There are many nonprofit organizations who are not aware of the whole thing that takes to stay in compliance with the IRS requirements. Later those nonprofits will receive the dreaded “status revoked” letter through the mail. When you are not sure whether your nonprofit organization is in a good position, then this article is a must-read for you.
Why did Nonprofits need to be Compliant?
Nonprofit compliance laws are in place in order to safeguard the public and make sure that nonprofit organizations do not misuse their financial advantages. The eligibility to exempt from state and federal taxes, along with access to public funding makes the nonprofits to be in a high standard by the government. Following the necessary compliances is an important factor for the success and effectiveness of a nonprofit organization.
The Penalties for Noncompliance
The nonprofit organizations 501 (c) (3) get major financial advantages for becoming an incorporation, but they receive serious penalties for not complying and are costly.
In order to stay compliant, the nonprofits need to submit the appropriate tax form in the Form 990 series for their organizations. This form will collect the details about the expenses and income of an organization. When you fail to submit this form annually, it can result in a number of significant penalties, like:
- $ 20 fine per day.
- Automatic revocation of 501 (c) (3) status when the form is not filed for 3 consecutive years.
- Can dissolve a nonprofit corporation administratively and impose heavy penalties. Those organizations will be prevented from getting grants or large donations.
Nonprofit Compliance Checklist
To avoid revocation of tax-exempt status of your organization or noncompliance penalties from the IRS, certain things must be taken care of the organization annually.
The checklist you require to ensure the nonprofit is compliant with the IRS every year. Save this checklist for your reference:
- Gather all the records of your organization (organization information, financial records)
- Update that gathered information anytime during the tax year.
- Check whether the tax-exempt status is up to date.
- File 990 form series for your organization annually.
- State Nonprofit requirements need to be reviewed and check whether the registration is updated.
- Annual Filing form has to be submitted to the Corporation Division of the Secretary of the state depending on the state, filing requirements can differ. Contact the state for more details.
- File for state business license.
- Maintain a state-level tax exemption for the state revenue department.
- Register and maintain a license for raising funds.
- Keep the records complete and accurate.
- Some instances of records to keep include Expenses, Contributions Information, grants written and received, Bank statements, Accrued Expenses and Revenue, Form SS4, IRS letter of determination and Articles of incorporation.
- Conduct a leadership meeting at the end of each term.
If you are the well-established nonprofit organization or when thinking to start an organization, maintaining compliance with the IRS requires a lot of hard work and time. Ultimately the reward for your organization and work comes from your experience and work, importantly do not think about losing your tax exempt status of the organization.