2026 Highlights

Beneficial Interests and Planned Giving Made Simple

The session opened with introductions from two audit partners, one from Baker Tilly specializing in higher education and not-for-profit audit work, and one from Crowe leading a national higher education and not-for-profit practice, who outlined the session roadmap: covering the types of beneficial interest and split-interest gift instruments, how to account for them at inception and in subsequent years, and the related disclosures, with emphasis on the assumptions underlying fair value measurement.

Core concepts were established before diving into specific vehicles: a beneficial interest is a portion of a gift from which a not-for-profit receives a benefit now or later, with the key distinction being whether the organization holds a lead interest (benefit at inception) or a remainder interest (benefit at the end or upon maturity). For split-interest agreements, fair value is central, using an income approach of present value of future cash flows with discount rates typically tied to risk-free Treasury rates, plus mortality tables for life-contingent terms, and presenters flagged that embedded derivatives, such as payments tied to an index or yield curve, can require bifurcation, though this is rarely seen in practice. Before recording any gift, five threshold questions must be answered: is it irrevocable, is it a lead or remainder interest, is the not-for-profit the trustee holding custody of assets or not, and what assumptions will be used for valuation; a summary cheat sheet table was provided mapping trustee status, obligations, and remainder rights across instrument types, with a suggestion to share it with development teams and a note that donor-advised funds should also be added to that map given how often questions arise there.

The presenters then walked through journal entries and remeasurement for perpetual and term trusts, recording a receivable at fair value with income or trust value changes recognized as investment income or adjustments to the receivable, and then moved through the alphabet soup of split-interest trusts:

• Charitable Lead Annuity Trusts (CLAT) paying a fixed annuity to the charity first with remainder to non-charitable beneficiaries,
• Charitable Lead Unitrusts (CLUT) paying a fixed percentage of revalued assets rather than a fixed dollar amount and creating shared investment risk and reward,
• Charitable Remainder Annuity Trusts (CRAT) where the non-charitable beneficiary receives the fixed annuity first and the charity gets the remainder, and
• Charitable Remainder Unitrusts (CRUT) where the non-charitable beneficiary receives a fixed percentage first.

For each trust type the presenters worked examples using a $1 million gift, 10-year term, and 5% rate showed how accounting differs depending on whether the not-for-profit or a third party is trustee, recording either a receivable or beneficial interest when not trustee, or both an asset and an offsetting liability to the other beneficiary when trustee, with annual remeasurement at fair value and gains or losses flowing through a change-in-value line.

Charitable gift annuities were presented as a simpler contractual form with no formal trust, where the charity owns the assets and records a liability based on actuarial life-expectancy tables and a risk-adjusted discount rate, with contribution revenue equal to the difference between assets received and the obligation; subsequent remeasurement uses updated mortality assumptions, and state insurance regulations governing gift annuities, based on the donor's state of residence, were flagged as a legal consideration. Pooled income funds, described as rare in current practice, were explained as commingled trusts where multiple donors' pro rata shares of actual fund earnings, not a fixed amount, are paid to income beneficiaries, with a similar initial recognition of assets, a liability for the present value of future distributions, and residual contribution revenue. Funds held by others such as community foundations were distinguished by whether the organization retains control, in which case the asset stays on the books, or whether the holder has variance power, in which case the not-for-profit generally only records revenue as distributions are received, with footnote disclosure of the arrangement in the interim.

On disclosure and presentation, the panel advised presenting split-interest assets and liabilities separately on the statement of financial position, or disclosing them in footnotes when immaterial, keeping contribution revenue separate from changes in value of split-interest agreements, and describing agreement terms, discount rates, and donor restrictions in the notes, pointing attendees to Chapter 6 of the AICPA Not-for-Profit Accounting and Auditing Guide as a key resource. During audience Q&A, the presenters clarified that a donor-advised fund cannot itself satisfy a donor's pledge because the donor relinquishes control of those assets upon contribution, unless the DAF trustee separately agrees in writing to make the payment, and warned against double-counting DAF distributions as new annual-fund revenue. The session closed with practical reminders that corroborating valuation assumptions and understanding trustee status are essential given how complex and voluminous these agreements can become for organizations holding many of them.

Internal Controls for Fraud Detection and Cyber Risks

The session, led by an audit partner from Aprio and a managing principal from Baker Tilly, framed internal controls as something that rarely fail suddenly but erode gradually as organizational processes change faster than written policies, leaving gaps such as unreviewed system access, liberal use of corporate cards, and growing reliance on Zelle, Venmo, and PayPal for payments without matching oversight. Examples given included trusted long-tenured employees rerouting vendor payments to their own accounts and grant growth outpacing procurement compliance knowledge, underscoring that policies only protect an organization if they are current, enforced, and understood.

Nonprofits were described as inherently high-risk control environments because mission focus often outweighs attention to internal processes, boards are frequently volunteer-based and lack financial or legal expertise, fund accounting is complex with many restricted funds, and high staff turnover is itself a red flag for lapsed controls. Four high-risk transaction areas were identified: cash disbursements, program disbursements (including subrecipient monitoring, since large public projects like construction are visible and attract fraudulent vendors), cash receipts (skimming, misdirected donations), and financial reporting, where misallocation between funds or double-dipping on grants can be unintentional error but is still perceived by donors as fraud when discovered.

On designing fraud-resistant controls, segregation of duties was repeatedly stressed as fundamental, alongside dual authorization that covers electronic payments as rigorously as checks. Careful management of the vendor master list, since a case was described where a fraudster incrementally changed a vendor's phone number, email, address, and finally bank account over several months to divert seven-figure construction payments. An audience member described a real incident where fraudulent emails impersonating finance staff led to banking information being changed twice in rapid succession, prompting discussion that ongoing staff education on current fraud schemes, verifying vendor changes by outgoing phone call rather than email, and adding detective controls such as audit logs and periodic reviews of additions and deletions are necessary complements to preventive controls. Positive pay matching on both payee and amount, independent monthly reconciliations, and tighter credit card controls were also recommended, along with controls over program invoices, subrecipient eligibility and site visits, functional and time-and-effort allocation support, budget-to-actual variance thresholds, and monitoring of online giving platforms and inter-fund borrowing. A question about AI-driven fraud was addressed with examples of bot-driven ghost-ticket purchase-and-refund schemes and email-chain interception that silently altered vendor payment instructions.

A closing case study presented a fictional emergency assistance program distributing four million dollars annually, where a new dashboard revealed one employee approving 72% of all assistance dollars, approval spikes on Friday afternoons, and 14% of recipients sharing addresses, phone numbers, or bank accounts, facts management had rationalized as normal given shared shelters and family banking. Panelists concluded such patterns warrant objective investigation of eligibility, donation records, and the reasons behind weak segregation of duties, such as staffing pressure, rather than acceptance of superficial explanations, and that fraud-resilient outcomes depend on dashboards and KPIs that give leadership and boards real insight, processes that are both compliant and bias-reducing, and a default instinct to dig deeper whenever justifying a transaction requires unusual effort.

Unrelated Business Income Tax (UBIT) Navigational Tips

The session opened with a history of Form 990-T, which first appeared in 1951 after the IRS discovered that New York University Law School owned the Mueller Macaroni Company tax-free, prompting competitors to complain and leading to the creation of the unrelated business income tax. The original form had a $1,000 automatic exclusion that has never been adjusted for inflation (it would be roughly $11,200 today), and the form has evolved from four pages to a two-page summary with separate Schedule A filings for each 'siloed' activity, identified by NAICS codes. The Tax Cuts and Jobs Act ended the ability to aggregate gains and losses across activities, so each silo now stands alone, net operating losses must be tracked silo-by-silo, and preparers must reconcile 990-T figures with Part VIII, Column C of the Form 990.

Determining UBIT rests on a three-part test: the activity must be a trade or business, regularly carried on, and not substantially related to the organization's exempt purpose—failing any one prong keeps income out of UBIT. Presenters stressed that having UBI is not inherently bad: at a flat 21% corporate rate, an organization keeps 79% of net income, and the real conversation with clients should focus on whether the activity supports the mission and whether revenue is growing to a level (generally flagged above roughly 20% of gross receipts) that warrants spinning activity into a separate taxable entity, with careful attention to double-taxation traps between a C-corp and its related exempt parent.

A long list of statutory exclusions was reviewed, including volunteer-labor activities, member-convenience services, donated-merchandise (thrift shop) sales, qualified convention and trade-show income, low-cost token distributions, and the narrowly defined 'bingo' exception, which the Treasury regulations spell out in surprising detail. Corporate sponsorship income is excluded from advertising only if it avoids exclusive-provider designations, more-than-insubstantial benefits (set at a 2% threshold), or rights to intangible assets—crossing into paid endorsement arrangements, as in one attendee's vetted-provider example, risks reclassification as taxable advertising. Real property rental income is generally excluded unless the property is debt-financed, in which case the 85%-use rule (tracked by square footage) and the neighborhood land rule for recently acquired property become critical, with the Mayo Clinic case illustrating how a school exception can shield large rental income, and the NCAA March Madness case showing how 'regularly carried on' arguments can succeed or later collapse as activities expand.

On cost allocation, the panel walked through space-based, time-based, and unit-based methodologies drawn from the IRS College and University Compliance Project, noting that the IRS rejected a gross-to-gross revenue allocation for a golf course in favor of a unit-based (rounds-played) method, which materially changed the taxable percentage. Indirect expense allocation remains an unsettled, 'reasonableness'-driven area with inconsistent court outcomes, and presenters recommended still tracking indirect costs even on activities currently producing losses, since preserving net operating losses silo-by-silo protects against future profitability once, for example, a building is fully depreciated.

Audience questions covered a range of practical scenarios: debt-financed farm rental and sale income, siloing of multiple K-1 investment partnerships, failed NIL collective exemption applications (college athletes are not a charitable class), church-run short-term rentals and coffee shops being found unrelated, and a hypothetical $6 million C-suite 'hotel' that the panel agreed would likely fail exemption review entirely. Presenters emphasized layering multiple independent defenses (e.g., volunteer labor plus short duration plus lack of debt) when documenting UBIT positions, reframing UBIT for boards and the public as a sign of good fundraising rather than a red flag, and closed by pointing attendees to IRS Publication 598, the 2014 ACT Report, the IRS College and University report, and AICPA NFP Section materials as key resources.