Not-for-Profit Accounting Update: From Federal Funding to Private Foundations

The not-for-profit sector is navigating significant changes in federal funding, accounting standards and regulatory requirements. We recently held a webinar to update not-for-profit organizations about areas such as these that are key to their ongoing success, focusing on:

• Federal funding declines and implications for audits and financial statements;
• Single Audits in light of the now effective 2024 Uniform Guidance;
• Applicability of ASC 326, Financial Instruments — Credit Losses, and new accounting pronouncements
• The tax impact of the One Big Beautiful Bill Act (OBBBA)
• Private foundation tax matters

Implications of Federal Funding Declines

While only a short few years ago during the pandemic not-for-profit organizations found themselves with a surplus of funding options, now the tides have shifted to a tightening of funds across the sector. Today, the federal funding landscape for not-for-profits remains uncertain, particularly due to the U.S. government’s blanket federal funding freeze put in place January 2025. This action caused widespread confusion and operational challenges for many organizations. As a result, it has also led to payment delays, federal award cancellations and significant uncertainty about future funding — making it extremely important to budget for these declines and diversify income sources to mitigate risks.

The declines could also have financial statement and audit implications. For federally funded contributions, delays in payment do not mean cancellation, but uncertainties should be assessed and related allowances adjusted. There also may be additional financial statement disclosures to consider, including those related to risks and uncertainties, subsequent events, and liquidity and availability of resources.

Single Audit Updates and 2024 Uniform Guidance

The 2024 Uniform Guidance, now in effect, has brought significant changes to Single Audit requirements:

• The effective date for the final guidance is generally October 1, 2024, for awards issued after that date.
• The Single Audit threshold has increased from $750,000 to $1 million.
• The Type A threshold has also increased to $1 million.
• The de minimis rate for indirect costs has increased up to 15%.

The 2024 Uniform Guidance changes both OMB guidance and requirements. It is important to review and prepare for the revisions and their impact on your federal awards.

New Accounting Pronouncements

Several new accounting standards are impacting not-for-profits:

• ASC 326 (Current Expected Credit Losses - CECL): The CECL standard applies to certain not-for-profit assets, including financing receivables and held-to-maturity debt securities.
• FASB ASU 2023-01: Updates lease accounting for common control arrangements, effective for fiscal years beginning after December 15, 2023.
• FASB ASU 2022-03: Clarifies fair value measurement for equity securities subject to contractual sale restrictions, effective for fiscal years beginning after December 15, 2024.
• FASB ASU 2023-08: Introduces new accounting and disclosure requirements for crypto assets, with specific criteria for applicability.

The new accounting pronouncements above will affect both financial statement presentation and disclosure requirements. Please review the updates and determine how your entity is affected.

Not-for-Profit Tax Impact of the OBBBA

The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, introduces several key provisions affecting not-for-profits and particularly large private colleges and universities. The Act includes:

• An expanded excise tax on excess compensation
• A new tiered "Endowment Tax" for institutions with over 3,000 tuition-paying students
• New charitable giving deduction incentives, such as a permanent standard deduction boost
• A 1% floor on corporate charitable deductions
• Changes to tax credits, like the Low-Income Housing Tax Credit (LIHTC), Qualified Opportunity Zones (QOZs) and New Market Tax Credits (NMTC)

The OBBBA presents both challenges and opportunities for affected organizations. Learn more about the impact in “One Big Beautiful Bill Up Close: Tax Impact for Not-for-Profits”

Private Foundation Tax Matters

Private foundations must comply with tax regulations to avoid penalties, particularly in areas involving self-dealing transactions with disqualified individuals, meeting minimum distribution requirements and conducting accurate reporting:

• Self-dealing transactions. This includes sales, exchanges or leases of property, lending money, and furnishing goods or services between the foundation and disqualified persons, with initial taxes of 10% on disqualified persons and 5% on foundation managers.
• Minimum distribution requirements. These requirements mandate spending at least 5% of the average fair market value of non-charitable assets on charitable and administrative purposes annually, with a 30% tax on undistributed income.
• Compliance and reporting requirements. Compliance and reporting include determining fair market value, reporting qualifying distributions and avoiding self-dealing transactions, with taxes related to self-dealing not payable by the foundation itself. Foundations must also correct self-dealing transactions to avoid additional taxes.

Keeping these rules and regulations in mind for your private foundation is critical to help minimize fines and penalties.

Staying informed on all these items will be critical for not-for-profit organizations to remain compliant and ultimately further their missions. For more on what we covered in this webinar, including additional detail and practical tips, visit our Knowledge Center to download the presentation; then consult your advisers to work through the implications for your specific organization.

Contact Marie Brilmyer, Tina Dzik, Lauren Chase or a member of your service team to discuss this topic further.

In this blog Cohen & Co is not rendering legal, accounting, investment, tax or other professional advice. Rather, the information contained in this blog is for general informational purposes only. Any decisions or actions based on the general information contained in this blog should be made or taken only after a detailed review of the specific facts, circumstances and current law with your professional advisers.