Nonprofit Compliance

Just having a good cause for starting a nonprofit organization is not enough. 

A lot of time and effort goes into setting up and running a nonprofit business or organization. Lots of paperwork is involved and legal hoops to jump through. There are numerous details to address when getting started as a nonprofit organization or NGO. 

In fact, even harder than getting set up as a nonprofit 501(c) status and getting incorporated in your state, is the ongoing task of maintaining that status by complying with the law (federal and state). There are many regulatory filings you have to do for both federal and state with many of them on an annual basis. It is extremely important to abide by these governing rules in order to be compliant with state and federal guidelines; and better yet, to remain compliant. 

You may think that all is well with your organization only to find out that things are not so good after all. You could be taken by surprise, and then suddenly find out that you are not compliant with all the IRS regulations. It pays to be well informed. Your organization needs good management that will stay on top of everything. In order to avoid the unexpected, it is important keep up with the status of your organization. In order to be successfully compliance with all the regulations, it is important to keep accurate records of everything.

Why Is It Important to be Compliant?

  • Compliance with the IRS is mandatory for every nonprofit organization. Every year it is important to stay up to date on the tax laws as they could change from year to year.
  • In order to benefit financially from the status of being considered nonprofit for tax purposes, abiding by the guidelines is crucial. The guidelines were put in place to protect the public from those who would abuse this privilege. 
  • Being tax-exempt means you are held to higher standards by the government; and thus, will be observed more closely than an individual would be. 
  • In order to continue receiving access to public funds, it is important to maintain the higher standards that the government holds you to.
  • By taking the risks of being noncompliant, your organization will be subject to penalties; which could hurt your organization.

Penalties of Non-compliance

Becoming a 501(c)(3) nonprofit organization can bring about great financial benefits; but, at the same time, can be very costly in penalties if tax guidelines are not followed.

The right tax form has to be submitted (Form 990 Series). The purpose of this form is to show the income and expenses of the organization. If this form is not completed every year, various penalties can result:

  • Daily fine of $20 a day
  • The 501(c) (3) status will automatically be revoked if the form has not been filed for three years in a row. 
  • Loss of the ability to receive grants and/or large donations
  • States can impose high financial penalties or even dissolve the nonprofit organization.

Form 990 Series

There are a number of forms in this series. Form 990-N is designed for small public charities that take in less than $50,000. The rest of the forms in this series are more detailed (990, 990-EZ, 990-T, or 990-PF). These forms must be filed annually; and besides requiring income and expenses, may require information such as successes of the program, information on the board members and their compliance, operational information, and more.

It is not only important to be compliant with federal regulations, but also state regulations. Most states require nonprofit organizations to register with the Division of Charities before they can solicit donations. If the nonprofit organization operates in multiple states, then they must register in each of those states. Registration must be renewed on an annual basis. Another scenario is if the organization has headquarters in one state, but still does business in other states. This means they must register as a foreign entity and request a Certificate of Authority in those states.

Organizations must also follow each state’s rules regarding the workplace. A corporate annual report must be filed for the state of incorporation, including each state where you have a Certificate of Authority. It is possible that you may have to pay employment tax, workers compensation, and unemployment tax depending on each state’s regulations. Being knowledgeable about each state’s regulations is vital and requires good record-keeping for each state involved.

Compliance Checklist

A checklist can be a handy reference for you and your organization to help maintain your nonprofit status and avoid any oversights that could be detrimental later.

  • Collect all your documents such as financial statements and other important information for your organization and make sure they are all up to date.
  • Make sure your tax exempt status is also up to date.
  • File the appropriate Form 990 Series each year. 
  • Go over your state’s nonprofit requirements and make sure your registration is up to date.
  • Submit your annual filing form to the Corporation Division of the Secretary of State. 
  • Make sure you register and keep a Licensure to Fundraise.
  • File for a business license in your state.
  • Be sure to maintain your tax exemption status at the state level with your state revenue department.
  • Keep all important documents updated.

Important Business Records to Keep

It is very important to keep good accurate records, not only for the IRS, but also for the sake of your donors and volunteers. Hours must be tracked for volunteers and workers. All of the income and expenses must be accounted for as auditors will be looking at everything to make sure everything is legitimate.

  • Contributors Information
  • Grants Received
  • Expenses
  • Grants Written
  • Bank Statements and Cancelled Checks
  • Accrued Expenses and Revenue
  • Tax documents such as IRS Letter of Determination, Form SS4, etc.
  • Previous Tax Records
  • Articles of Incorporation

Advantages to Using Non-Profit Compliance Software and Services

Using this type of software can ultimately save you money in the long run. Non-profit compliant software can eliminate the need for hiring extra workers, as it does a lot of the work for you that workers would have to do manually. This also eliminates the need for added work space for offices. 

Software can organize and store documents online; therefore avoiding the need for filing cabinets, printing costs, postage expenses, and more. Documents can be accessible within a few minutes or even seconds rather than digging through file boxes or filing cabinets, after you determine where it might be filed. One of the benefits of this type of software is that you have more control over the documents that come into and out of the organization. Documents can be shared easier with other co-workers, who have user access, and need the information right away.

Using non-profit compliant software also reduces the time it takes to process paperwork for audit requests and other associated requests. Workers can work with the software in a virtual office, thereby eliminating the need for a physical office.

     One of the really awesome benefits to using this type of software is that it can have built-in auditing capability; which can give you peace of mind, knowing that there will be no surprises later. 

Examples of Software for Nonprofit Organizations

  • ExpressTaxExempt
  • DocuVantage
  • Harbor Compliance
  • Casebook
  • DonorPerfect
  • Aplos
  • CaseWorthy
  • Enview
  • Network for Good
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