If you’ve formed a nonprofit, you’ll want to know the filings required to maintain your nonprofit corporation and federal tax-exempt status. This information serves as a general guide to what it takes to maintain compliance for your 501(c) nonprofit, although it may not be exhaustive or applicable to all nonprofits.
Nonprofits are held to a high standard of government regulation and public scrutiny. This is for good reason, as 501(c) nonprofits are exempt from federal corporate taxes and have access to public funding. These benefits are not typically available to for-profit businesses, so laws are in place to protect the public and ensure nonprofits do not abuse their financial privileges. States and the IRS have ongoing requirements that nonprofits must meet.
Importance of Compliance
While a 501(c) nonprofit receives key financial benefits, the penalties for failing to meet government requirements can be very serious. The IRS can revoke a nonprofit’s tax exemption and impose fines that can accrue daily. A state can administratively dissolve a nonprofit corporation and levy steep financial penalties. Outside of state and federal requirements, an organization can lose out on a grant or large donation as a result of not keeping itself in good standing. A proactive approach to compliance helps ensure sustained success and the cost is small in comparison to the much larger costs of citations and penalties.
Key Aspects of Compliance
The IRS provides tax exemptions to eligible nonprofits under Internal Revenue Code 501(c). Public charities and private foundations receive 501(c)(3) tax exemption. The IRS scrutinizes organizations when they apply for 501(c)(3) status, but also ensure that those organizations meet the ongoing obligations to remain eligible. Nonprofits must file a 990 tax form each year with the IRS to disclose their financial data for the year.
Each state has their own set of requirements. The state in which a nonprofit has incorporated will impose requirements on the nonprofit and those responsibilities may span across multiple state agencies. Such responsibilities may include:
- Maintaining a registered agent
- Filing an annual report
- Maintaining charitable solicitation or fundraising registration
- Filing a corporate tax return
- Maintaining state-level tax exemption
As nonprofits expand outside of their state of incorporation or begin to operate nationwide, they must meet the requirements of other states as well.
It’s important for nonprofits to keep adequate and complete records. This will prove critical when board members or donors request information, when applying for funding, or in the event of an audit. These records are also necessary for submitting applications and renewal filings with various government agencies.
Compliance lays a strong foundation for your nonprofit’s success, letting you make plans and fulfill them with confidence. It builds trust with potential donors and safeguards your reputation. Most importantly, it gives you peace of mind so you can focus on fulfilling your mission and maximizing your impact.
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