequently changing, and because tax questions don’t just arise at tax time it’s important to have an accountant available to advise all year long. When you want to make sure you can maximize deductions, file all forms properly, meet all deadlines, and save as much money as possible, an experienced accountant can ensure no stone goes unturned.

When You’re Ready to Delegate

In the first few days, months, or even years as an entrepreneur, it’s only natural to want to stay firmly involved in every aspect of your operations, from customer service to back office tasks. However, it’s likely your company will eventually develop to a point where you can’t do it all alone. When you’re comfortable with the growth and development you’ve seen and you’re ready to back off a little, an accountant can keep your records accurate and organized so that you can focus your efforts on other strategic areas of your business.

If you’re seeking accounting resources for your small business, Klein Hall CPAs is prepared to offer the support and services you need. With comprehensive experience in the needs of new companies and developing operations, we can serve as a trusted and skilled advisor to answer your questions, maintain your books, and prepare your taxes properly and professionally. Contact the Klein Hall CPAs team today for pricing, packages, and more!

What Will Rising Interest Rates Mean For Homeownership?

What Will Rising Interest Rates Mean For Homeownership?If you’ve taken advantage of the recent historically low interest rates with an adjustable-rate mortgage (ARM) or home equity line of credit (HELOC), you may be concerned about reports that the Fed plans to raise interest rates as soon as mid-March. On the other end of the spectrum, retirees and others who are conservatively invested in assets tied to the interest rate (like bonds and CDs) may be rejoicing at the prediction of frequent rate hikes over the next few years.

What impact can higher interest rates, combined with economic changes proposed by the Trump administration, have on homeownership throughout the U.S.? Read on to learn more about some of the U.S. economic changes predicted to come before 2020.

What impending economic factors can impact homeownership rates?

  • Rising interest rates
    Rumors have swirled around the Federal Reserve’s plan to raise interest rates for years. Recently as a few weeks ago few believed increased rates were coming, however many in-the-know are now predicting as many as three increases by the Fed before the end of 2017. This can have a direct impact on those whose loans are tied to the federal interest rate.  On a macro level, it has the potential to drive down home prices unless there’s a corresponding increase in median income (as the more a buyer pays in interest, the less he or she can afford to pay in principal, taxes, and insurance).
  • Investments in infrastructure
    President Trump has proposed to invest more than $1 trillion in U.S. infrastructure over his first term–repairing crumbling bridges, expanding interstate highways, and creating jobs in the process. This could potentially increase demand in previously isolated areas and drive up housing prices as billions of dollars are pumped into the economy.
  • Fewer housing regulations
    During his campaign, President Trump estimated that as much as 25 percent of the cost of a home is due to the amount of regulation in the purchase and sale process, promising to reduce this proportion to 2 percent. On the surface, this can seem like a great way to keep home prices stable even as interest rates rise; however, deregulation can always bring with it the risk of waste or abuse.

How can you take advantage of these changes?

Rising interest rates mean that ARMs, adjustable HELOCs, and other variable-rate loans are about to become more expensive. While this change won’t be instantaneous, moving toward fixed-rate loans while rates are still fairly low can provide the most insulation from increasing rates.

If you’re debating selling your current home, purchasing a new one, refinancing, or even delving into the world of investment real estate, you’ll want to do all you can to minimize your tax liability (and maximize any potential deductions). Whatever your plans, Klein Hall CPAs can help advise you. As a full-service CPA firm, we’re available for all your wealth planning, tax planning, and bookkeeping needs.

Startup Tax Fails: Common Mistakes New Businesses Make

Startup Tax Fails: Common Mistakes New Businesses MakeStarting a business is a significant ordeal requiring weeks, months, or even years of planning and preparation. In all of the excitement, it’s not uncommon for little details to go overlooked. Some minor missteps won’t cause major errors, but mismanaging tax preparation and filing can be a serious issue.

Many entrepreneurs find themselves too focused on attracting clients, building business connections, and making sales to pay much attention to back office tasks. Unfortunately a few incorrect journal entries today can mean a big mess for tomorrow, especially when tax time rolls around. Instead of letting the upcoming filing season stand in the way of success, below are some of the biggest new business tax mistakes, as well as what savvy startups can do to avoid them.

No Financial Foundation

Operating a successful company requires a proper foundation in basic financial principles. Too many businesses get started without implementing any form of bookkeeping or accounting, or providing no way to track the revenue coming in and expenses going out. These steps may not seem important in the beginning, but getting started without a solid financial approach can be similar to merging onto the highway without functional brakes.

Instead of opening for business without any form of accounting structure, take time to decide how to track sales, purchases, and other important metrics.

Poor Preparation

CPAs working with corporate returns understand the ins and outs of tax preparation, but most new business owners do not. For new startups, tracking appropriate transactions may not be second nature, but this step is extremely important. When lunch receipts end up in the trash and invoices get shredded rather than filed, entrepreneurs may find themselves struggling to account for everything necessary on a Form 1120 or 1065.

In order to properly prepare a business tax return, a basic comprehension of line items, deductions, write-offs, and credits is the key to success. Instead of wandering blindly into tax season, start early, focusing on proper organization of all relevant expenses.

Faulty Filing

For entrepreneurs used to filing personal taxes, the leap to a business tax return can be an alarming wake up call. The requirements, the timeline, the necessary support, and even the forms themselves can differ greatly from Form 1040, leading to hazardous headaches like improper filings, miscalculations of tax due, and even a failure to file at all.

If you’re not sure what you need to file, when you need to file, or how you need to file, a professional CPA can be an excellent investment. By partnering with a pro, you can identify weak spots, ensure every form is properly prepared, and take the maximum deductions possible, providing a perfect return this year and a strong plan for the future.

Managing business tax obligations for the first time can be overwhelming, but the right guidance can make all the difference. Klein Hall CPAs can help your business start out on the right foot, taking care of accounting, financial statement preparation, and tax filings so that you can put your energy where it matters most. Contact us today to learn what we can do to streamline tax season for your startup.

10 Signs Business Advisory Services are Needed

Whether you are a growing or established company, building a strong business is not obtained through solidarity. Accessibility to competent business advice can improve and propel your success.

It is understandable why some companies may not want outsiders involved in their business, even if certain aspects have become overwhelming. Relinquishing authority, control, and responsibility is not an easy thing. However, business advisory services can help companies realize the importance of information and advice from an outside expert. Business consultants can help provide market expertise, solutions for existing problems, and objectivity, among other reasons listed below.

Incomplete Projects

New projects can become old unfinished projects. Keeping your business running at full-speed day after day can encourage pushing some matters to the back shelf. Business advisors can help guide the completion of projects and take stress off of you.

New Market

Launching into a new market requires diligence and research. It is vital to understand target marketing in order for strategy execution to be successful. Consultants with experience in new niches can help transition your company into a successful undertaking.

Need More Human Resources

Taking on new projects or breaking into a new market may call for new hires. However, full-time employees will add to the financial overhead of a business. A company advisor can assist on a temporary or ongoing basis without the associated cost of a permanent position.

Business Stagnation

It may feel like no matter what you do to move your business forward, advancement is at a standstill. An advisor can help spark new ideas or recognize problems keeping you and your business from progression.

Operational Strategy

Coming up with a plan is easy; execution is where many plans go awry. A business consultant can help you focus on the implementation of specific procedures.

Lacking Direction

Having a unified vision is essential for business success. If company guidelines are changing on a regular basis, stability, let alone growth, will be futile. A continuously shifting business model or vision may show the need for an advisor to help refocus the company mission.

Not Enough R&R

Feeling the need to do everything is a common characteristic of company leaders. Lacking a work-life balance is an unhealthy lifestyle. An advisor can help you find someone to delegate tasks to. This will help reduce stress and allow you to focus on the big picture.

Growing Pains

Business growth is obviously a primary objective. When this growth is sudden, being unprepared for it can do more harm than good. A business advisor will help create a strategy to support newfound growth.

Budget Constraints

Lack of budget is an efficiency issue. Identifying workflow problems is the first step to figuring out and fixing budget concerns. Quality advisors are trained to recognize and eliminate these workflow inefficiencies.

Business Frustration

If the leader of the company is frustrated, it is safe to assume the employees are distressed as well. A business consultant can help address seen and unforeseen issues between management and workers so all strive towards a common goal.

As a business owner, it can be difficult to separate desires from company needs. Contact Klein Hall CPAs today to learn more about the benefits of our  business advisory services. We can help to accurately evaluate the health of your company.

Three Common Challenges for Small Business Owners

Most small businesses have the potential for profit and success. However, many fail to overcome common challenges. There are three common issues small businesses encounter. The inability to face these issues not only negatively impacts revenue, but can lead to business failure. Hard work and planning can help overcome these challenges.

Cash Flow Concerns

Three Common Challenges for Small Business OwnersRegardless of business type or size, cash flow is a challenge. Incoming cash determines whether a business succeeds or fails. A healthy cash flow pays bills, taxes, and allows for reinvestment opportunities.

However, circumstances occur which diminish cash flow. An unexpected outgoing payment is hard on a small business. Often times, bills stack up and it becomes difficult to stay ahead. Late client payments is a large contribution to this challenge. Some clients pay late or avoid paying completely.
Cash flow problems are unavoidable, however, they are manageable. Budgeting is vital for monitoring and managing cash flow. There are numerous online tools and apps which help budget, offer online invoices, and reminders for customers. Sometimes it is better to automate certain bills to alleviate the stress of keeping track of due dates. Another option is working with a professional.

Doing Too Much

It is common for entrepreneurs to want to be involved in every aspect of their business. Sometime this is necessary in the beginning, however, it leads to added pressure and fatigue. When fatigue reaches a certain point, people naturally become disorganized and forgetful. This eventually leads to avoidable mistakes. Everyone makes mistakes in a business. Yet, make too many, and the business suffers.

A business owner needs to learn to delegate. Some tasks an owner should do themselves. However, many tasks are better left to others. Using online services for automatic bill pay and invoice delivery can help and it may be beneficial to hire someone part-time or outsource for tasks involving phone or mail. Finally, tasks outside an owner’s expertise are often better outsourced; this usually involves legal issues and accounting. These tasks need specialists, and require trained professionals much of the time. Outsourcing these tasks frees an owner to focus on the business.

Growth Challenges

Every business desires growth. A business is created to generate revenue and make profit. Many owners want to reinvest and make their business grow. Though this is an excellent goal, business growth can lead to issues and challenges.

Generating more revenue comes with an increase in taxes. Often times, the more money a business makes correlates to more expenses needing payment. A large amount of cash flow goes to growth fuel. When more taxes need to be paid, the business can stagnate.

This challenge requires increased planning. Discussing options with an accountant is a beneficial first step. Tax planning helps make sure taxes are adjusted accordingly and paid to avoid penalties. This is a challenge, but more taxes paid for increased revenue means the business is succeeding.

These issues are tough but not impossible to overcome. Klein Hall recognizes the many difficulties small businesses face and we work to offer assistance. Contact us today for information on options and solutions for your small business.

PATH Act Accelerates W-2 and 1099-Misc Filing Deadlines

As the year comes to end, filing your taxes is likely not the focus of your attention, especially around the holidays. However, due to a change in the filing deadlines for certain tax forms, it is something that you will want to keep in mind.

Why did the deadline change?PATH Act Accelerates Filing Deadlines To January 31, 2017

The updated deadline is part of the Protecting Americans from Tax Hikes (PATH) Act, which was signed into law on December 18, 2015. The PATH Act implements a number of changes that, among other things, reforms the powers of the IRS, and helps prevent tax increases. The deadline change itself was specifically implemented for the purpose of reducing potential tax fraud by allowing the IRS to match each individual’s tax return with their paperwork as it is filed.

What is the new deadline?

The PATH Act accelerates W-2 and 1099-MISC filing deadlines one month earlier to January 31, 2017. All W-2 and W-3 forms must be filed with the Social Security Administration (SSA) and be provided to all employees by this date. Additionally, all 1099-MISC forms must be filed by this time before penalties begin to incur.

What can cause me to be penalized?

Penalties can be incurred by:

  • Failing to file W-2, W-3, or 1099-Misc forms by the deadline
  • Providing a form that is not complete or contains incorrect information

The PATH Act does include a safe harbor clause which provides harbor in the event that an incorrect form is filed or if employees are furnished with incorrect statements. Should an employee receive an incorrect form, they can have another return sent without penalty to their company. All penalties are determined largely by your income, or the size of your business.

What should I do?

As the previous deadline was the end of February, be mindful of the new timeline, particularly as 2016 comes to a close. Being prepared for the new deadline prior to the turn of the year will ensure the appropriate paperwork is filed with minimal concern of complication.

If you have any questions at all, each Klein Hall CPA understands precisely how this new law might affect individual tax returns. Feel free to contact us at any time so that we can help you to determine how any of these changes might affect you or your company individually. We will ensure that you not only meet the new deadlines set in place by the PATH Act, but also receive the most from your return.

Exempt Orgs Doing Business Across State Lines

A public charity or private foundation with activities in more than one state may find it has tax and/or regulatory compliance issues of which it was unaware.

Most state attorneys general have a legislative mandate to monitor the activities of charities that solicit contributions within the state and have created reporting regimes to implement this mandate, often imposing filing fees. Unrelated business activities that are taxable by the federal government are usually also subject to state income tax. Real property may be subject to state and local property taxes — sometimes even if it is used for exempt purposes. And while some states exempt sales by nonprofits from sales and use taxes, this is by no means always the case.

The problem is, it is not always easy to tell whether your organization has a sufficient nexus with a particular state to bring these issues into play. But it is a question that needs to be asked, because the penalties for noncompliance can be severe.

States and municipalities are hungry for revenue, and you may be assured that if you have not done the research to find out what your obligations may be in a particular state, the state attorney general and/or the director of revenue will do it for you.

And they do not have to look far. The federal tax Code requires a public charity to make its annual information return, Form 990, readily available to the public. Most of these are republished on a number of websites, easily researched by the organization’s name and/or taxpayer identification number. Large donors, journalists, and watchdog groups search these sites all the time.

Similarly, the Code and implementing regulations require a private foundation to file a copy of its Form 990-PF with the attorney general not only in the state in which it was established and has its principal office, but also in any state in which it has state reporting obligations or in which it holds or intends to hold property for its exempt purposes.

And the IRS has mechanisms in place for sharing this information with state enforcers.

If a state requires an exempt organization to file a copy of its Form 990, the organization should be careful to provide only the “public disclosure copy,” with information identifying substantial contributors redacted from Schedule B. Some states repost these filings to the internet, and they are not always careful to see that what they are posting is the public disclosure copy.

In recent years, some states — notably California and New York — have begun requiring nonprofits to file not only the public disclosure copy of Form 990, but also an unredacted copy of Schedule B. Some advocacy organizations have pushed back, but with mixed success.

In 2015, the 9th Circuit federal appeals court let stand a district court order denying a preliminary injunction to the Center for Competitive Politics, saying the requirement to submit an unredacted Schedule B did not on its face burden the First Amendment rights of the Center’s members to freedom of association. The Supreme Court denied certiorari, and the case has been remanded to the district court for findings on an “as applied” challenge.

Meanwhile, a second, similar lawsuit brought by Americans for Prosperity has followed a somewhat different course. The trial court did grant a preliminary injunction, but the 9th Circuit vacated that ruling in light of its earlier decision in Center for Competitive Politics. On remand, the trial court entered a permanent injunction, finding not only that the state’s interest in requiring disclosure of donor information was not compelling, but also that contributors to AFP had very real concerns about possible retaliation if their identities were publicly disclosed.

Following the lead of the 9th Circuit, a federal district court in New York denied a preliminary injunction to Citizens United to prevent disclosure of its unrelated Schedule B information to that state’s attorney general. That case is still pending at the trial level.

The professionals at Klein Hall, a Naperville accounting firm, have extensive experience with these matters and stand ready to help your nonprofit navigate these treacherous waters.