November 20, 2024
Massachusetts Eases Nonprofit Financial Reporting with Economic Development Bill
Massachusetts’ Economic Development Bill (H.5100), signed into law on November 20, 2024, and effective immediately, updates financial reporting for public charities. The bill raises the audit threshold from $500,000 to $1,000,000 in gross support and revenue, requiring only a reviewed financial statement for nonprofits with revenue between $500,000 and $1,000,000. The review threshold increases from $200,000 to $500,000, exempting smaller nonprofits from reviews. These changes, retroactively applicable to pending Form PC filings, reduce compliance costs. Nonprofits can also pay board members up to $500 annually without losing liability protections.
Review the Economic Development Bill here
Key Provisions of the Financial Reporting Changes
The Economic Development Bill (H.5100) significantly revises the financial statement review and audit thresholds for nonprofits and public charities based on gross support and revenue (total contributions, grants, program service revenue, and other income). The key provisions are:
Review Threshold Increase:
- Previous Requirement: Nonprofits with gross support and revenue exceeding $200,000 but not more than $500,000 in a fiscal year were required to submit reviewed financial statements prepared by an independent certified public accountant (CPA) in accordance with generally accepted accounting principles (GAAP).
- New Requirement: The review threshold is increased to $500,000. Nonprofits with gross support and revenue of $500,000 or more but less than $1,000,000 must now submit reviewed financial statements within 9 months of the fiscal year-end (or 30 days after the CPA’s report is issued, whichever is earlier).
- Impact: Organizations with gross support and revenue between $200,000 and $500,000 are now exempt from the review requirement, significantly reducing compliance costs for smaller nonprofits.
Audit Threshold Increase:
- Previous Requirement: Nonprofits with gross support and revenue exceeding $500,000 were required to submit audited financial statements prepared by an independent CPA in accordance with GAAP.
- New Requirement: The audit threshold is increased to $1,000,000. Nonprofits with gross support and revenue of $1,000,000 or more must submit audited financial statements within 9 months of the fiscal year-end (or 30 days after the CPA’s report is issued).
- Impact: Nonprofits with gross support and revenue between $500,000 and $1,000,000 now require only a reviewed financial statement instead of a full audit, saving significant time and resources.
Retroactive Applicability:
- The new thresholds apply to any outstanding or pending Massachusetts Form PC filings, including those for prior fiscal or calendar years not yet submitted to the Attorney General’s Office. This means nonprofits with pending filings can benefit from the higher thresholds immediately.
- Example: An organization with a fiscal year ending June 30, 2024, and gross revenue of $600,000, which has not yet filed its Form PC, would now need only a reviewed financial statement instead of an audit.
Additional Context:
- Definition of Gross Support and Revenue: Includes all contributions, grants, program service revenue, investment income, and other revenue, consistent with IRS Form 990 reporting.
- Exemptions: Nonprofits with gross support and revenue of $25,000 or less (increased from $5,000 in collaboration with the Attorney General’s Office) may be exempt from filing Form PC, though they must still comply if registered.massnonprofitnet.org
- Other Filing Requirements: Nonprofits must continue to file the Annual Report (Form PC) with the Massachusetts Attorney General’s Non-Profit Organizations/Public Charities Division, along with IRS Form 990 (or 990-EZ/990-N) and applicable financial statements, by November 1 each year for corporations organized in Massachusetts or within 9 months of fiscal year-end for others.
Other Nonprofit-Related Provisions in H.5100
- Board Member Stipends: Nonprofit board members may now receive a stipend of up to $500 per year without losing statutory civil liability protections, encouraging diverse board participation.massnonprofitnet.org
- Purpose: The changes aim to reduce administrative and financial burdens on smaller and mid-sized nonprofits, allowing them to allocate more resources to their missions while maintaining accountability for larger organizations through audits.