This Running your nonprofit’s fundraising and mission driven activities requires a lot of time, organization, and cooperation. However, there are many behind-the-scenes activities for nonprofits to maintain their state and federal registrations. It can be difficult to keep track of what registrations or forms you need to keep up with the government’s nonprofit compliance requirements.
Don’t get bogged down by nonprofit compliance research, when you could be putting in work for your cause. You can spend more of your precious time working on your fundraising strategy and less on worrying about your legal paperwork when you have an idea of what’s required.
This article is by no means an exhaustive list, but it should give you the lay of the land. Consulting with nonprofit attorneys, compliance experts, and accountants will always be your best bet for complete coverage and protection.
Let’s dive into an overview of the best practices for nonprofit legal compliance!
Check in with Different areas of your business
Qualifying as a tax-exempt or charitable organization, doesn’t mean you’re exempt from any government oversight. According to Labyrinth’s nonprofit compliance guide, there is a broad range of documentation required for nonprofit legal compliance for nonprofits including such as organization registration, operations documentation, and financial forms. Follow along to learn how to integrate legal compliance record keeping into your nonprofit’s yearly activities.
Register Your Nonprofit
Registering your organization as a 501(c)3 charitable organization under the federal government is the first step to tax exemption and operating your nonprofit. Filing a Form 1023 to apply for registration as a 501(c)3 is relatively simple but does require some attention to detail.
The purpose of Form 1023 is to demonstrate the credibility of your nonprofit and establish your mission as an organization. Follow Crowd 101’s six steps to complete your Form 1023:
- File Articles of Incorporation. Before you can register as a tax-exempt nonprofit, you must first be incorporated as a nonprofit. Submit contact information for your nonprofit and your intent to operate as a charitable organization.
- Create a board of directors. The IRS commonly denies nonprofit registrations that have too few members or if the board of directors are too closely related. Try forming a board with people who care about your cause, and leave friends and family as supporters.
- Form bylaws and documentation. Describe how your nonprofit will operate on a day-to-day basis. Be sure to include a detailed conflict of interest section describing how you will avoid corruption.
- Apply for an Employer Identification Number. Apply over the phone or online for an EIN by completing a Form SS-4.
- Complete Form 1023. File within 27 months of the date of incorporation and pay a $400 fee, and then wait for your registration status.
- Be proactive about state compliance. Be sure to file the appropriate documents to states you’ll be soliciting donations in and where your employees will be working.
You don’t have to wait to hear back about your registration status before taking the next step in your nonprofit legal compliance. Keep track of your finances and fundraising activities so you can fulfill your secondary paperwork.
State Registration
Your 501(c)3 tax exemption status is recognized by the federal government, however, before you start any solicitations from donors, you must register with every state in which you will receive donors. This process, referred to as charitable solicitation registration, is commonly carried out with states’ Attorney General or Secretary of State Office.
Although your federal 501(c)3 tax-exempt status does not not require an annual Form 1023 submission, you will have to register with states for charitable solicitation on an annual basis.
Register Your Fundraising Events
Once you’ve registered to fundraise in the applicable states, you’ll be permitted to solicit residents in those states. However, state regulations aren’t limited to only solicitation. There are other aspects of certain fundraising activities that have restrictions or required licenses.
Here are some aspects of fundraising to watch out for:
- Online fundraising. Because online fundraising can spread so widely, be sure you’ve registered in every state you anticipate reaching, or be clear in your marketing materials that you cannot accept donations from specific states.
- Email marketing. Be sure that you request permission prior to sending any email to avoid fines and to comply with donor privacy laws. Take care to follow EU online privacy laws if any email receipts or donors are EU residents.
- Games of chance licenses. Most states have specific laws around charity auctions, raffles, casino nights, and any games of chance at events. Money donated toward these activities is not tax-deductible.
- Alcohol at events. To serve alcohol at any event, you are required to have an alcohol permit.
Don’t let legal requirements put a damper on your fundraising plans. Now that you have key fundraising laws in mind, you’ll be able to plan your next event with smashing success and full legal compliance.
For larger, more national spread out nonprofits, it can be difficult to centrally plan local and chapter-based fundraisers. Hiring fundraising professionals can help return your ROI and create lucrative fundraising opportunities.
Additionally, take careful note of the funds spent and earned during each fundraises to maintain accurate financial records. Moderate and small organizations can often have a trusted, responsible volunteer such as a member of their board to manage basic bookkeeping responsibilities. However, larger organizations should consider hiring third-party, professional bookkeeping and accounting services to keep track of funds.
Register Your Agents/Consultants
Your fundraising professionals, specifically those in charge of solicitation, are also required to register for soliciting on behalf of your organization. If you hire a fundraising consultant that acts as a solicitor or requests funding on your behalf, they must also be registered for the state in which the donor resides.
File Your Tax Forms
Although 501(c)3 organizations are tax exempt, they are still required to file a nonprofit tax return every year. Form 990 is the required annual tax form for all 501(c)3 organizations. To maintain tax-exempt status, you must file your Form 990 to the IRS and your required state institution on-time every year.
Form 990s come in various complexities depending on your gross annual receipts. There are four types of Form 990s:
- Form 990-N. Smaller nonprofits with annual gross income of less than $50,000 can file this most basic version of the form. It can be submitted electronically.
- Form 990-EZ. Nonprofits with annual gross income between $50,000 and $200,000 can file this second-tier of the form. Balance sheets and a list of your assets are required.
- Form 990. Large nonprofits with annual gross receipts over $200,000 or with total assets above $500,000 must submit the full Form 990. This form requires additional detail about how funding is used.
- Form 990-PF. This version of the form is applicable to private foundations of any size.
It’s important to meet your nonprofit’s deadline, which is the fifteenth day of the fifth month after your fiscal year ends. For instance, if your year ends in January, your deadline would be June 15. If you fail to meet this deadline for three consecutive years, then your organization will lose tax exempt status, and you must submit another Form 1023 for registration.
You’ll need to include tax and funding information for all chapters included in your organization, which can be difficult to organize if you don’t have a dedicated accounting department. Recharity’s Form 990 e-filer guide details the best features to look for including data security, Form 990 completion, deadline reminders, and nonprofit chapter compilation.
Double Check Your State Operations
Because your 501(c)3 is federally recognized, your organization will most likely have to file for state tax exemption as well. Working from home can provide many individuals new freedom and personal opportunities, but it can also give your organization a headache when it comes to income tax. It’s critical that you verify where your employees are working from and identify all established office locations. Be sure to identify all jurisdictions you need to file in and take note of their state requirements. Consider hiring a charity registration expert to work through
For larger, more nationally spread out nonprofits, it can be difficult to keep track of countless state requirements along with federal regulations. Hiring a nonprofit legal professional or working with a charitable registration organization can help streamline the process and put fundraising time back on your schedule. Although we didn’t cover the entire legal process for nonprofits, you’ll now be able to look out for accounting, employee, and fundraising legal compliance requirements.