Municipalities Articles
1099 Reporting Changes, Again
By: Chris Coldiron, CPA, Tax Manager | email
As you may have heard, H.R. 4, the “Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011” repealed all new 1099 reporting requirements that were set to take effect January 1, 2012. The Act was signed into law by President Obama on April 15th. Basically, 1099 reporting requirements will continue to be the same as they’ve always been. This change will significantly decrease the compliance burden small businesses were anticipating. However, this recent change does not do away with the requirement that payers obtain and retain a form W-9, Request for Taxpayer Identification Number and Certification, for all payees. This requirement applies even to governmental agencies and corporations, although these entities are typically exempt from the 1099 reporting requirement. Absent obtaining a W-9 that either documents an exemption to the 1099 reporting requirement or provides the necessary information for that reporting, backup withholding at a rate of 28% is mandatory.
Recent Tax Legislation Changes for 2011 and 2012
By: Chris Coldiron, CPA, Tax Manager | email
In addition to the changes made for Bonus Depreciation and 1099 reporting, several other items of interest were changed by the recent legislation for 2011 and 2012:
- Section 179 expense limits have been changed. For 2011, the maximum expense is $500,000, and the maximum amount of property that may be placed in service before the deduction becomes limited is $2,000,000. For 2012, those figures are reduced to $125,000 and $500,000, respectively.
- A payroll tax “holiday” was added for 2011 only. Employees will see their FICA tax reduced by 2% to 4.2%. Self-employed individuals will enjoy the same reduction, with their FICA rate set at 10.4%.
- The maximum tax bracket for individuals, as well as corporations, will remain at 35% for 2011 and 2012.
- The maximum individual capital gain tax rate of 15% remains in effect for both years, as does the application of this rate to “qualified dividends.” These preferential rates will not be “phased out” for higher income individuals as was reported in the popular press prior to enactment of the law. As the market continues to improve and profitable corporations begin issuing dividends, this change should result in substantial tax savings to many taxpayers.
- Itemized deductions and personal exemptions will not be subject to phase-out for high-income individuals through 2012.
- Individuals will be able to continue using nonrefundable personal credits to offset Alternative Minimum Tax for 2011.
- The standard mileage rate, used in lieu of actual expenses and depreciation, has been set at $.51 per mile for 2011.
- Under the new legislation, executors for decedents dying in 2010 have two options:
1. Apply the 2010 rules that were in effect at the decedent’s time of death.
2. Apply the new 2011 rules retroactively.
Most executors will find the election to retroactively apply 2011 rules beneficial as the gift and estate taxes have again been unified in 2011 and 2012 with a $5 million exclusion equivalent. In English, that means the estates of decedents dying from 2010 – 2012 will be able to enjoy the traditional “step-up” in basis of all estate assets, with the first $5 million exempt from tax. It also means that gifts up to this amount will also be exempt from tax. This $5 million will be inflation-adjusted for 2012.
GASB 54 Fund Classifications
By: Janis Slater, CPA, Manager | email
It is important to review the new Governmental Accounting Standards Board Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions, that was issued March 30th, 2009. GASB 54 significantly changed the requirements for reporting fund balances for governmental funds. The new statement clarifies the definitions of individual governmental funds and may change the activities reported in a government’s special revenue fund.
Beginning in fiscal year ending June 30, 2011, governments are required to separately identify amounts that are non-spendable. All other amounts will be classified according to resource constraints. The new classifications are as follows:
Non-spendable Fund Balance – Amounts that are not in spendable form, such as inventory, prepaid amounts and long term receivables, and those that legally or contractually must be kept intact, such as the principal of endowments or revolving loan funds.
Restricted Fund Balance – Amounts that can be used only for specific purposes due to constitutional provisions, enabling legislation or externally imposed constraints, such as restrictions imposed by creditors, grantors or other governments.
Committed Fund Balance – Amounts that can only be used for specific purposes because of a formal action by the government’s highest decision making authority. These constraints are binding unless removed in the same manner in which they were originally committed.
Assigned Fund Balance – Amounts intended for specific purposes but not restricted or committed. The assigned fund balance can never be in excess of the total fund balance less the non-spendable, restricted and committed components of fund balance. Ultimately, this is the residual fund balance for all funds other than General Fund.
Unassigned Fund Balance – The residual classification for the General Fund, the only governmental fund that can report a positive unassigned fund balance. Other funds might have a negative unassigned fund balance due to overspending restricted, committed or assigned amounts. Not all components will always be present in each fund.
This overview of the requirements of GASB Statement 54 is to remind governments of the requirements which are now in effect. Governments will have to restate existing fund balances to conform to the new requirements. Governmental officials need to be educated about the new classifications and disclosures, and it may be necessary to alert third parties about any changes which could affect debt covenants or other requirements.
If more information is needed or if you have questions, feel free to call our Charles City office at 641-228-7096.
An Important W-9 Rule Every Business Must Follow
By: Charles L. Telk Jr., CPA, Senior Tax Adviser | email
We would like to remind our clients of the importance of the new W-9 rules set into effect by recent tax legislation. We cannot stress enough that your attention to this new rule is crucial.
RULE: It is the responsibility of every person, business or entity to have a signed, legible copy of form W-9 on hand for every person, business or entity that it issues a check to. This includes all cooperative members as well. This means that any non-employee you issue money to needs to fill out a W-9 for you to keep on record, regardless of the amount of money you issue them or the number of times in a year that you do so. Yes, that means you could have a lot more W-9 forms to deal with. Unfortunately, there are no exceptions.
Form W-9 is the non-employee equivalent of form W-4. The information contained on a W-9 form for each person, business or entity is used to determine if you will need to file a 1099 form for them.
PENALTY: Even if you think you won’t need to issue a 1099 to a certain person, business or entity, you are still required to have their completed and signed W-9 on file. If you don’t, you run the risk of the IRS disallowing your related tax deductions, and assessing you taxes, penalties and interest.
You should review your contractor, vendor and member files to make certain that you have a signed, legible form W-9 on file for each of them. If any W-9 forms are missing, you need to obtain them. Have your contractors, vendors and members fill them out now.
As we discussed in prior newsletters, there is no valid excuse for a vendor to not provide a signed W-9 form. Should you have any questions regarding this issue or any others, please call us so we can help.
Red Flags Rule… Finally.
By: Gardiner Thomsen CPAs | email
The red flags rule may actually go into affect on December 31, 2010. The Rule was originally supposed to become effective on January 1, 2008, with full compliance required by November 1, 2008. The FTC or Congress has delayed enforcing the Rule a couple of times in the last two years.
The Red Flags Rule was developed under the Fair and Accurate Credit Transactions Act, in which Congress directed the Federal Trade Commission (FTC) and other agencies to develop regulations requiring creditors and financial institutions to address the risk of identity theft. The resulting Rule requires all such entities that have “covered accounts” to develop and implement written identity theft prevention programs to help identify, detect and respond to patterns, practices, or specific activities – known as “red flags” – that could indicate identity theft.
By focusing on red flags now, you’ll be better able to spot an imposter using someone else’s identity to get products or services from you. As a practical matter, the Rule applies to you if you provide products or services and bill customers later.
You can find guidance at www.ftc.gov/redflagsrule. At this website you can find a “How-to Guide for Businesses” and a Do-It-Yourself Prevention Program for Businesses and Organizations at Low Risk for Identity Theft.
Red Flags Rule Enforcement Extended
By: Gardiner Thomsen CPAs | email
The Federal Trade Commission (FTC) has issued regulations known as the “Red Flags Rule” requiring certain entities such as creditors and financial institutions to develop and implement a written Identity Theft Prevention Program. Municipal utilities and governmental entities that defer payment for goods or services are considered creditors for these purposes.
The program should include policies and procedures to identify, detect and respond to patterns, practices or specific activities that indicate the warning signs or “red flags” of potential identity theft in day-to-day operations. It should also state how to mitigate the risks of identity theft and evaluate the program to address new risks. The program must be approved by the governing body, and should include information about training staff and monitoring the work of the entity’s service providers. All members of the entity’s staff must be familiar with the Red Flags Rule and compliance procedures.
Enforcement of the rule has now been extended to December 31, 2010, while Congress considers legislation that would affect the scope of the included entities.
A handbook on developing an Identity Theft Prevention Program and information about compliance is available at http://ftc.gov/redflagsrule. A fill-in-the-blank form for businesses and organizations at low risk for identity theft is available at http://ftc.gov/redflagsrule and offers step-by-step instructions for creating a written Identity Theft Prevention Program. The form can be filled out online and printed.
If you have any questions about the Red Flags Rule or would like further assistance on developing an Identity Theft Prevention Program, please contact us, we would be happy to help.
Update on GASB No. 54
By: Gardiner Thomsen CPAs | email
In March of 2009, the Governmental Accounting Standards Board (GASB) issued Statement No. 54, significantly changing the requirements for reporting governmental funds balances beginning in fiscal year ending June 30, 2011. The new statement clarifies the definitions of individual governmental funds and changes some of the activities reported in certain special revenue funds.
This overview of these requirements may seem well in advance of the implementation date, but we feel it is important to address this now. If entities apply the requirements of Statement 54 to their beginning balances for fiscal 2011, (more importantly, to their ending balances for fiscal 2010), implementation would only require tracking increases and decreases during the year to each category, rather than “backing into it” at the end of fiscal 2011. Governments will have to restate existing fund balances to conform to the new requirements. Officials need to be educated about the new classifications and disclosures, and it may be necessary for government officials to alert third parties about changes which could affect debt covenants or other requirements.
If you would like further information on GASB No. 54, including a complete list of the aforementioned governmental funds and their new definitions, please contact us.
GASB No.54
By: Janis Slater, CPA, Manager | email
The Governmental Accounting Standards Board recently issued Statement No.54, which will significantly change reporting requirements for governmental fund balances. The new statement clarifies the definitions of individual funds and may change the activities reported in a government’s special revenue funds.
Beginning in fiscal year ending June 30, 2011, governments will separately identify amounts that are nonspendable. The new classifications are: Nonspendable Funds– amounts that are not in spendable form, or legally or contractually must be kept intact; Restricted Funds– amounts used for specific purposes due to constitutional provisions, enabling legislation or externally imposed constraints; Committed Funds– amounts used for specific purposes because of a formal action by the government’s authority, which may include contractual obligations if existing resources have been committed; Assigned Funds– amounts intended for specific purposes but not restricted or committed; Unassigned Funds– the residual classification for the General Fund, the only fund that can report a positive unassigned fund balance. Other funds might have a negative unassigned fund balance due to overspending restricted, committed or assigned amounts.
GASB No.54 establishes new presentation and disclosure requirements. The fund balances on the balance sheet may be separately displayed or aggregated. If aggregated, the notes need to disclose details for the aggregated amounts. New disclosure requirements include classification policies and procedures, minimum fund balance policy, encumbrances and major special revenue funds.
GASB No.54 has changed the definitions of the individual governmental funds to provide clarity about which resources can or should be reported in different funds and improve the comparability of financial statements. The funds affected by the change are the General Fund, Special Revenue Funds, Capital Projects Funds, Debt Service Fund and Permanent Funds.
This brief overview of GASB No.54 is well in advance of the implementation date, but we feel it is important to make you aware of the requirements. Governments will have to restate existing fund balances to conform to the new requirements. Officials need to be educated about the new classifications and disclosures, and it may be necessary for government officials to alert third parties about changes that could affect debt covenants or other requirements. If you would like further information regarding GASB No.54, please contact us. We’d be happy to help.
Red Flags Rule
By: Dennis Gardiner, Partner | email
The Federal Trade Commission (FTC) has issued regulations known as the “Red Flags Rule” requiring certain entities to develop and implement a written Identity Theft Prevention Program. The purpose of the program is to assist the entity in identifying the red flags that indicate identity theft.
The Fair and Accurate Credit Transactions Act of 2003 requires creditors and financial institutions with covered accounts to implement programs to identify, detect, and respond to patterns, practices or specific activities that could indicate identity theft. The definition of a creditor applies to any entity that regularly extends or renews credit, or arranges for others to do so, and includes all entities that regularly permit deferred payments for goods and services. Municipal utilities and governmental entities that defer payment for goods or services are considered creditors for these purposes.
The Rule defines a covered account as a consumer account that allows multiple payments or any other account with a reasonably foreseeable risk of identity theft. An entity that regularly bills customers after services are provided is considered a creditor under the Red Flags Rule, and is required to develop a written Identity Theft Prevention Program.
The Identity Theft Prevention Program should include policies and procedures to identify the warning signs or “red flags” of identity theft in day-to-day operations, which are suspicious patterns or practices or specific activities that indicate the possibility of identity theft. The program should be designed to detect the red flags identified, state the appropriate actions to mitigate the risks of identity theft and address how the entity will periodically evaluate the program to address new identified risks. The Program must be approved by the governing body, and should include information about training staff and monitoring the work of the government’s service providers. Most important is that all members of the entity’s staff are familiar with the Red Flags Rule and the compliance procedures.
Enforcement of the rule has been extended to November 1, 2009 to give additional time for developing and implementing written identity theft prevention programs. There are no criminal penalties for failure to comply, however violators may be subject to financial penalties. In addition, compliance assures the entity’s customers that they are doing their part to fight identity theft.
A handbook on developing an Identity Theft Prevention Program and information about compliance is available at http://ftc.gov/redflagsrule as well as a fill-in-the-blank form for businesses and organizations at low risk for identity theft. The form can be filled out online and printed. Please contact us if you have any questions; we will be more than happy to help you.
Impact of Stimulus Funds on Single Audit
By: Dennis Gardiner, Partner | email
About half of the $770 billion of the economic stimulus funds will be received by governmental bodies and not-for-profit organizations as grant funds, requiring these entities to have single audits performed on the Federal programs. Along with these funds come unprecedented transparency and accountability requirements. The objective of these additional requirements is to let Americans know where their tax dollars are going and how they are spent.
The new requirements will impact all levels of the grant process including federal agencies, recipients and sub-recipients, and independent auditors. Federal grantor agencies will provide technical assistance to the auditing profession. In addition, high-risk programs will be targeted for priority audits, inspections and investigations. Quality control reviews will ensure that single audits are properly performed, and that improper payments and other noncompliance are fully reported. Follow-up reviews of audit quality, with an emphasis on Recovery Act funds, will be available on www.recovery.gov, which serves as a public source of information on recovery funds.
The normal reporting processes will be followed for all Federal funds when a single audit is required, however Recovery Act funds will be identified separately on each and every report and must be tracked separately from the initial receipt by the recipient. These are not new federal programs, they’re existing programs with new compliance requirements. Recipients are also required to separately identify Recovery Act funds to each subrecipient at the time of the subaward and each time the funds are disbursed.
Grant recipients will be required to report certain information to the Federal awarding agency within 10 days after the end of each quarter: the total amount of Recovery Act funds received, the amount expended, the name and a description of each project for which funds were spent, the completion status, number of jobs created and retained, subcontracts and pass-through grants awarded by the recipients, and finally, the purpose, cost and rationale for infrastructure investments.
Internal controls over compliance are always tested on a single audit, but with additional funding, officials are concerned that a recipient’s internal controls may not be able to cope. Normally, single audit findings are not reported until nine months after year end, so any control deficiencies won’t be corrected before increased funding is released.
The unprecedented transparencies and accountability requirements come with a price tag for recipients and their independent auditors. With the increased audit considerations, we expect the amount of work we do on single audits, and accordingly, the cost of a single audit, to increase significantly. Federal funding may become the largest source of revenue for local governments, possibly more than property tax. For some grant recipients, Recovery Act funds will have to be audited as major programs for the fiscal year ending June 30, 2009. We anticipate even more for fiscal year 2010.