AB 1181: The Ever-Changing World of Nonprofit Reporting Standards

Staying on top of your nonprofit’s reporting, documentation, and administrative paperwork can feel a little challenging at the best of times. When the state of California introduces changes and updates to the process, it can become truly overwhelming.

When the state Assembly passed AB 1181, a bill which would change how nonprofits report non-cash donations, you may have begun to worry about the possibility of yet more change. So, before the panic sets in too much, let’s take a look at exactly what the proposed legislation might mean for your organization:

Understanding AB 1181

The overarching aim of AB 1181 is to make nonprofit reporting more transparent. More specifically, the bill intends to change the accepted standards for valuing non-cash or in-kind donations. It was originally borne out of a belief that many charities were overvaluing their donations and artificially boosting their revenues in a bid to make their administrative costs appear comparatively smaller.

A typical example of the overvaluation issue that AB 1181 aims to solve might look a little something like this:

A pharmaceutical company donates 10,000 pills to a California nonprofit but stipulates that the organization cannot distribute them in the United States. The charitable organization then distributes these pills in a foreign country. In the United States, the pills usually sell to the public for $50 per pill, while they only retail for $1 per pill in the foreign country. In its reporting, the nonprofit uses the U.S. selling price in its calculations and claims that the total value of the donation was $500,000. Had they used the foreign selling price, the value would have been just $10,000.

The California Attorney General, Xavier Becerra, argues that if donations such as these are specifically designated for use outside of the United States, “the charity should not be valuing their pharmaceutical gifts-in-kind using U.S. prices.” Instead, they should be using the local valuation of the country in which they are distributed.

In considering whether or not you should be concerned about AB 1181, there are a few important things you should note:

  • It does not affect goods which are not specifically restricted by the donor to be used outside of the United States.
  • It does not affect how volunteer time should be reported – either inside or outside of the United States.
  • At the time of writing, the bill is still in the State Senate and has not been signed into law.

The Importance of Accurate Reporting

The very existence of AB 1181 shows that the state of California is keen to ensure that charitable organizations are not playing fast and loose with their obligations. Even if your nonprofit is not likely to be impacted in any way by the passage of this bill, it should serve as a stark reminder of the importance of being accurate and honest in all of your filings. The penalties for failing to do so can range from fines to lawsuits to legislation such as AB 1181.

Semanchik Law Group

If you need help making sure that your nonprofit’s reporting is fully compliant with the law, the Semanchik Law Group can help. Read more about Semanchik Law Group’s nonprofit offerings on our website.  To set up an initial consultation, just give us a call at (619) 535-1811.