On December 22, 2017, Pennsylvania Governor Tom Wolf signed into law House Bill No. 1420, which changes the landscape for charitable organizations when registering with Pennsylvania's Bureau of Corporations and Charitable Organizations.
House Bill No. 1420 revises the thresholds that charitable organizations must follow when determining whether an audit, a review, a compilation, or an internally-prepared financial statement is required to be attached to the annual state registration filing. The changes within House Bill No. 1420 bring the Pennsylvania requirements more in line with the current Federal OMB Single Audit requirements, and reduce the unbalanced financial impact on smaller charitable organizations.
Under current Pennsylvania law, a charitable organization with gross annual contributions of $300,000 or more must file an audited financial statement prepared by an independent CPA. A charitable organization with gross annual contributions of less than $300,000 and at least $100,000 must file a financial statement that is reviewed or audited by an independent CPA, while a charitable organization with gross annual contributions less than $100,000 and at least $50,000 must file compiled, reviewed, or audited financial statements prepared by an independent CPA.
House Bill No. 1420 increases these thresholds and requires a charitable organization with gross annual contributions of $750,000 or more to file audited financial statements prepared by an independent CPA. A charitable organization with gross annual contributions of at least $250,000, but less than $750,000 must file reviewed or audited financial statements prepared by an independent CPA, while a charitable organization with gross annual contributions of at least $100,000 but less than $250,000 must file compiled, reviewed, or audited financial statements prepared by an independent CPA. A compilation, review, or audit is optional for any charitable organization with less than $100,000 in gross annual contributions. The option to use "internally prepared financial statements" as an attachment for charitable organizations with less than $100,000 in gross annual contribution is not specifically mentioned in House Bill No. 1420; however, it is expected to be an option as it was previously available for charitable organizations with less than $50,000 in gross annual contributions.
Gross annual contributions, as currently defined in the instructions to Form BCO-10, are "total national contributions from all sources based on the organization's immediate preceding fiscal year end. They are not just contributions received from Pennsylvania. To determine "gross annual contributions," add Part VIII lines 1a, 1b, 1c, 1d, 1f, 8a and 9a from the organization's IRS 990 return or see line 6 from the BCO-23 Form, if not required to file a 990. If the organization filed a 990 EZ, add lines 1, 6a and 6b, and subtract any government grants."
House Bill No. 1420 will be effective as of February 20, 2018, 60 days from the Governor's signature. As of the release of this Tax Alert, the Pennsylvania Department of State has not formalized the actual implementation plan; however, it is believed that the new rules will be applied to any filings received after February 20, 2018. House Bill No. 1420 also does not mention any change in the minimum gross contribution amount that would require a charitable organization to file. A formal decision on both items is expected in early February.
The full text of House Bill No. 1420 can be found here.
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If you have any questions regarding this topic or would like to discuss how it may impact your organization, please contact Christopher M. Pekula at Email or 215-734-0865.
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