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DATA ACT Passes House and Senate

This past Monday, the House unanimously passed The Digital Accountability and Transparency Act of 2014 (The DATA Act). The DATA Act was passed by the Senate earlier this month and President Obama is expected to sign it into law, based on his support of this Act in the past.

The Data Act

The DATA Act is an extension of the 2006 Federal Funding Accountability and Transparency Act and mandates the adoption of consistent government-wide data standards in its reporting on government spending. Using this consistent language in its financial reports enhances accessibility for policy makers and tax payers. A public, searchable and reliable database of government spending will be accessible on a new and improved www.USASpending.gov, allowing users greater access to information regarding government grants and contracts between the federal government and grantees and contractors. The result is anticipated to be greater accountability of those who spend tax payer dollars, as well as those who grant and monitor government dollars. The DATA Act will commit the Office of Management and Budget (OMB) and the Treasury to utilizing more robust data standards throughout all aspects of funding, including budgets, grants, contracts and other financial reporting.

The DATA Act aims at reducing waste and fraud and increasing the transparency and effectiveness of government spending across agencies. Many believe this bill will greatly modernize the way the government tracks and monitors agency spending, as well as increasing the ease of information gathering. Under the current system, all budgets, grants, contracts and disbursements are largely reported in manual formats, such as tedious forms and spreadsheets.  As a result, obtaining information regarding agency spending and grant reporting is extremely cumbersome and time consuming. In addition, the current system lacks methods for enforcing existing regulations regarding reporting certain information. The hope under the DATA Act is that a universal automated system will help to enforce existing requirements.

Non-Profit Industry Impact

How this will impact the non-profit industry is yet to be determined. Some question if implementation of new reporting standards will be a burden. Others feel that once up and running, a more modern system will save organizations a great deal of time and effort automating much of their financial reporting. Bill Co-sponsors, Sen. Mark R. Warner (D-VA), Sen. Rob Portman (R-OH), Rep. Darrell Issa (R-CA) and Rep. Elijah Cummings (D-MD) explained in a Congress blog post published on thehill.com, on December 16, 2013 that a new system would greatly decrease the burden on entities that are awarded taxpayer dollars, such as state and local government agencies, as well as higher education institutions, citing the current system of duplicative forms and reporting. The lawmakers claim that “If this reporting were streamlined, our institutes of higher education and our state and local governments could direct more funding to programs and less to overhead costs.”

While the implementation issues and questions have yet to be answered, most agree that the requirements set forth in this proposed legislation will create greater accountability, accuracy and efficiency in overall government spending and help to tackle the ongoing concern of government waste and fraud.

Jeanne Pagnozzi Boston AccountantJeanne Pagnozzi is a manager in BlumShapiro’s Accounting and Auditing Department, based in Quincy, Massachusetts, Jeanne oversees attest and tax engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects.

Written Acknowledgements for Donors

As a tax-exempt entity, you are provided with the privilege of receiving charitable donations from the general public; however you are also responsible for complying with federal laws applicable to charities and churches that receive such tax-deductible donations.  These rules exist for not-for-profit entities in order to facilitate the strict recordkeeping and substantiation requirements imposed on donors, in order to receive a tax deduction on his/her federal income tax return.

Rules for donors:  A donor must have a bank record or written communication from a charity for any contribution before taking a tax deduction.  A donor is responsible for obtaining a written acknowledgement from a charity for any single donation of $250 or more.  For in-kind donations, the donor is responsible for obtaining/assigning the fair market value of the donated item.

Written Acknowledgements for gifts over $250

While this requirement is technically the donor’s responsibility, the donor may not claim a tax deduction without this written acknowledgement.  Therefore, to best serve its generous supporters, the organization should provide a timely statement containing the following information:

  • Name of Organization
  • Amount of cash contribution
  • Description (but NOT the fair value) of non-cash donations
  • Statement that no goods or services were provided by the organization in return for the contribution (if that is a factual statement)
  • Description and good faith estimate of the value of goods or services, if any, that an organization provided in return for the contribution (commonly referred to as “Quid Pro Quo” – see below)
  • All acknowledgements should be contemporaneous – typically no later than January 31st  of the calendar year following the donation. Best practice would be to provide this acknowledgement within 30 days of receiving the gift.
Written Disclosure for Quid Pro Quo

When a charity provides any goods or services in exchange for a donation, this is partly an exchange transaction and partly a contribution.  A donor may only take a contribution deduction to the extent that the contribution exceeds the fair market value of the goods or services received.  It is the organization’s responsibility to provide the estimated fair market value, which must be in writing if the original payment exceeds $75. Penalties may be assessed if an organization does not meet the written disclosure requirement. The penalty is $10 per contribution, not to exceed $5,000 per fundraising event or mailing.

The written disclosure statement must:

  • Inform the donor that the amount of the contribution that is eligible for deduction for federal income tax purposes is limited to the excess of money (and fair market value of property other than money) contributed by the donor over the value of goods and services provided by the organization.
  • Provide the donor with a good-faith estimate of the fair value of the goods or services provided by the organization.
  • Be in writing and be made in a manner that is likely to come to the attention of the donor.  The statement may be included in the solicitation of the donation or provided along with a receipt of the donation.

There are exceptions for certain “token gifts” and “intangible religious benefits” which are received by the donor in exchange of gifts, in which case written acknowledgements are not required.

Other:

  • Unreimbursed expenses may be another form of contribution, such as out of pocket transportation expenses in order to perform donated services or provided supplies for a program activity.  In this case, the donor must obtain a written acknowledgement from the organization containing the same information listed above for donations over $250, except it also should include a description of the goods or services provided by the donor.
  • Non-cash donations with claimed fair market value greater than $5,000 generally require a qualified appraisal, which is the responsibility of the donor, not the charity.

Jeanne Pagnozzi Boston AccountantJeanne Pagnozzi is a manager in BlumShapiro’s Accounting and Auditing Department, based in Quincy, Massachusetts, Jeanne oversees attest and tax engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects.