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Businesses and nonprofits are already familiar with the current requirement to use Form 1099-MISC to report payments to independent contractors for services, commissions, and fees of $600 or more during the calendar year. With few exceptions, the reporting rules do not apply if the recipient is a corporation. The total amount paid during the calendar year, plus the name, address and taxpayer ID number of the payee must all be reported on the 1099 form. Often, the payer does not obtain the required information at the time payment is made, and contacting the payee for this information after the end of the year is frequently difficult, if not impossible. If the payer fails to issue a proper Form 1099, the IRS can assess a $50 penalty for each failure.
Beginning in 2012, the recently enacted 2010 Patient Protection and Affordable Care Act will require businesses and nonprofits to add corporations to the list of those who must receive 1099s for providing property and services. The $600 calendar year threshold still applies. For example, an organization that purchased $2,506 in office supplies from Office Max during the year would be required to issue a Form 1099-MISC. For many businesses and organizations, issuing the required number of 1099s may well feel overwhelming. To ease the end of year burden, information gathering should be performed at the time of the first purchase. Current accounting systems may not be set up to collect this data or facilitate retrieval of the data in an efficient manner.
Generally, an organization filing more than 250 information, tax return, or other reports to the IRS is required to transmit these electronically. The increased number of 1099s required by the new law could trigger an electronic filing requirement for all documents sent to the IRS.
Many organizations have voiced stiff opposition to the new law and are working toward its repeal before it becomes effective in 2012. At the time of this article, legislation has been introduced in both houses to either repeal or modify the new reporting requirements.
Thinking about next year may be difficult when you’re still trying to close out your books for this year. However, you may want to start thinking about a new standard issued by the Governmental Accounting Standards Board (GASB). GASB Statement No. 54, entitled “Fund Balance Reporting and Governmental Fund Type Definitions,” is effective for financial statements for periods beginning after June 15, 2010. The purpose of GASB No. 54 is to clarify the existing governmental fund type definitions and enhance the usefulness of fund balance information by providing clearer and more consistently applied fund balance classifications. Under this new standard, fund balances will be displayed using the following classifications:
Additional disclosures about the purposes of restrictions, commitments, and assignments are required for financial reporting if this detail is not met through display on the face of the balance sheet. The following disclosures regarding fund balance classification policies should be included in the notes to the financial statements:
GASB No. 54 also provides guidance on classifying stabilization amounts and clarifies the definitions of governmental fund types. Interpretations of certain terms within the definition of the special revenue fund type have been provided and those interpretations may affect the activities you choose to report in those funds.
Statement No. 54 is effective for financial statements for periods beginning after June 15, 2010, so it’s important to start thinking about each of your revenue sources and spending policies for fiscal year 2011. Fund balance reclassifications made to conform to provisions of this statement should be applied retroactively by restating the fund balance for all prior periods presented.
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