Making sure that your nonprofit organization is compliant might seem like a snooze fest, however, compliance is super important. It just takes a little research to make sure that you are operating at a high level of accountability and transparency. Tax exempt status, fundraising and reporting can all be very complicated and we are here to help. Read below as we cover a few items that will keep your nonprofit compliant and running full steam ahead.
Tax Exempt Status
Tax-exempt status from the IRS refers to state and federal tax exemptions under tax regulations. This means that your organization will not be taxed on income related to the mission or purposes for which the group was organized. Organizations can be taxed on other income, which is called unrelated business income. For example, the income generated by a thrift store located within a homeless shelter could be taxed. State law differs on what organizations pay for sales tax and other items so it’s always a good idea to meet with a local tax professional.
Register with the State
There are a number of state filing requirements for nonprofit organizations. State law varies from state to state but most require you to periodically confirm your contact information, mailing address, name of persons responsible and the registered agent. If the organization has employees there may be forms to file with the Department of Labor. You also may need to apply for sales/use or property tax exemptions from the state.
The National Association of State Charity Officials has a website with the agency to contact in each of the 50 states.
The majority of states require people soliciting donations to register with the state and report on fundraising efforts. Many require an annual renewal of your registration and details about your fundraising for the year. Many states ask that you register before actually asking for donations or fundraising. Also, depending on the scope of your fundraising activities, you may need to register with multiple states. Failure to register can cause fees, and civil or criminal penalties.
Donation Receipt Requirements
A donor should be receipted for any single contribution of $250 or more. They must have written acknowledgement from a charity for their gift before claiming it on his or her income tax return. Donations involving a motor vehicle, boat or airplane that has a value that exceeds $500 are handled differently, please see IRS Publication 4302 for more information.
A donation receipt should include:
-The Organization’s name, address and phone number
-The Date of Receipt
-The Donor’s Name
-Description of Cash or Check Donation
-Amount of Contribution
-Signed as Received By
-A notice that states that no goods or services were provided in return for this gift.
Raffles, Games of Chance and Charity Auctions
Some states allow nonprofits to fund raise through raffles, bingo, auctions and other games like casino nights, and some states do not. These are heavily regulated activities and it is very important that you know all the rules before fundraising in this way. Let’s not forget bingo, as the IRS has special rules for bingo.
Income may be viewed as unrelated business income and can be taxed so make sure and check with your state official. Furthermore, a nonprofit may also be subject to gaming excise taxes. Some states dictate how raffling or gaming proceeds can be used, or they may be required to be saved in a separate account so make sure to do your research.
Compliance might not be a fun sounding word but the words criminal penalty sound a lot worse. Take some time to do your research and your nonprofit organization is sure to be a success!
Cullaine Law Council of Nonprofits Nonprofit Expert